President Clinton passed regulations that reformed the essence of the way banks can do business (Lal, 2010). These changes allowed banks to use their depositors money to invest in risky investments; also known as speculation. They had a range of new products to try to hedge their risks. One of these products was known as a derivative and AIG was the leader of the derivative business. Therefore, there was a systematic failure in the free market economy and AIG was at the centre. It is easy to put all the blame on AIG, however it should be shared equally with the regulators and the rules of the free market.
From the CEO's perspective, if I was the CEO, I would not have given myself the bonus; at least until all of the public's money was repaid. Obviously the CEO has a self-serving bias towards their own compensation and it is…… [Read More]
, 2008). There are two formats of insurance coverage that AIG specializes in:
1. Auto Insurance
2. Travel Insurance
The primary profits and insurance coverage offered by AIG for auto insurance services were through its subsidiary by the name of AIG Direct (can be accessed on aigdirect.com). The service package that they offered their clients included insurance for privately owned vehicles, motor bikes, commercially-owned vehicles and as well as the recreational transport (Schneiderman et al., 2008).
Some of the major subsidiaries of included the complete subsidization of the online auto insurance specialist called the 21st Century Insurance. This takeover took place in the year 2007 and cost AIG $749 million at purchase. This subsidiary proved to be the most beneficial move for AIG in the year 2008 where they experience the highest record of losses with the recession. They directed all of their business dealings towards the 21st…… [Read More]
Of course, the idea of what constitutes risk is somewhat problematic, as it could be argued that the definition of risk varies from investor to investor and company to company. Strictly speaking, the accounting regulations of the Federal Accounting Standards Board call any action without a significant amount of risk a loan, without any clear definition of what significant means. In this case, however, the risk does seem to be fairly negligible, and part of a consistent pattern of fraud on the part of AIG in terms of its income. It consistently manipulated its revenue to present a more pleasing financial picture to current and potential investors.
The collusion between insurance companies and large corporations through fictive investments that are really secure loans is common. Take the case of another AIG scam, selling insurance to the Brightpoint Inc. cellular phone company, after the cell phone company had already incurred losses.…… [Read More]
AIG Case Study
What types of work behaviors did AIG intend to encourage through its retention bonus plan?
AIG was attempting to encourage efficiency. Because of failures in its Financial Products unit, it intended to shut this area of the company down. Arguably, workers within the unit would only work in a proactive manner if they received bonuses to 'work themselves out of a job.' However, there was no clear relationship between performance and pay: even during the height of the toxic real estate debacle, employees were still given bonuses.
Using the model of the individual-organizational exchange relationship, explain the relationship that employees of AIG's Financial Products unit believed they had with the company. How was this exchange relationship violated?
Employees at the company believed that if they performed the actions they were bidden to perform, they would be rewarded. Under the exchange model, workers are paid for performing work…… [Read More]
AIG Financial Bailout:
American International Group (AIG) Inc. is one of the biggest insurers worldwide that was bailed out by the U.S. government in 2008. The American government took control of this company in deal worth $85 billion that reflected the intensity of its concern regarding the threat a collapse could pose to the financial system. As part of the deal, the government effectively obtained a 79.9% stake at the firm in warrants known as equity participation notes. The emergency loan from the Fed was spread out within a period of two years with an interest rate of Libor and 8.5%.
The security of the emergency loan was the company's assets that included the profitable insurance businesses of AIG. While this security provided some protection to the Fed even with the ongoing sinking of the markets, the taxpayers were to reap huge profits through the equity stake if the company…… [Read More]
The Ethics of AIG’s Commission Sales
American International Group (AIG) had been a big player in the financial crisis of 2007-2009. The company had been selling credit default swaps and making a commission on the sales (Brooks & Dunn, 2018). AIG had not expected the market to turn south in subprime lending as quickly and devastatingly as it did. The result was disastrous for the global economy as many were left holding toxic debt.
The credit default swaps (CDSs) were like insurance on the bundles of home loans sold to investors. Investors would buy the mortgages for the fixed return and then savvy investors would buy insurance on the investments (the CDSs) in case the mortgages were not repaid. The bundles of loans were supposedly mortgages of home owners who were unlikely to default, according to their AAA-rating. However, many of the bundles consisted of tranches that were full…… [Read More]
AIG and the Impact of the "Insurance" Gambit
In the marketplace leading up to the 2008 economic crisis, lenders, ratings agencies and insurance companies were working together to create wealth from bad debts (loans given to homeowners unlikely to pay). These debts most likely to default were bundled and sold in tranches to investors, who believed or at least allowed themselves to think (or did not even care to question) that they were getting AAA-rated bonds (Lewis). hen it turned out that banks (the biggest buyers of these "time-bomb" bundles) were over-exposed and that the demand for these bundles was suddenly drying up as investors realized that they were holding junk bonds rather than bonds likely to yield good fruit, the price of insurance on the bundles skyrocketed. Banks began dumping the bundles, and overnight, as in the case of Lehman Brothers and others, banks around the world saw themselves…… [Read More]
Jet again this is one of the fundamental lessons of ethics, and that is when the balance of advantage leans too far to one side, unethical advantage occurs (Josephson, 2010). This was a tough lesson to learn for AIG as it was the catalyst of salary limits on the entire investment and financial services industry.
AIG shows what happens when a company loses track of their core business of service and delivering value to customers. The unbalanced nature of AIG's ethical decision making nearly bankrupt the company yet when seen from a positive standpoint, they are an excellent example of why ethics needs to always be based on balanced, equitable decision making.
Bradford, M., Taylor, E., & Brazel, J.. (2010). Beyond Compliance: The Value of SOX. Strategic Finance, 91(11), 48-53.
Michael . Crittenden, & John D. McKinnon. (2010, January 26). U.S. Opens Probe Into AIG's Payout to Partners.…… [Read More]
Public Relations Challenge
AIG Asks for ail-Out While Hosting Executives at a golf outing at the St. Regis Hotel in Laguna Niguel, California
etween September 22nd and 30th, 2008 American International Group (AIG) was in the midst of presenting their case for a massive bailout of $85M to the U.S. Congress. Coincidentally the AIG independent insurance agent marketing and sales organizations were hosting a week-long sales meeting at the five-star St. Regis Hotel in Laguna Niguel, California. The cost of the event was $443,300 with such extravagances as rounds of golf well over $200 each, pedicures and extensive spa treatments (Weisman, 2007). The U.S. Congress granted the AIG executives the $85M bail-out believing it was essential for stabilizing the fragile economic condition of the country at that time (Jakobson, 2009). Upon hearing they had been lied to by the AIG executives who knew of the St. Regis event and massive…… [Read More]
The second recommendation I would make with respect to external communications is that Liddy adopt more stringent measures than the government has insisted upon with respect to spending controls. The government has set out some measures, but AIG should be tougher than that. This would demonstrate a sense of culpability on the part of the company for the fact that the situation it is in is of its own making. A major component of the public's offense is that it feels cheated in the deal. Taxpayers, many of whom are feeling the sting of economic hardship themselves, are insulted that they have been called upon to bailout a company that then pays six and seven-figure bonuses to its executives. Most of the people contributing tax dollars to those bonuses will never see money like that in their lives. Liddy has the luxurious advantage of not being directly responsible for the…… [Read More]
American International Group Inc. (AIG) is a world leader in insurance as well as, financial services that serves more than 70 million clients across the world. The company for many years has managed to remain confident in their strategy to leverage their financial strength and global franchise that continue to enable growth in both emerging and developing markets. The vision of the company is to be the world's first choice provider of insurance and financial services, in every corner of the world, whereas its mission is achieved through innovation, world citizenship, partnership and integrity (AIG, 2007).
AIG Kenya Insurance Co. Ltd. has custom made products and serves commercial, institutional, and individual customers through widespread international property-casualty networks of its kind. In addition, AIG companies are principal providers of life insurance and retirement services in the United States. Its products and services are divided into Individual products and Business products.
For…… [Read More]
If AIG would not have been helped by the Federal eserve, it is more
than obvious that the financial group would have declared bankruptcy.
Although the bailout reached an enormous sum, the action was justified.
Given the current market conditions, an eventual collapse of AIG would
contribute even more to the fragility of the financial market. Also, it
would have led to a reduction of public wealth, and it would have reduced
The opinion of U.S. taxpayers is that the AIG bailout was not
justified. For them, it did not seem fair that they should pay for the
mistakes made by financial corporations' CEOs and by the defective policies
and strategies practiced by financial groups.
There are two sides to this issue, one opposing the other. U.S.
citizens have strongly declared themselves against the bailout. Their
pressure determined the country's officials to reject financial saving
plans initially.…… [Read More]
Current PAC-10 Consulting Management
REF.: The AIG Rescue
As the global financial crisis began to unveil, all of the financial institutions with positions on the market that exposed them to the crash began to feel under pressure. AIG was one such company, where a combination of credit swaps and other esoteric financial instruments weakened its position and its capacity to remain competitive on the market in the face of the financial losses such instruments generated. As of the that point, the U.S. Administration, usually in the form of the Federal Reserve or the Treasury Department, intervened with significant bailouts for many of these companies, including AIG, which received $85 billion in exchange for a 79.9% stake in the company
This memo will aim to briefly analyze the pros and cons of the governmental intervention, briefly analyze the future implications of this intervention and determine whether or not this…… [Read More]
Many subprime mortgages were made with little documentation of income or ability to repay, or other elements that typically safeguard loans of all types and mortgages especially. There have even been cases of widespread fraud, where documents were falsified in order to approve loans. The reason many lenders were so eager to make these bad loans is that they weren't ultimately going to be responsible for them -- the loans were bundled into groups and sold as "mortgage backed securities," so instead of dealing with many individual loans worth an average of a few hundred thousand dollars, banks and other institutions were dealing with bundled groups of these bad loans worth millions of dollars apiece. Companies like AIG made money in the short-term by providing insurance policies for these mortgage backed securities, as well. Eventually, however, people with loans they couldn't really afford began to default, either because they simply…… [Read More]
Japanese-Americans in the West Coast lived peacefully before President Roosevelt issued the Executive Order 9066 in February 1942 that condemned them to misery in internment camps in the deserts of California. Those who owned property had to sell them. Some had to give up their belongings. The Japanese-Americans could not wage any form of resistance because this would be suppressed by brute military force. Nobody would be foolhardy enough to contemplate that. The 20-year-olds were adversely affected despite the fact that some of them were later allowed to go to college, work in factories, and serve in the United States military. Life in the camps was heart-wrenching.
The young Japanese-Americans conscripted into the military had divided loyalty especially after the Japanese attacked Pearl Harbour. America was their country of birth and Japan was the country of their parents and ancestors. The anti-Japanese sentiments that were aired after the Pearl Harbour…… [Read More]
Conclusions -- Was TAP Necessary -- A five member Congressional committee echoed a number of criticisms regarding TAP that many consumers, academics, and fiscal analysts were considering. What exactly was the Treasury's strategy with the $700 billion dollars for the supposed bail out? How can Treasury explain the significant gaps in their ability to find hundreds of billions of taxpayer money? In a nutshell, it appears that the departments that control the money given by the Congress (from the American people) have no ability to ensure that the bailed out banks will do what was needed and lend money; have no real standards of measuring success of failure of the program; and for ignoring pointed and specific questions from Congress about their performance (M. Crittenden).
The fact that many of the institutions bailed out with TAP funds, funds from the American taxpayer, did not distribute these funds back into the…… [Read More]
Leadership played a substantial role in the recent economic troubles. The banking industry suffered from leadership that was incentivized to pursue high-risk short-term policies that resulted in high levels of return but subjected the entire economy to substantial risk. In the automobile industry, leaders failed because they did not adequately anticipate industry trends and did not adjust the corporate culture soon enough to respond to changes in the external environment (Davis, 2009). The insurance industry suffered as the banks did from taking on too much risk, the result of leadership more concerned with short-term results that with long-term growth.
In order to select leaders to guide them out of the abyss, these companies must find leaders with different traits -- in the case of banking and insurance a more conservative mindset and in the case of automobiles a more progressive one. The shareholders should ultimately take responsibility for their investments,…… [Read More]
hat is less certain is the benefits of the bailout -- those can only flow from taking advantage of the bailout to restore credit markets and prevent a repeat of this financial crisis in the future.
Baker, Dean. "Subprime Rescue Plans: Backdoor Bank Bailouts." (2008): 9 pages. EconLit. EBSCO. 10 May 2009
Mishkin, Frederic S. "How Big a Problem is Too Big to Fail?" (2006). 18 pages. Journal of Economic Literature. Vol. XLIV (December 2006) pp.988-1004.
Glasberg, Davita Silfen, and Dan Skidmore.. "The Dialectics of hite-Collar Crime: The Anatomy of the Savings and Loan Crisis and the Case of Silverado Banking, Savings and Loan Association." American Journal of Economics and Sociology 57.4 (Oct. 1998): 423-449. EconLit. EBSCO. [Library name], [City], [State abbreviation]. 10 May 2009 .
Manchester, Joyce, and arwick J. McKibbin.. "The Macroeconomic Consequences of the Savings and Loan Debacle." Review of Economics and Statistics 76.3 (Aug.…… [Read More]
This was because they were seeing one of their primary competitors (Travelers) merging with Citicorp (which created a juggernaut of: insurance, banking and brokerage activities). At which point, executives at AIG felt that in order to: maintain their dominance in the industry and offer new products they should become involved in similar activities. The difference was that they would grow the company by expanding into areas that were considered to be speculative to include: commodities, stocks, options and credit default swaps. The way that this was accomplished is by purchasing a host of businesses that were involved in these activities. This is significant, because it meant that a shift would take place in: how managers were accounting for risks and the kinds of activities that they were becoming involved in. With the newly acquired companies; bringing over executives that did not practice the same kind of strategies for dealing with…… [Read More]
At the core of the economic argument is Schumpeter's theory of creative destruction. In his seminal economic work, Capitalism, Socialism and Democracy, Schumpeter (1942) argued that innovation is the process by which economic growth occurs. At times, this means that old, established technologies and companies must be destroyed, but that the net effect will be beneficial. This sentiment runs counter to the theory that the economy would be better off if GM were saved. The economic costs might be high today -- the $150 billion or more figure is not disputed -- but that in the long-run the benefits would outweigh these costs.
In a later elaboration, it was demonstrated that big business turnover specifically resulted in smaller government, stronger rule of law, less bank dependence, stronger shareholder rights and greater transparency (Fogel et al., 2008). Bailing out General Motors therefore harms the economy because it stifles growth and innovation,…… [Read More]
This study emphasized the importance roles of financial derivatives, which has been known for the last decade and its effects on the Global financial crisis. It further analyzes the impact of financial derivatives and how it can be controlled to prevent corporations from incurring a lot of risks. It also explains the existence of financial derivatives since 1970, to the recent Global Financial Crisis which occurred in the 2006.
Risk is a feature associated with all productivity. As a result, financial markets adjust themselves to the fluctuation of exchange and interest rates. Hedging risk, these corporations highlight the importance of risk management tools known as Derivatives. Derivatives are defined as financial tools providing investors with effective solutions when avoiding risk caused from market volatility (Dodd, 2006). Financial derivatives are considered to be an effective risk management tool associated with Financial Engineering creating solutions to financial problems (Marks, 2010).…… [Read More]
In such case the risk sharing is beneficial. This is one of the benefits of credit default swap. However, under circumstances where there is rising connectivity between institutions because of the dense nature of the webs of CDS, attempts to share risk increase the likelihood that a bank will go under. International banks making loans to banks or corporations are in order to protect themselves from systematic economic turmoil by buying swaps on sovereign debt but there are limits to this because what reduces risks for individual institutions in small quantities spells doom for larger institutions when pushed too far. This can be detrimental considering that the number of CDS contracts outstanding on European sovereign debt doubled in the past three years after the AIG setback. Actions have unanticipated consequences
. The financial deregulation in 2000 led to the mushrooming of unregulated and largely hidden CDS contracts. This had made…… [Read More]
hen he, representing the de facto shareholders the American taxpayers, found the executive compensation plans were out of line with the objectives of said shareholders, he acted.
In the free market system, this is the only response. Shareholders have rights and duties as the owners of companies. The executive team acts as their agents. The shareholders have not only the right but the capability to fire boards of directors and by extension executives whose compensation does not match their performance. The public outcry with respect to excessive compensation typically occurs when shareholders neglect their duty. Yet, there are examples where the shareholders have upheld their duty. These firms -- the majority -- do not make headlines, giving the impression that executive compensation is a rampant problem in society. If a company dares to pay bonuses will laying off workers or reducing their wages, the outcry hits the front page. However,…… [Read More]
The use of Web 2.0-based technologies to enable higher levels of collaboration throughout an organization is called Enterprise 2.0 (McAfee, 2006). Implicit in Enterprise 2.0 is authenticity, transparency, and trust anchoring the Web as the platform for sharing information. The Web 2.0 Meme Map (O'eilly, 2006), which is serving as the blueprint for many of the social networking applications in use today, illustrates the key factors changing the social responsibilities, ethical issues and implications for human resources departments.
Knowledge has also had a great deal of political power associated with it in organizations (Parise, 2009). Social networks are forcing a more egalitarian-based approach to the distribution of knowledge. Only by doing this can organizations and governments become more trusted. Only through trust can any company or organization growth and prosper.
The politics of information and knowledge need to be more carefully managed by human resources than ever before. It…… [Read More]
Big Fail" title a recent book a movie HBO. It refers bailout major financial institutions began 2008, time concern,, United States fall a depression aid. For purpose discussion I include bailout General Motors Chrysler.
Too big to fail
In the second half of 2007, the real estate sector in the United States of America showed the first signs of weakness. Devaluations were gradually observed and the investments made in the field came to lose value. The problem was mainly represented by the fact that the population did not afford the properties, but the financial institutions had traded in money as it had already been reimbursed. The bubble eventually burst and the financial institutions were the first to suffer the major hit.
In Too big to fail, the focus falls on the bankruptcy of Lehman Brothers, based on the recurrent assumption that it was this bankruptcy which onset the unfolding of…… [Read More]
Siemens AG Scandal
Siemens AG had over one hundred fifty years of experience making business deals internationally by the time it became embroiled in several bribery scandals in 2006. Beginning in the mid-1800s, the company set up products such as telegraph networks and maintenance and initiated business practices such as fixed-hour workdays and employee career training that helped it get ahead. ith a long and solid history as a leading company in Germany and internationally, the accusations against it might seem surprising, but investigators turned up plenty of evidence that Siemens AG had made frequent bribes of foreign officials and businessmen in order to turn business its way. It was also accused of embezzlement and tax evasion. The resulting scandal, which involved authorities in Germany, Switzerland, Greece, the U.S., and other countries, cost Siemens billions of dollars, landed some managers in legal trouble, and harmed Siemens AG's reputation. The Siemens…… [Read More]
Has the 2008 financial meltdown in the U.S. And the ongoing economic crisis in Europe have practically ended the era of economic globalization?
Following the financial crisis that marred the U.S. economy along with other global economies as well as the ongoing Eurozone debt crisis, there have been projected concerns that this predicament would end economic globalization. The purpose of this paper is to assess this claim. Going by Immanuel Wallenstein's World Systems Theory, the political economy of Third World economies and developed economies of the West are mutually dependent. Wallenstein's conjecture is that the growth and expansion of Third World economies relies on constant interaction with Western developed economies seeing as the world is characterized by a structural division of labor where the developing nations of the Third World provide cheap labor and raw materials while the developed economies are the holders of capital and controllers of…… [Read More]
SWOT Analysis and Portfolio Analysis
Every organization must have a business strategy. The main goal of any business is to be profitable. Companies adapt strategies that will separate them from the competitors, creating success for the organization. It is important that the leaders of any company understand the operation, the strategies, the motto, the goal and every other aspect of the business. Metropolitan Life Insurance (Metlife) is global insurance provider, which is a publicly traded company. This is a big corporation that is viewed publicly daily. The leaders of this organization would benefit from both a SWOT analysis and a Portfolio Analysis.
One of the biggest strengths that MetLife has to offer today is the brand. MetLife brand is a known brand and recognizable brand. The company has been around for over 140 years and operates in over 60 countries (Metlife, 2010). The company is known for selling…… [Read More]
It is difficult to understand or explain why throughout history some negative investor philosophies continually repeat themselves. Far too often investors miss blatant signs that lead to major collapses in the free markets. The purpose of this report is to discuss derivative securities in detail and how they affect those investor philosophies. Even unsophisticated investors understand that the stock and commodities markets are supposed to fluctuate on a daily basis. A key in the minds of investors is to avoid overly large swings in either direction and to also take advantage of those market swings that are heading in the right direction. To solve this ageless dilemma, investment bankers and individual investors themselves have historically created new and unique systems, methods and processes that help avoid those big swings. But what happens when the new and unique systems, methods and processes…… [Read More]
Hesitant to Pursue a Career in Business
Whom it May Concern
Re: Why I Am Hesitant to Pursue a Career in Business
In a tough economy, most people would probably take any job they can get after they graduate from college. However, as it comes closer to graduation, I find I'm becoming more and more hesitant when I think about launching a career in business. That's because it seems there are so many unethical companies out there, that will do anything to make money, even if it kills people in the process. I'm not talking just about Enron and AIG here, who preyed on their customers and ruined the lives of many of their investors and employees. I'm talking about companies that knowingly engage in unethical business practices, just because they can. Look at the Chinese company that included melamine in its pet food, and killed hundreds of innocent pets.…… [Read More]
Sorkin's book does a good job of giving the details on what happened among Lehman Brothers, Barclays, JP Morgan, Goldman Sachs, the Fed, and Big Gov following the collapse. Essentially, everyone had egg on his face -- but some of the bigger powers had the muscle to save face -- and sink competitors at the same time: which is exactly what Goldman Sachs did to Lehman. Goldman had been placing its cronies in the hite House for years -- and it would now go through the hite House to see who got bailed out and who did not. AIG got one -- because it owed a large chunk to Goldman (who had figured out the game ahead of time and started betting against itself by buying insurance through AIG). Sorkin's work is a work full of the kind of details that other writer's like Taibbi and Lewis do not take…… [Read More]
Economic Crisis Policies
US current economic crisis is considered to be started from real estate sector. The real sector started to decline in 2006 and it accelerated in 2007 and 2008. Housing prices have fallen from the peak from about 25% so far. The decline in prices left homeowners with no option and they were unable to refinance their mortgages and causes default of mortgages. This default of mortgages and loans swallowed the banks and financial markets such as falling of Lehman's brothers and other anks and blow to rest of economy happened as the whole economy was relying on banks and ultimately it slows down investment in the country and capital flows to other parts of the world like China and India. ank losses cause reduction of bank capital which in turn requires capital reduction thus saving bank from lending. It is estimated that every $100 loss and reduction…… [Read More]
Economic Crisis 2008-2009
This report focuses on the events that took place in the Great crash of 2008-2009. It aims to highlight the events that took place and what the basic factors and events were that eventually led to the economy crashing. It is also a point of focus to determine what effects came about and how different parties were to be blamed for the deregulation that led to the catastrophic events of the crash. It is linked with the policies present at that time i.e. The Monetary Policies outlining the control of money supply and interest rates as well as the Fiscal Policy that focus on the government spending and taxation policies.
The financial crisis refers to a situation whereby there is a contraction of money supply and the amount of wealth in the economy. This is also known as a "credit crunch" whereby participants of the economy lose…… [Read More]
For example, AIG got into a lot of trouble during the Great ecession because it was paying retention bonuses so that people about to be laid off would stay on but this was controversial because AIG got bailed out by the federal government. Even though the bonuses were contractually obligated and evne though they served a specific purpose, the vitriol and invective was toxic. This despite the fact that government-serviced entities that were ALSO bailed out the government (Fannie Mae and Freddie Mac) did the same exact payouts for the same exact reason and the outrage for those firms was a lot less even though they cost the taxpayers a whole hell of a lot more money than AIG ever has or probably ever will. In short, businesses operating within the law should not be harassed or treated unfairly but it can happen.
In short, Mackey made some good…… [Read More]
hat is up with all Street? The Goldman Standard and shaded of Gray
The Goldman Standard and Shades of Gray was a case study which was focused on Goldman Sachs and their impact on the economic system. Goldman has grown large enough in which their operation were capable of affecting the economic structure of our banking system, stock shares, as well as the government to a large extent. The company is obviously profit driven, but to an extent that borders on being ruthless and perpetually greedy for more money and success. Furthermore, Goldman's culture is more "toxic" today than it was in 2005, when they were involved in inflating a housing bubble that would help crash the global economy, or in 2007 and 2008, when they began desperately offloading their housing-related assets to investors who hadn't yet realized the market was going to crash; if there was a…… [Read More]
Improper Foreclosure and Mortgage Practices in the Banking Industry
Efficient Market Hypothesis
Real Estate Bubble
Overview on the Value of Banks
Arguments against Financial Intermediaries
This research paper aims to shed light into what led to the global financial collapse that, for the most part, began in the U.S. housing market and the ethical implications that followed. Many researchers agree that the primary drivers that led to the real estate crisis was the lifting of the Glass Steagall Act, the fostering of sub-prime lending, and the creation of derivatives and credit default swaps which were used as complex financial instruments. This offered the big five banks an entire new range of operating opportunities. All of these financial tools were justified by the efficient market hypothesis and as a consequence provide evidence for the lack of a truly efficient market. As a result of the financial…… [Read More]
But amid the celebration, crucial opportunities have been lost: In September 2009, the "inspector general for the Troubled Asset Relief Program, a k a, the bank bailout fund, released his report on the 2008 rescue of the American International Group, the insurer. The gist of the report is that government officials made no serious attempt to extract concessions from bankers, even though these bankers received huge benefits from the rescue. And more than money was lost. By making what was in effect a multibillion-dollar gift to all Street, policy makers undermined their own credibility -- and put the broader economy at risk" (Krugman 2009). Many banks have given back their TARP funds, in exchange for the ability to once again engage in risky activities, to pay traders the bonuses they desire, and to pay executives what seems to be overinflated compensation. In June ten of the largest recipients of aid,…… [Read More]
The second purpose of the $700 purchase of troubled assets is to create a market for the securitized versions of these assets. As a result of the crisis, the market for these assets became illiquid. The value of securitized debt obligations became near zero, which severely impacted the balance sheet of all banks that held these assets. By creating a secondary market for these products, the government hopes to increase their value. This will improve the balance sheets of the banks.
The second key clause in TARP is that banks selling troubled assets to the government are required to give the government warrants. This, in theory, protects the government from losses. The theory is that the banks will see an increase in value as a result of the government's efforts, allowing the government to profit from the warrants.
Ancillary to TARP was the FDIC's excusing of troubled assets in its…… [Read More]
This mindset was made possible by their intensive investments in new technologies that made transactions inherently unauditable and untraceable by the Securities and Exchange Commission and other governance entities. Given the automation of these complex trading workflows and the inability of governance bodies to keep pace with technological advances, coupled with banker's unwillingness to assist governments in tracking increasingly intricate transactions, the bankers could literally make their own rules up as they went along. What has differentiated this global economic downturn from others is how pervasive this attitude has become of offloading risk by aggregating toxic and bad loans together, using technologies to increase speed of transactions while alleviating accountability (Corden, 2009).
An aversion to risk has been replaced by a consolidating, aggregating and re-selling of completely worthless and often called "toxic" loans, with accountability of the performance of investments left by the wayside. Bankers had the most to gain…… [Read More]
It has been shown that the acquisition of talent not an area specific to each individual position at top companies. The highest-performing companies build pools of talent from which they can draw as needed (Michaels et al., 2001). Thus, there will inevitably be talented people who are at times underutilized. Their higher-order needs are not being met and thus they must be generously compensated. Otherwise, when the time comes to move someone from the organization to a fulfilling, higher-order executive position, the talent will not be there.
CEO pay proponents also point out that the bulk of the "excessive" executive compensation comes in the form of stock or options. These instruments were brought into executive compensation packages specifically to align the interests of management with those of the shareholders. It was the shareholders and the boards of directors who initiated this, as a means to protect shareholder wealth. There have…… [Read More]
Banks in one country are able to invest their dollars rather than sell them. In this case, the investments were of poor quality. Compounding the issue is that other investments backed by U.S. institutions began to lose worth as the ability of those financial institutions to meet their obligations became compromised by subprime exposure. This is one of the main reasons why the government bailed out AIG. Banks around the world owned AIG-backed securities and if those securities were subject to default the global financial system could have collapsed.
The rise in international trade is intended to create more wealth more quickly that what has been achieved before. The international trade in goods has created substantial wealth transfers, resulting in countries around the world having significant exposure to the U.S. economy. Nations like China have essentially built their wealth on American credit. Increased exposure, however, results in increased risk. Freedom…… [Read More]
Toward the end of the decade, Wall Street investment firms began hiring PhDs in mathematics and physics to create incredibly complex algorithms capable of modeling elements of the stock and futures markets. In most cases, the creators of these algorithms knew next to nothing about the financial industry, and the executives who employed them knew (literally) nothing about the mechanisms their firms had begun to rely on for their trading strategy. Destabilization of the Home Mortgage Industry:
In the early 1970s, stock analysts at Salomon Brothers, another Wall Street investment firm, developed a new kind of security based on home mortgages, called mortgage-backed securities. In principle, this allowed the conversion of illiquid (i.e. non- tradable) assets like the debt represented by home mortgages to be converted into a tradable commodity for profit. This new form of commercial transaction evolved into incredible levels of complexity after the widespread incorporation of mathematical…… [Read More]
Big to Fail by Andrew Ross Sorkin
Andrew Ross Sorkin's book Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System -- and Themselves (Viking, 2009) presents a dramatic and informative account of the disastrous collapse of some of the nation's largest, wealthiest, and oldest financial firms on Wall Street. The book details the complex negotiations involving the heads of Lehman Brothers, Goldman Sachs, and officials in the federal government, some of whom had long previous relationships with those firms before assuming public-sector positions of trust. In some respects, that aspect of the story told by Sorkin may be the most significant as well as the least thoroughly investigated.
Specifically, U.S. Treasury Secretary at the time was Henry "Hank" Paulson, previously the CEO at Goldman Sachs was legally obligated to limit any involvement with his old firm after taking office in…… [Read More]
What the world needs today is an effective global banking system and a strong and sustainable trade relationship. The recent world recession reflects the collapse of the global banking system. This was the result of heavy advancement of loans and cumulative rates of interest that were collected on those loans, which led to economic growth in the short-term but economic collapse in the long-run. It is the time for the global powers to take the world economists and political leaders on board and make an effective decision on the creation of a banking system that offers loans to nations which are in urgent need of financial assistance such as Nigeria, Uganda and other African countries. The authority that looks after such banking system should ensure a balance between the First world and the third world in order to ensure that the world economy grows smoothly.
Cutting down public spending is…… [Read More]
Economic crash can be viewed from a number of perspectives ranging from causes and effects to the 2008 Crash's resemblance to the Crash of 1929, which began the Great Depression. This paper will consider the 2008 recession from the standpoint of the financial banking industry, which, according to economic journalists like Matt Taibbi (2010), played a major and significant role in the crumbling of the nation's economy -- just like it did in the Lawless Decade also known as the oaring Twenties.
Big Banking Meets Big Government
What has now become known as the Era of De-egulation actually had its beginnings in the 80s decade known just as much for its rampant excess as the early 20s were known for their unbridled lawlessness. Yet, while the latter enjoyed the snubs-to-the-law bootlegging speakeasies, the former enjoyed the merging of the financial sector with the political -- which began during eagan's tenure…… [Read More]
" China's undeveloped market limits investment returns potential and express insurance to a risk in investment. (eijing Review, 2005) A plan for compulsory malpractice insurance was stated by the eijing Insurance Regulatory Committee in June 2005 under a directive requiring all state-owned non-profit making medical organizations to have coverage under medical mal-practice insurance.
Interim rules were also reported to be set for allowing insurance funds to enter the stock market. Those were stated to be: (1) The specific proportion for insurance institutional investors to invest in stocks; (2) The basic criteria for measuring the performance of the stocks to be invested before insurance organizations invest in the stocks; (3) The contents of related statements and reports for stock investment and the way for being reported to the authorities; (4) And the administrative rules on independent seats for stock trading, as well as a guide for custody of stock assets of…… [Read More]
Genesis of the Bible is the sovereignty of God throughout the four events described in the first 11 chapters: the creation, the fall, the flood and the Babel dispersion. In the next chapters, up to chapter 50, there is presented God's relationship to four outstanding people; Abraham, Isaac, Jacob and Joseph.
Throughout centuries, skeptics developed theories that sustained the idea that especially the first eleven chapters of the Genesis are to be considered as series of legends and myths rather than actual historical facts. Let us have a look first at the reasons that could make us believe the contrary: the sources. There are two main literary sources: the priestly source and the Yahwist narrative.
The myths of the Creation and destruction of the world can be viewed in a much larger sense as attempts to explain a culture's believes and practices, as a reflection of that culture's own view.…… [Read More]
462). It is small wonder that some insurance companies understand the risks of insuring lives and the accompanying cash surrender values of a life insurance policy.
In a prime example of how some insurance companies were caught up in the evaluation game is the case of AIG, the company that forgot that the value of its stock, or the value of the company was based primarily on a fair value, that might not have been fair at all. The harbinger of disaster was when the financial marketplace placed a fair value on AIG that was far below what the company believed it should be. This scarcity could be one of the primary reasons why the financial industries around the world are in the torrents they are currently swimming.
Some of the literature available touched on the primary causes of the current financial crisis before it took place. One recent study…… [Read More]
global branding of Stella Artois
Porter's 5-forces analysis of the beer industry
Bargaining power of buyers
The bargaining power of buyers is very high in the beer industry. Consumers have many choices, spanning from other alcoholic beverages to other brands of beer, including smaller labels as well as the major brands. Also, beer is not strictly a necessity. Consumers can conceivably 'do without' if the price is too high.
Bargaining power of suppliers
The bargaining power of suppliers is also very high in the beer industry. Beer companies are critically dependent upon obtaining specific input goods to create their brews. They need a high volume of input goods to produce their product, and they need a timely and steady supply. Good relationships with bottlers and distributors are also required to take the product to market.
Competitive rivalry is extremely high. All of the major beer brands are fighting…… [Read More]
The article concedes, however, that declining business confidence is an absolute danger that must be dealt with and the government not being an active partner with businesses and in favor of the recovery will just make things worse (Pollin, 2010).
A similar point is made in a different article that states that the role of fiscal policy in pushing an economy towards recovery cannot be over-estimated or over-analyzed because of the vital role fiscal policy plays in said recovery. The article notes that the impact (or lack thereof) of programs like Temporary Assistance to Needy Families (TANF), Medicare, tax credits, Social Security, direct subsidies, unemployment insurance and such are often included in any analysis of fiscal policy but it also noted that many parties that look at this topic glaringly omit are transfer payments and other assistance paid directly to financial institutions (Tcherneva, 2012).
This perhaps became a much less…… [Read More]
The author of this report is asked to answer a series of questions relating to intellectual capital (IC), both in general and in relation to Apple Corporation. The first question asks whether the organizational structure of Apple considers intellectual capital an asset. The second question asks how have ethical policies and practices affected the organization's intellectual capital and its value. The third question asks what strengths and weaknesses exist in structure and ethics. The fourth item asks the author to offer recommendations relating to increasing the value of the organization's intellectual capital based on structure and ethics (Apple, 2013).
As for the first question, Apple's intellectual capital is absolutely an asset. Their structure and especially their brand names and patents are the core (pardon the pun) of Apple's strength and resilience. Their innovation and brand presence allow them to sell MP3 players for far high price…… [Read More]
Desirable Leadership Approach
My Leadership Approach, Case study Apple Mac Legal Center
The quality of organizational culture and output depends on the nature leadership approach instituted by the leader. Ideally, a good leadership approach that seeks to energize various departments with intent steer a collective productivity. I realized these things during my stay at the Apple Mac Legal Center. During my pursuit for a desired organization culture, I realized that the Apple Mac Legal Center was facing two core problems, one related to communication and the other on sustainability. While developing a leadership approach, I realized that there were decisive considerations one position, charisma, influence, and situation. This reflection will attempt to prove that my leadership approach would mitigate Apple Mac Legal Center organizational culture problems.
My Leadership Approaches
When it comes to leadership schemes, position is a crucial element since this negotiates the control. During my stay…… [Read More]
Aggregate demand is something that is a topic of interest. The Obama Administration bailed out banks in the United States and Wolff mentions Great Britain in a sense bailed out their banks by continuously printing and borrowing money. Banks are the reason for shift in aggregate supply and thus aggregate demand. The United States government as Wolff remarks, gives limitless credit and almost zero interest on banks, supplying them with an endless source of money to do as they will. They took risks because of this endless source and it led to the aforementioned bailout.
From this risk emerged ‘credit default swamps’ that served as insurance for loans but were not regulated as insurance. The biggest one, AIG, had banks come to them to ask for reimbursement for defaulted loans. Companies like AIG could not pay and thus the banking crisis occurred. Although banks like Goldman Sachs emerged unscathed, from…… [Read More]
On the other hand, the need to promote productivity exerts pressure in favor of incentive schemes that have the foreseen consequence of material inequality (Ibid., 8). Yet, none of these policies exist in a vacuum -- instead, the synthesis of economic tendrils and market fluctuations act in congruence to a larger paradigm of causality -- one that takes on an almost philosophical regimine.
his ideology would be little more than rhetoric for Secretary Paulson and the Bush Administration, who would operate with a much clearer intent to benefit the irresponsibility of bank owners and administrators. his would be initiated during Paulson's tenure with Goldman-Sachs, when he would help to broker the conditions by which America's banks could lend frivolously to high-risk loan candidates. Simultaneously, banks were being allowed to voluntarily abide or resist reasury oversight requiring such firms to demonstrate the reserve funds to back up these loans. (ong, 1)…… [Read More]
The reality was that a company which aspired to be "the No. 1 stock on all Street" was instead steadily bleeding money while claim growth in the billions.
The pressure placed upon accountants at ordCom was reflective of the pressure facing accountants throughout the economy during this period of widely absence securities oversight. Indeed, the relationship between regulation and accounting is essential, and this diminished link would have catastrophic implications for the profession as a whole. Such is shown by the Scott text, which tells that "efficient securities market theory has major implications for financial accounting. One of these is that supplementary information in financial statement notes or elsewhere is just as useful as information in the financial statements proper. Another is that efficiency is defined relative to a stock of publicly known information. Financial reporting has a role to play in improving the amount, timing, and accuracy of this…… [Read More]
The effectiveness of promotional strategies is highly dependent on their ability to resonate and be relevant to the target audiences over time (Reference). This is the basis of the research being undertaken; to determine which promotional tools and strategies are the most effective in attracting, training and retaining the most talented and motivated volunteers for the London 2012 Olympic Games.
The following are the aims and objectives of this analysis. The primary objective of this study is to determine which promotional tools are the most effective in recruiting and retaining volunteers. In support of this objective, the following goals are defined:
a. To understand and segment the volunteer population in westernized nations including the UK, and determine the characteristics of these markets as they relate to volunteering for events.
b. To determine the psychographic attributes of each group as they relate to propensity to participate, contribute and assist in keeping…… [Read More]
With them saying in their first quarter 2008 earnings report that they had: a liquidity pool of $34 billion, unencumbered assets of $64 billion and $99 billion in regulated assets. At the same time they affirmed the Moody's credit rating of A1, on the basis of the company's capital basis and liquidity. (Kuhlengisa, 2008) This is problematic, because when looking at this statement and considering what would happen a few months later, it was obvious that managers / executives knew something was wrong. Instead of disclosing this fact to investors, they continued to play down the effects on its overall bottom line, until it could no longer be hidden. The way the accounting industry would help to perpetuate the collapse, is by having independent auditors making conservative estimates on those assets that were frozen. Using the Lehman rothers statement, the $64 billion in unencumbered assets was more than likely a…… [Read More]
To become a senator, a person has to be at least 30 years of age and should have been a citizen of the U.S. For a minimum period of nine years at the time of election. Also, he or she has to be a resident of the state from which he or she is elected so that the state can be well-represented. In the case of representative, he or she should be at least 25 years old and must be a citizen of the U.S. For at least seven years at the time of election. Also, he or she has to be a resident of the state, but there is no mandatory rule that the representative should be a resident of the district that he or she represents.
Major steps in the process of a bill becoming a law
The first step is a member of the congress should introduce…… [Read More]
As Taibbi shows, it is not easy: "I'm going to say something radical about the Tea Partiers. They're not all crazy. They're not even always wrong. hat they are, and they don't realize it, is an anachronism. They're fighting a 1960s battle in a world run by twenty-first-century crooks" (Griftopia 16-17). Taibbi makes clear that the Tea Party is not even homogenous: it is made up of a broad spectrum of individuals (some of whom do not even want to be called Tea Partiers) who are angry and looking for someway to focus their anger.
In conclusion, recouping the losses is not an easy thing to do. hen a company like Lehman Brothers can be allowed to collapse while their competition (Goldman Sachs) can be bailed out by tax payer dollars, citizens are going to start wondering how their country got to such a point in the first place. Taibbi…… [Read More]
George W. Bush
George Walker Bush is the second man in the history of the United States to have followed in his father footsteps and become the President. Bush served two consecutive terms as President, starting with January 2001. He was born in 1946 in New Haven, Connecticut, but most of his childhood, he spent in Midland, and then his teenage years in Huston, Texas. George W. Bush was the first child born in George and Barbara Bush's family. At the time of his birth, his father was an undergraduate at Yale (Bush, A Charge to Keep, 15). George W. Bush enrolled at the same university where his father studied and received a BA in history there. ater, he graduated from Harvard, receiving a MBA at Harvard Business School, in 1975. Between his studies at Yale and Harvard, Bush activated as a pilot in the Texas Air National Guard (The…… [Read More]