3100 FINAL
federal consumer information center
Part of the General Services Administration develops, promotes, and distributes useful information to the public goal to reduce highway deaths, injuries, and property losses
credit and loans (credit can be used for luxury items or for longer-term investments such as educational expenses)
People borrow money through the use of
-Equipment to accept e-money not in all locations -Security and privacy concerns -Bit coins (not a currency we have in US)
Predictions of a cashless society go back decades. Business Week predicted e- payments would "revolutionize ... money itself (but reverse itself later). *But several things work against this:
-Office of the Comptroller of the Currency (OCC) - part of the U.S. Department of the Treasury -Federal Reserve System - the U.S. central bank -Federal Deposit Insurance -State bank regulators
Primary bank regulators in the U.S.:
state government protection
Protect consumers with respect to businesses that operate in only one state. -Enforce little FTC acts. Consumer protection in most states is through the Attorney General's office, but some states have Offices of Consumer Affairs.
-a bank failure can be devastating to depositors -risk of systematic the failure of one bank can make it more likely that other banks will fail -government assistance to a bank can be very costly
Reasons for Bank Regulation:
1. Federal Reserve 2. FDIC- federal deposit insurance corporation 3. Office of the Comptroller of the Currency 4. State Banking Authorities
Regulatory Agencies (babysit the banking industry
-regulatory agencies that had not been effective were eliminated, and their powers were given to other agencies -Earlier restrictions on assets holdings by S&L's were reinstated. -Now bank examiners visit banks more frequently than before.
Regulatory Reforms Following the 80s Crisis:
truth in savings act
Requires financial institution to reveal annual percentage yield/rate, fees charged, information about the loan balance, payment due, total amount charged
-Banks cannot invest too large a share of their deposits in a single loan or in loans to businesses in a single industry. -Banks cannot lend funds to bank directors, managers, or principal shareholders at below market rates.
Restrictions on Asset Holdings:
-Facilitate borrowing and lending -Facilitate payments : automatic payments etc. -Risk management: *Issue financial assets that allow firms to share risks *Provide guarantees and lines of credit
Roles of Banks in the Economy:
government protection and special interests
Some consumer protection efforts are hindered when politicians or regulators are influenced by special interest groups. -What are special interest groups? Those determined to encourage or prevent changes in public policy without trying to be elected.
-1993:FDAwantedtoadd regulations - Health food stores lobbied Congress -1994:passedDietary Supplement & Health Education Act, which exempted dietary supplements from most regulation
Special Interests: Dietary Supplements
-As of mid-December of 2008, stock returns were down by 37 percent since the beginning of the year. -This is nearly twice the magnitude of any year since 1950. -This collapse eroded the wealth and endangered the retirement savings of many Americans.
Stock market returns:
-Starting in the late 1970s, banks grew fast, with lots of loans to businesses (poor quality loans and also to risky firms), high cost of funds -Hundreds of savings and loan associations (S&L's) and banks failed in the 1980s and early 1990s -loosening regulations helped create bank crisis
The Banking Crisis of the 1980s
jobs bank (being replaced by technology)
The Big Three paid more than 12,000 idled employees their full salary and benefits in "__________" program that was established in the 1984 UAW labor contracts to protect workers' salaries and discourage layoffs
-U.S. housing policies are the root cause of the current financial crisis. -Other players-- "greedy" investment bankers; foolish investors; imprudent bankers; incompetent rating agencies; irresponsible housing speculators; short sighted homeowners; and predatory mortgage brokers, lenders, and borrowers--all played a part, but they were only following the economic incentives that government policy laid out for them -looks like a GD -Government reacts instead of proactive with the consumers
The Economic Crisis of 2008: Housing and Banking Factors
deposits
The Federal Reserve System requires banks to hold reserves that are greater than or equal to a specified percentage of their ___________
1933
The U.S. Congress created the Federal Deposit Insurance Corporation (FDIC) in ______ after the bank failures in the Great Depression
department of agriculture
The USDA began in 1862 under President Abraham Lincoln when 48 percent of the people were farmers who needed good seeds and information to grow their crops. With less than 2 percent of the American population now living on farms, the mission and outreach of the USDA have broadened to include all segments of the population.
-Central bank as lender of last resort -Deposit insurance -Separation of commercial banking and investment banking (Glass-Steagall Act 1933)
The bank collapse of the 1930s and the ensuing Great Depression had introduced some institutional changes aimed at making banking system less fragile:
interest (expressed as %)
The cost of using money
45%, 60%, 135%, credit card
The debt-to-income ratio of households was generally between _____% and _____% for several decades prior to the mid 1980s. By 2007, the debt-to- income ratio of households had increased to _____%. -Interest on ___________ debt also increased substantially
supervise and regulate
The insurance provided by central bank and governments gave bankers strong incentives to take more risks, to counter this authorities have to:
"New Deal"
The largest changes in the government's role occurred during the _____________, President Franklin D. Roosevelt's response to the Great Depression. During this period in the 1930s, the United States endured the worst business crisis and the highest rate of unemployment in its history. Many Americans concluded that unfettered capitalism had failed. So they looked to government to ease hardships and reduce what appeared to be self- destructive competition.
environmental protection agency (EPA)
The mission of the Environmental Protection Agency is to protect human health and the environment. Since 1970, EPA has been working for a cleaner, healthier environment for the American people -led by the Administrator, who is appointed by the President of the United States
1782
The modern commercial banking industry began when the Bank of North America was chartered in Philadelphia in ________
supply and demand
The rate of interest is determined by _______ (amount of money lenders are willing to lend) and ________ (amount of money borrowers are willing to pay).
Financial markets can regulate themselves thereby making regulation by authorities unnecessary (encouraged deregulation of banking)
The return of an Old Philosophy:
home equity lines of credit
The volume of cars sold in the U.S. was significantly tied to ______________, with 24% of sales financed this way in 2006
$250,000
Today the FDIC guarantees each bank depositor up to a maximum of __________
emergency fund
Traditionally, an _____________ of three to six months of salary set aside as savings is recommended as a financial goal
-The value of bank assets/investments/holdings falls, so assets<liabilities -Deposit outflo
Two reasons for bank failure: (1930s)
$28
UAW-negotiated wage was roughly $_____ an hour in 2007
-The Gross Domestic Product (GDP)—measure of US output-- increased by only 5% ($650 billion) -Yet, the stock market went up by ~ 35%; or in other words: $3.5 trillion was added to the value of US corporations in just one year.
US stock market 2006-2008:
-"bank failure" - the bank goes out of business. -Bank depositors might lose some of their funds. -Bank creditors might lose some of their investment - Bank owners lose their capital (gov may have to help)
What Can Go Wrong?
-FACTOR 1: Beginning in the mid-1990s, government regulations began to erode the conventional lending standards -FACTOR 2: The Fed's manipulation of interest rates during 2002-2006 -FACTOR 3: Doubling of the debt/income Ratio of Households since the mid-1980s
What Caused the Crisis of 2008?
excessive optimism on the part of consumers
What contributed to US stock market 2006-2008:
subprime mortgage (**the value of the home will decrease, thus car won't happen so car industry is dependent on the housing market...domino affect )
When the availability of these loans suddenly dried up in 2008 due to the ___________ crisis, vehicle sales declined dramatically, from 17 million in 2006 to 10.6 million in 2009.
-Bank and S&L stockholders -Some depositors who had large deposits that exceeded the deposit insurance limits -Taxpayers, who ultimately will pay higher taxes to pay off bonds that were issued to fund the costs of the crisis.
Who Paid the Cost?
Thomas Villsack, Former Governor of Iowa
Who is the current Secretary of Agriculture? What state is he from? What position did he hold?
lobbyists -They must figure out how to sway politicians to vote on legislation in a way that favors the interest they represent. This means tailoring appeals to specific individuals as well as to group voting blocs, such as Southerners or pro-choicers
Who works for special interest groups?
Worst year of the Great Depression
Why 1933 for glass-steagall?
ford
________ was able to survive without entering bankruptcy partly due to a large line of credit which it obtained from the government in 2009
Investment
_________ bank can't give you a loan
Default
__________ comes before foreclosure - both are a legal, financial status
Alan Greenspan
____________ (former Federal Reserve Chairman): "authorities should not interfere with pollinating bees of Wall Street. Regulation is harmful.
bank holding company
a firm that owns one or more banking firms (own many banks under their "umbrella")
bonds
a loan—way for the company to make money, a debt to be paid
market failure
a scenario postulated by some economists in which markets do not efficiently organize production or allocate goods and services to consumers
moral hazard
agents who are insured will tend to take fewer precautions to avoid the risk they are insured against
increases
all other factors being equal, as the price of a good or service increases, the quantity of goods or services offered by suppliers ____________ and vice versa.
chapter 13 bankruptcy
allows debtors to repay some of the debt they owe and in return amy keep most of their property
free market economy
an economic system in which individuals, rather than government, make the majority of decisions regarding economic activities and transactions
1832
andrew jackson vetoes rechartering of 2nd bank of US, charter lapses in 1836
decrease
as the price of a good or service increases, consumer demand for the good or service will __________ and vice versa.
1811
bank of US is allowed to lapse
1791
bank of US is chartered
1933
banking act of ______ (glass-steagall) creates federal deposit insurance corporation (FDIC) and separates banking and securities industries
regulatory capital
capital requirements, the ratio of the bank's equity to its debt
conglomerate merger
combines company's with none of the other types of relationships or similarities (beer manufacturer and furniture)
horizontal merger
combines direct competitors in same product lines and markets (department stores, radio stations)
product extension merger
combines firms selling different but related products in the same market (soft drink company acquires a snack food company- extends the line)
market extension merger
combines firms selling the same products in different markets (one grocery store buys another, increasing the area to which it distributes)
vertical merger
combines supplier and company or customer and company (producer of raw materials manufactures and sells material)
A money market fund, short-term certificates of deposit (CDs), or a savings account
emergency funds should be kept in a liquid interest-bearing account such as
UGA Card (bulldawg bucks)
example of smart card
imperfect competition
exists when a specific enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods
price discrimination
exists when sales of identical goods or services are transacted at different prices for different groups/individuals from the same provider
deductions
expenses subtracted from income before figuring out the amount of taxes owed
congress or administration
federal regulatory agencies funds come from ____________
1913
federal reserve act of ________ creates federal reserve system
$1.01
ford stock in 2009 per share
bunko
fraud schemes where an unsuspecting person or group of people is cheated
gov. agencies, consumer groups, industry self regulation
groups that protect consumers
consumer reporting agencies (credit bureaus)
have files that contain info about your income, debt, and credit payment histroy
less
housing affordability index: when index falls below 100, median family income is ______ than what is needed to buy a median priced home
more
housing affordability index: when index is above 100, median family income is _______ than what is needed to buy a median priced home
federal deposit insurance corporation
independent agency created by the Congress that maintains the stability and public confidence in the nation's financial system by insuring deposits, examining and supervising financial institutions, and managing receiverships. PROTECTS US WHEN BANKS CLOSE!
110%
index value of 110 means that a family earning median family income has ______% of income necessary to quality for an 80% loan
All other things being equal: quantity demanded depends on price
law of demand
quantity supplied depends on price
law of supply
tax avoidance
legal money management strategy to reduce ones taxes though investments like retirement accounts and charitable donations
-Restaurant sanitation inspections -Building codes -Business licenses -Permits for various public functions -Some municipalities have Consumer Protection Offices
local government protection
financial planner
looks at a person's or a family's total financial picture, helps that person or family define and prioritize goals, and then works out a plan to achieve those goals (probably your banker)
1863
national bank act of _______ establishes national banks and office of the comptroller of the currency
-Consumers Union is a private organization which does product testing and publishes Consumer Reports. -The National Consumers League is the oldest consumer organization in the United States and works to provide information to consumers. -The Consumer Federation of America is a large national advocacy organization and is often the voice of consumers in the media.
nongovernmental pro consumer groups: Consumer publications
-Society of Consumer Affairs Professionals International (SOCAP) is an organization of people who work in business in the area of consumer affairs and customer services. -SOCAP began in 1973. SOCAP members are often the consumers voice within a company.
nongovernmental pro consumer groups: Enlightened companies and consumer protection
tax evasion
not paying taxes, illegal
mergers
number of large banks falling because of _________
taxes
payments of money to federal, state, and local governments
small
people want to invest in ______ cars
conman
person who carries out a fraud scheme where victims are defrauded after their confidence has been won
equilibrium price
price at which supply is equal to demand
opportunity cost of letting money sit in a savings account or checking account is that the money isn't making anything
problem with emergency funds
-Consumers may not want protection -False sense of security -Costs may be greater than benefits -How safe is safe? -Low labeling
problems with government protection
collateral
property used to secure loan (what you owe at the end of the loan or what you lose if you cant pay off)
savings
provide a safety net and are also helpful for putting together money for future needs such as a down payment on a house
securitization (Today, almost any type of private debt can be securitized. This includes home mortgages, credit card debt, student loans, car loans, etc.)
refers to the transformation of illiquid assets into marketable capital market instruments
deregulation (banks, airlines, cable, electricity, phone)
removes or reduces government intervention. The idea is that competition -- in any industry -- will drive down prices and create a more efficient market
FICO score
score most widely used by lenders to determine who gets a loan and how much the loan is (developed by california based fair)
grifter
someone who uses his or her position to derive profit advantages
certified divorce planner (new breed of financial planner)
specialist who is trained to focus on who gets the assets in divorces and who works alongside attorneys who handle legal documents and child custody issues; help couples divvy up retirement accounts and stock options, divide up businesses, calculate alimony payments, and decide who keeps the primary house and vacation home
excise tax
tax collected from the manufacturer of a product (regressive)
privatization
turning over some of the functions of government or business to private enterprise (ex: fannie mae)
imperfect competition (monopolies), price discrimination (age, gender, race), imperfect information (seller knows more than buyer), inequality
types of market failrue
personal finance
umbrella term that covers the spending, saving, investing, and protecting of financial resources
mergers
when 2 or more companies combine into a single company
nexting
when people buy or attain something, their minds are already thinking of the next purchase or goal
-Markets have grown large and more specialized -Difficult for consumers to get honest information -Consumers are separated from sellers logistically and sometimes ethically
why do we need government protection?
caveat emptor
"Let the buyer beware" - the traditional guideline of sales transactions in the Free Market.
chapter 7 bankruptcy
"straight liquidation chapter"- in return for eliminating debts, turn over nonexempt assets to pay creditors (usually there are no nonexempt assets to sell tho)
-low and moderate -little or no down payment
-1990's: Fannie Mae and Freddie Mac hold a huge share of American mortgages (70%) -1995, HUD regulations required Fannie Mae and Freddie Mac to increase their holdings of loans to ______________ income borrowers -1999 regulations required Fannie and Freddie to accept more loans with _________ **Looking at the "NINJAS" again -Standard interest on mortgage is 20%
Savings and loan associations (S&L's)
-Also sometimes called "thrifts" or "thrift institutions" -Aren't as popular today as they were in 60's and 70's -Go to bank for mortgages
department of justice
-Established 1862 -works with the FTC in enforcing the Sherman Anti-trust law -approves mergers -stops price fixing -stops monopolies (e.g., Microsoft case)
false sense of security
-For the most part, products are relatively safe, so consumers expect that all products are safe. -EXAMPLE: consumers pick up meat from the grocery store and do not examine it carefully, e.g. smell it -In cases where there are problems, the consumer is caught "off guard."
credit unions
-Have to pay $25 a month etc. you don't pay money to belong to a commercial bank •In return, you would get a better interest rate and more perks like coupons etc. •Not big but do the same thing that your banks do but you have membership perks.
low labeling
-Manufacturers label products in order to avoid paying for consumer dissatisfaction. -Example: An item of clothing says, dry clean only, when it could be hand washed. If consumers wash the item and it shrinks, they cannot complain because they didn't follow directions.
increase
-There was no trend in the foreclosure rate prior to 2006 for adjustable rate or fixed rate mortgages. -Starting in 2006, there was a sharp ___________ in the adjustable rate mortgage foreclosure rate.
glass steagall
-allowed commercial banks to sell on-the-run government securities, but prohibited underwriting and brokerage services -separated banking and securities industry -also prohibited real estate and insurance business
Automatic Teller Machines (ATMs) - over 250,000 today
1st innovation of electronic banking
30% -Investors finally realized that there had been excessive optimism -The wave turned into one of excessive pessimism
2008: In one year's time stock prices drop ____% - destroying $3.5 trillion of value
1816
2nd bank of US is chartered
commercial banks, savings and and loan associations (S&L's), credit unions
3 financial intermediaries "banks"
credit and consumer rights
A good credit rating (paying off student loans promptly is part of this) is important for a number of reasons, including the fact that potential employers may check your credit history before hiring you and landlords may check it to see if they would be wise to give you a lease
deposit outflow
A large number of depositors withdraw their funds from the bank, exhausting the bank's cash (reserves) and other liquid assets
-You have the right to receive a copy of your credit report. -You have the right to know the name of anyone who received your credit report in the last year for most purposes and in the last year for employment purposes. -You have the right to a free copy of your credit report when your application has been denied. -If you disagree with the accuracy of information, you can file a dispute with the CRA and the company that furnished the information.
According to the FTC, under Fair Credit Reporting Act your rights are as follows:
federal food and drug act of 1906
An Act For preventing the manufacture, sale, or transportation of adulterated or misbranded or poisonous or deleterious foods, drugs, medicines, and liquors, and for regulating traffic therein, and for other purposes
regulation
An attempt by the government to control the workings of the marketplace
7.6% -The unemployment rate rose to 9.6% during the 1974-75 recession, and to 10.8% during the 1980-1982 recession
At the end of January 2009, the unemployment rate was ____%
ATMs, the internet, and telephone
Automated Banking Machines combine ____________ (3) technology to provide "complete" service
review the bank's financial statements and its confidential accounts (CAMELS)
Bank examinations:
bank debts tend to be short-term, many depositors could withdraw their funds with little notice
Banks are less stable than other businesses because:
OCC, the Federal Reserve System, the FDIC
Banks are visited on a regular schedule by bank examiners from the __________ (3) or other agencies
chip cards (load money on)
Banks or credit card companies offer debit cards, and smart cards (also called ____________ or stored value cards), which may be worth $20 or $50 and can be used for placing phone calls or buying sodas or snacks from vending machines
-loss of customers and in making loans causes reduction in profitability in traditional banking , Expand lending into riskier areas (e.g., real estate) -Creates problems for U.S. regulatory system -happened all over the world
Banks' Response to crisis:
-In return of loans, the companies promised to fast- track development of energy-efficient vehicles, and consolidate operations. -GM and Ford agreed to streamline the number of brands they produced. -They also won agreements from the UAW union to delay contributions to a health trust fund for retirees and reduce payments to laid-off workers. -The three CEO's agreed to work for $1 a year and sell their corporate jets
Big 3 Autos Story
$34 (GM, Ford, Chrysler)
Big 3 Autos request $_____ billion in government loans to avoid bankruptcy
GM and Chrysler -Chrysler declared bankruptcy on April 30, 2009 -General Motors on June 1st, 2009
Big 3, who filed for bankruptcy protection?
capitalist, herding
Bubbles and crashes are endemic (regular) in _________ systems, result of uncertainty and __________ behavior
-Capital adequacy -Asset quality -Management -Earnings -Liquidity -Sensitivity to market risk
CAMELS
1. Sound in every respect 2. Fundamentally sound, but with modest weaknesses that can be corrected 3. Moderately severe to unsatisfactory weaknesses; vulnerable if there's a business downturn 4. Many serious weaknesses that have not been addressed; failure is possible but not imminent 5. High probability of failure in the short term
CAMELS rating
bank management
CAMELS ratings are disclosed to _____________, but not to the public
time deposit
CD is a type of ___________ which are usually safe ways to store money from seven days to several years
commercial banks
Can have your checking account, savings account, certificate for bonds etc. (suntrust, BB&T)
-Changes in the Market Environment As a result of financial innovations in the 1960s and 1970s (more competition, new kinds of financial assets made it possible for investors (including banks and S&L's) to take on more risk) -Changes in Regulation (o S&L's had mostly been restricted to home mortgage lending before, but now they were allowed to invest in commercial real estate and stocks) -By 1984 bank's nonperforming loans (loans on which payments were late) rose to $5.2 billion (over 10% of total loans). -May 1984: an electronic "bank run" - depositors withdrew billions of dollars in deposits
Causes of the 1980s Crisis:
subprime
Compared to their prime borrower counterparts, the foreclosure rate for ___________ borrowers is approximately 10 times higher for fixed rate mortgages and 7 times higher for adjustable rate mortgages
Japanese (honda, acura, toyota)
Consumer Reports reported that all 10 of the cars that it considered to be the 10 best were built by ___________ companies
-The mortgage default rate fluctuated, within a narrow range, around 2 percent prior to 2006. -It increased only slightly during the recessions of 1982, 1990, and 2001. -The rate began increasing sharply during the second half of 2006 **where we see the ninjas -It reached 5.2 percent during the third quarter of 2008.
Default Rate:
internet
E-cash refers to an account on the __________ used to make purchases.
stored value/smart
Electronic money, or stored cash, only exists in electronic form. It is accessed via a ________ card
securities and exchange commission (SEC)
Established 1934 protect investors and maintain integrity of the securities market watches for fraud and deception require companies to disclose information THEY WERE THE ONES WHO UNCOVERED MARTHA STEWART'S ALLEGED INSIDER TRADING!!
national highway traffic safety administration
Established 1967 develops minimum performance standards for motor vehicles, including bicycles and buses goal to reduce highway deaths, injuries, and property losses
Low-Interest Rate
Fed's prolonged ______________ Policy of 2002-2004 increased demand for, and price of, housing (made adjustable rate loans with low down payments highly attractive) -As the Fed pushed short-term interest rates upward in 2005-2006 (bc of rising inflation), adjustable rates were soon reset, monthly payment on these loans increased, housing prices began to fall, and defaults soared
consumer protection laws
Federal and state statutes and regulations that promote product safety and prohibit abusive, unfair, and deceptive practices
Adjustable Rate Mortgages (ARMs) -Measured as a share of total mortgages outstanding, ARMs increased from 10% in 2000 to 21% in 2005. - the "ugly apples" -the ones that got mixed in with the Mortgage backed security -ARM is the bad one
Following the Fed's low interest rate policy of 2002-2004, ________________ increased sharply
-The US started experiencing drastic increases in the mortgage foreclosure rate -If the houses around you are decreasing in value, yours will too
Foreclosure rate:
food drug and cosmetic act
Franklin Delano Roosevelt signed the bill on June 25, 1938. - Law passed in the wake of a therapeutic disaster in 1937. A Tennessee drug company marketed a form of the new sulfa wonder drug that would appeal to pediatric patients, Elixir Sulfanilamide. However, the solvent in this untested product was a highly toxic chemical analogue of antifreeze.
2,900 (avg, one failed every 15 days) (1 out of every 6 banks closed)
From 1980 through 1994, over _________ banks and S&L's failed
-Took over assets of failing S&L's and sold them to recover as much of their value as possible. -Issued bonds to fund the costs of covering S&L losses.
Functions of the RTC:
chapter 11 (Bond holders were encouraged to turn their bonds into stocks so GM would not have to pay interest on the bonds- refused bc stocks would be 0 after bankruptcy) -GM and Chrysler terminated agreements with hundreds of their dealerships and GM discontinued several of its brands as part of bankruptcy proceedings
General Motors filed for _________ bankruptcy after failing to successfully negotiate deals with bond holders
-Legislation to eliminate Glass-Steagall -States retain insurance regulation, while SEC oversees securities activities -Fed still oversees bank holding companies
Gramm-Leach-Bliley Act of 1999
-Housing prices were relatively stable during the 1990s, but they began to rise toward the end of the decade. -Between January 2002 and mid-year 2006, housing prices increased by a whopping 87%. -The boom had turned to a bust, and the housing price declines continued throughout 2007 and 2008. -By the third quarter of 2008, housing prices were approximately 25% below their 2006 peak.
Housing price challenge:
-The1990s economic boom in the United States was an extended period of economic prosperity, during which GDP increased continuously for almost ten years (affordable mortgage rates here) -Grew alongside the local or global real estate markets in the mid 1990s -The stock bubble increased the wealth of people, which led them to spend money on consumption including bigger and better houses. -The increased demand led house prices to rise. Then the stock bubble burst, which only caused the housing bubble to grow more (people lost faith in the stock market and thought investing in a home would be a much safer alternative) -Housing bubbles may occur in local or global real estate markets -In their late stages, they are typically characterized by rapid increases in the evaluations of real property until unsustainable levels are reached relative to incomes
How did the housing bubble develop?
higher
However, under GA's new law, crematories must employ embalmers even though crematories have no need for their services. Consumers will pay _________ prices.
-Require banks to disclose unfavorable information in their public financial statements -Issue a "cease and desist" order requiring the bank to stop doing things that cause financial troubles and to correct problems -Impose fines (up to $1,000,000 per day)
If the CAMELS rating for a bank is unfavorable, regulators can take actions like these:
3.1
In 2008 all auto-related industries and after- market service businesses employed approximately _____ million people in the United States
-Federal deposit insurance -Imposing capital requirements (minimum capital/asset ratios) -Imposing reserve requirements (minimum reserve ratios) -Restricting the types of assets that banks may hold -Performing bank examinations (periodic auditing reviews)
In the U.S. the government regulates banks in many ways:
7,500
In the U.S., about _________ commercial banks serving the businesses and consumer's needs. This puts the U.S. in a class by itself
-increases the supply of deposits from consumers (within the insurance coverage limits) -banks attract deposits pay lower interest rates on their deposits even as they pursue risky strategies that increase the risk of bank failure (result: deposit insurance reduces banks' incentives to avoid risk)
Incentive Effects of Deposit Insurance:
money market mutual fund
Instead have emergency funds in a _______________. because will pay you a higher rate of return than a savings or checking account will
federal aviation agency
Its mission is to provide the safest, most efficient aerospace system in the world. The Air Commerce Act of May 20, 1926, was the cornerstone of the Federal government's regulation of civil aviation. This landmark legislation was passed at the urging of the aviation industry, whose leaders believed the airplane could not reach its full commercial potential without Federal action to improve and maintain safety standards.
United States Treasury , 40
July 10, 2009 General Motors emerged from bankruptcy as a new company majority owned by the ________________ (___ day bankruptcy)
Fiat, 10
June 10, 2009 Chrysler emerge downed primarily by the United Auto Workers (UAW) union and by Italian automaker _______ SPA (____ day bankruptcy).
-Housing prices increase during 2000-2005, followed by a leveling off and price decline -Increase in the default and foreclosure rates beginning in the second half of 2006 -Collapse of major investment banks in 2008 -2008 collapse of stock prices
Key Events Leading up to the 2008 Crisis:
lien (For example: your house can have a lien put on it if you are not paying your car off. When the house gets sold, the car loan servicer gets paid before you make any money off the house)
Legal rights to take and hold property if the person does not pay the debt
bankruptcy protection
Legally puts a stay on debt collection, referred to as "Re-organization" for businesses
In 1989 the government created the Resolution Trust Corporation (RTC) to handle S&L's that were failing
Managing the 1980s Crisis
Government Protection
Market Failure leads to Government Intervention sometimes in the form of ________________
joint, if you are both the co-owner of the credit card and you go through a divorce they might not pay off the debt etc. because you are both liable for the payment divorce or not (mortgage and cars different bc tangible)
Never get a __________ credit card
