THE THRIFT INDUSTRY.   Term Paper ID:29021 Click to get this paper

Essay Subject: Examines government policy.... More...

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Paper Abstract: Examaines government policy. Whether the 1989 government bail- out actions and polices since then are in the public interest. Interaction between protection policies and the thrift industry. Government infusion of capital preventing collapse of financial services industry. Rationale for public intervention. Implementation of the Financial Institutions Reform, Recovery and Enforcement Act. Concludes government actions helped U.S. forstall a financial crisis. Paper Introduction: Introduction Private industry, non-profit organizations and individuals each depend on the thrift industry to provide them with necessary financial resources. The thrift industry is unique in that its products provide infusions of capital to the economy. The direction that policymakers set affects not just their bank or their industry, but the economy as a whole. Because of its unusual position in the economy, this industry is subject to high levels of regulation and oversight. This research examines the government policy associated with the thrift industry and whether the 1989 "bail out" and policies since that time are in the public interest. Interaction Between Protection Policies and the Thrift Industry The last time that financial institutions failed on a large basis was during the Great Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Another purpose was toimprove the supervision of savings and loan associations by strengtheningcapital, accounting and other supervisory standards. Thefinancial services reforms of that period came at a time when theprevailing political climate regarded the government as part of theproblem, not as part of the solution. In 1929, themarket fell fast and deep with the result that margin calls could not becovered by buyers.) Under Glass-Steagall, banks cannot underwrite corporate debt or equitysecurities, or purchase such securities for their own accounts. Whether this is strictly due tothe government rescue cannot be stated with certainty. Introduction Private industry, non-profit organizations and individuals each dependon the thrift industry to provide them with necessary financial resources.The thrift industry is unique in that its products provide infusions ofcapital to the economy. This research examines the governmentpolicy associated with the thrift industry and whether the 1989 "bail out"and policies since that time are in the public interest. Still another majorgoal was to curtail investments and other activities of savings and loansthat pose unacceptable risks to federal deposit insurance funds. Interaction Between Protection Policies and the Thrift Industry The last time that financial institutions failed on a large basis wasduring the Great Depression of the 193 s. FIRREA was an attempt to address thethrift industry crisis which reached a peak in the mid-198 s. Conclusion Certainly the United States weathered its financial crisis better thansome other nations in the 199 s (Brazil, for example, saw hyperinflationand Mexico had to devalue its currency). Double diligencedemanded. Shea, D. Without the rescue by thegovernment, it is unlikely that some of these troubled institutions wouldhave been targets for mergers and acquisitions. According to free marketeconomics, this intervention was not appropriate since those banks whichwere not efficient and effective in their operations did not suffercompetitive pressures to become effective. Instead, artificial infusionsof capital from the government program prevented the collapse of theseinstitutions, which nonetheless underwent significant transformations as aresult. (1991, March). FIRREA set out to correct this confusion between deregulation and lackof supervision. Mergers and Acquisitions, pp. Rationale for Public Intervention Banks accept deposits from customers and use those funds to loan toother customers. American Banker, pp. During the 198 s, savings and loans were allowed to engage in riskyactivities without significant controls placed on their actions, andwithout real capitalization requirements. Ideally, the price of the stock increases in the meantime topermit the margin to be paid with profit from the stock. The "invisible hand" at thistime worked to the benefit of the institutions: if the investments wentwell, the institutions realized the profits; if investments went poorly,the federal government absorbed the loss. Alack of confidence in the security of the American economy could well leadto a currency crisis which would have global proportions, and thusgovernment intervention, even when such interventoin goes againsttraditional market analysis, may well be justified. C. However,they may underwrite some government securities (such as some municipalbonds), purchase investment securities and serve as an agent for customersonce they have received specific instructions from the customer. Any step that substituted themarket's "invisible hand" was viewed as a positive step, in part becausethere was confusion between a lack of supervision and the effects ofderegulation (Shea & Crisman, 1991, p. 42). Funds can also be invested in other instruments.Customers who deposit funds with banks receive interest on those monies,while customers who borrow funds must pay interest. References Financial services acquisitions after the demise of Glass-Steagall.(2 , April). F., & Crisman, N. To be successful,banks must lend money (or make other investments) at rates which exceed therates they pay depositors. One of the stated purposes of FIRREA was to promote a safeand stable system of affordable housing financing. What is clear,however, is that the financial services industry is a critical component ofthe American economy, and the American economy is a cornerstone of today'sglobal marketplace with investors from around the world participating. According to theory,these acquisitions would not have taken place if financial institutionswere not healthy enough to be attractive targets (the so-called "poisonpill" defense against mergers and acquisitions is designed to render anorganization's finances unattractive to would-be suitors). More important than the rescue, in the long-term, was theimplementation of the Financial Institutions Reform, Recovery andEnforcement Act of 1989 (FIRREA). The result arefewer institutions, but possibly healthier ones. The financial services industry also saw a significant amount ofmergers and acquisition activity during the 199 s. In 1989, the government stepped into the thrift industry to prevent anumber of institutions from collapsing. The direction that policymakers set affects notjust their bank or their industry, but the economy as a whole. 22-24. Inaddition, Federal Reserve member banks cannot be affiliated with companieswhose principal activity is within the securities market. Because of the perception thatthe depression was brought about by banks which were also heavily involvedin the securities markets were unable to cover their margin losses when themarket crashed in 1929, the Glass-Steagall Act of 1933 placed severelimitations on banks' abilities to participate in the securities market.(Margins in the stock market permit buyers to purchase stocks for apercentage, or margin, of the actual price, with the full price due at alater date. Similarly,securities firms, cannot take deposits, and employees, directors andofficers of commercial banks are prohibited from being actively involvedwith investment banks (and vice versa) ("Financial services," 2 , p. 41-43. 23). Because ofits unusual position in the economy, this industry is subject to highlevels of regulation and oversight. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.