... Today, more than two years later, its devastating effects are still being felt as the government continues to struggle with the bailout to stabilize the financial system, mitigate contagion risk, and resolve the CLICO crisis. Even one year after the bailout, there was still no resolution of the crisis. In view of the intractable nature of the CLICO collapse, the People’s Partnership government that came to power on May 24, 2010 established a commission of enquiry to investigate the causes of CLICO’s collapse, the scope of the MOU, the cost of the bailout, and the failure to provide a bailout to the Hindu Credit Union (HCU) that collapsed in 2008. There are many questions that are still unanswered. What were the root causes of CLICO’s collapse? What corporate governance structures and practices precipitated the collapse? Did the bailout create moral hazard? Who or what was to blame for the collapse? What action has the government taken to date? What lessons have been learnt and, more importantly, how can this situation be prevented from being repeated in the future? This concept paper examines these questions, analyzes the evidence to find answers, and in the conclusion, suggests ways to improve corporate governance and the empowerment of regulators to provide competent regulatory oversight and enforcement. Key words: financial collapse, bailout, corporate governance, moral hazard, political influence, risk management Introduction The devastating effects of the corporate...
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... Today, more than two years later, its devastating effects are still being felt as the government continues to struggle with the bailout to stabilize the financial system, mitigate contagion risk, and resolve the CLICO crisis. Even one year after the bailout, there was still no resolution of the crisis. In view of the intractable nature of the CLICO collapse, the People’s Partnership government that came to power on May 24, 2010 established a commission of enquiry to investigate the causes of CLICO’s collapse, the scope of the MOU, the cost of the bailout, and the failure to provide a bailout to the Hindu Credit Union (HCU) that collapsed in 2008. There are many questions that are still unanswered. What were the root causes of CLICO’s collapse? What corporate governance structures and practices precipitated the collapse? Did the bailout create moral hazard? Who or what was to blame for the collapse? What action has the government taken to date? What lessons have been learnt and, more importantly, how can this situation be prevented from being repeated in the future? This concept paper examines these questions, analyzes the evidence to find answers, and in the conclusion, suggests ways to improve corporate governance and the empowerment of regulators to provide competent regulatory oversight and enforcement. Key words: financial collapse, bailout, corporate governance, moral hazard, political influence, risk management Introduction The devastating effects of the corporate...
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...Asset Relief Program. The growth for the two largest economies is decelerating (R.Miller 2011) as finance ministers and central bankers arrive at the semi-annual meeting of the International Monetary Fund and World Bank. The increasing price of petrol has lowered consumer and business disposable income worldwide, and in the U.S budget cuts and a tighter monetary policy has limited the demand in China. The third largest economy Japan is recovering from the aftermath of the recent earthquake. While in Europe the possibility of a divided European Union becomes a probability for some members of the trading block as the debt crisis has claimed its third victim Portugal The objective of the study is to somehow interpret and create a better understanding of global and economic events and how these events affect the financial markets in the past, present and future for both local and international markets. 2. Sources of data/methodology: My sources of methodology are Google Alerts, this function allows you to receive emails relating to topics of interest, I signed up for the topic of the Financial Markets and I regularly receive emails on a weekly basis relating to the Financial Markets, the...
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... This dialogue usually refers to the great economic bailout organized by the government and paid for by the people, however is not every circumstance in which the government has spent money in some way or another paid for by the people via taxes? That is an argument for another time. The next most popular economic anecdote with which the media uses to boosts its ratings is concerning the major three United States based automotive corporations: Ford Motor Company, General Motors Corporation, and Chrysler. The bailout of these automotive manufacturing corporations has stirred great debate within the walls of the Capitol. The proponents of the bailout state that even if we do not go through with a bailout for these automotive manufacturing companies, the country in some way or another will ultimately being paying the same – if not an increased – amount of money to support all of the people that will lose their jobs if these corporations are to go under (Graves). The people against the bailout say that these corporations are coming to the government due to the bailout of major banks and insurance firms and wanting “a piece of the pie” for themselves. There are also people that are in between arguments saying that the country cannot allow a bailout to these corporations until certain restrictions can be placed on the way that the corporations can spend the money – a state of mind that was likely brought on by the previous bailout scenarios; however, if restrictions are incorporated...
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...most critical issues that arouse during the 2008 government AIG bailout was that there was no check and balances system in play within the company. AIG employees quickly became only concerned with how much commission they could make, and how fast. The process in which they chose to do so was faulty and extremely risky to not only AIG but all of its stockholders, shareholders, and investors. Because of AIGs prior impressive reputation and clientele, no one doubted their methods of operations, relying solely on trust and respect. They were also very aggressive in their efforts to obtain commission and corporate compensation making the number of people affected even greater than had they been operating normally and not aggressively...
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...The BIG Three By Dicie Thompson May 2, 2009 During meetings in Washington, the Big Three car makers the companies stated that existing union work rules are in part one of the reasons the companies were unable to make a profit. The government has also stated that the unions must give concessions to the companies to enable them to survive and obtain additional funds from the government. What are those work rules and portions of the contract that make it difficult for the companies to make money? If you feel that the blame is found else where it is and what effect does it have on the bottom line. General Motors Ford and Chrysler were known for decades as the Big Three. The automotive industry crisis of 2008-2009 was a global financial crisis. President Barack Obama asserted unprecedented government control over the auto industry of General Motors Corporation and Chrysler LLC. His demand was fresh concession for long-term federal aid and raising the possibility of quick bankruptcy for either ailing auto giant. President Obama took the extraordinary step of announcing the government will back new car warranties issued by both GM and Chrysler. This concession would involve concessions from its union workers and bondholders. Two of the three automotive CEO’s vowed to their employers the following statements. Fritz Henderson, CEO for General Motors stated, “He would take whatever steps are necessary to successfully restructure the company, which could include a court-supervised...
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...Risk and Return Essay: Mortgage Crisis of 2008 The American Dream has been a standard set centuries ago with ideas full of prosperity and success that would drive families upward in the social ladder. The American Dream has become the character by which our country is defined; therefore, it has long been a land that is desired by others living in conditions that aren’t geared toward this ideology. It has changed throughout the years as different historical marks have altered the mindset of the United States. The ability to pursue happiness outright, education, owning a business, and leaving a legacy is the pipeline for this dream that is sought not only by people in the United States, but also by those seeking to establish themselves in this land that is overflowing with honey. One of the major factors in the American Dream which hasn’t changed much over the course of time is homeownership. Homeownership is becoming an exclusive members’ club (Jones, 2014). The increase in homeownership after 2001 provided a big boom for our economy; temporarily. In 1999, Congress passed the Gramm-Leach-Bliley Act, which was also known as the Financial Services Modernization Act of 1999. This law repealed some of the Glass-Steagall Act of 1933, allowing banks, securities companies, and insurance companies to act as a combination of an investment back, commercial bank, and an insurance company which created financial supermarkets (Jenkins, 2012). The United States economy was in...
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...Governmental Orbit of Power The auto bailout is a good example of what the federal government can do to react to fiscal down towns. The federal government has the ability to step in and take action during times of great financial difficulty such as the Great Recession of 2008-2009. The federal government can enact policies on the macro level. While cities and local governments take action to solve their local problems, they cannot enact a strategy that will improve the state or national economy. By raising taxes and cutting services, states and cities were making the recession worse and actually were canceling out much of the stimulus being done by the federal government (Kantor & Judd, 2013). In order to counter act the trouble created by local government reaction to the recession, the federal government created a $787 billion stimulus package that included aid to state and local governments. Kantor and Judd state that the federal stimulus did not change the structure of the intergovernmental system, which requires cities to live within their revenue sources. The bail out of the auto industry was a targeted effort on the federal level to save a critical and important industry in the United States. At the time of the bailout, the auto industry contributed 3.6%, or $500 billion, to total U.S. GDP output (Amadeo, 2015). Some say the auto industry bailout was a political move because it was not really necessary. At the time of the bailout, many analysts felt that Chrysler would...
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...and industry weakness? In comes the government bailout of the automobile industry. In recent years, 2008-2010, Ford, GM, and Chrysler had to be saved from self-destruction and bankruptcy through government incentives, loans, and emergency funding. In December of 2008 these 3 automakers asked the government for monetary assistance that totaled approximately 34 billion dollars (About, 2013). Ford, GM, and Chrysler asked for these funds to avoid impending job layoffs in the millions and also to avoid further financial trouble for the economy during the recession (About, 2013). All three of the car companies that had to be bailed out were American based and had for years been facing stiff competition from foreign car makers especially Honda, Hyundai, and Toyota. During this time there was quite a bit of finger pointing and blame being placed surrounding the reason for the failure of the American car industry. Was the failure based on external factors such technology, political/legal parties and organizations, or economic issues (Hitt, Ireland, Hoskisson, 2013)? Or was the failure of this industry based on internal factors such as marketing, physical facilities, and organization capabilities (Hitt, Ireland, and Hoskisson, 2013)? This paper will focus on Chrysler before the bailout and the reasons why the bailout was necessary for this corporation. Again, please remember that this paper is based on Chrysler pre-bailout and pre-merger. Founded in 1925, Chrysler began...
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...The Political Economy of the Greek Debt Crisis: A Tale of Two Bailouts Silvia Ardagna and Francesco Caselli First draft: February 2012; Final version: January 2014 Abstract We review the events that led to the May 2010 and July 2011 bailout agreements. We interpret the bailouts as outcomes of political-economy equilibria. We argue that these equilibria were likely not on the Pareto frontier, and sketch political-economy arguments for why collective policy making in the Euro area may lead to suboptimal outcomes. Most modern sovereign debt crises have been managed in Washington, DC, through the combined e¤orts of the International Monetary Fund (IMF) and the US government. A distinctive feature of the crisis that has engulfed European sovereign-debt markets since the fall of 2009 has been that the IMF has played only a supporting (albeit important) role, while the management of the crisis has been driven by European institutions: the council of …nance ministers (ECOFIN), the European Council (EC, made up by all the heads of government of the European Union) and the European Central Bank (ECB). To the extent that the IMF is largely a technocratic institution (though of course not entirely immune from political in‡ uence) while ECOFIN and the EC are made up of politicians, one may expect the management of the crisis by the EC to be more a¤ected by electoral concerns. Furthermore, since there are 27 members to the EC, representing countries with potentially di¤erent interests, one...
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...activities, including property, casualty, life, financial services, retirement savings products, asset management, and aircraft leasing. It is headquartered in New York City, and operates in more than 130 countries and jurisdictions. In 2006, AIG had sales of $113 billion and 116,000 employees (Saporito, 2009). According to the 2008 Forbes Global 2000 list, AIG was once the 18th-largest public company in the world. Its common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo. AIG faltered in America’s sub-prime mortgage crisis. It had traded heavily in credit default swaps and could not meet its obligations. In that case, United States government came to its rescue with an $85 billion bailout on September 16, 2008. As of March 2009, AIG has taken a major step toward cleaning up its image by reorganizing its insurance units under American International Underwriters. It is the foreign general insurance segment of AIG. AIU and its subsidiary brands are now distinct from AIG (National News, 2009). The holding company, itself, is currently undergoing rebranding that includes a new name, which is expected to be revealed in the near future. In the middle of 2011, it infused additional capital of P300 Million (US$7 million), making it a company with one of the highest paid-up capital in the non-life insurance industry. In addition, it already paid a total of P685 million (US$16 million) in claims in 2011. As of August 6, 2015, American...
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...of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of Master of Arts in Political Science Scott G. Nelson, Chair Karen M. Hult Deborah J. Milly September 7, 2011 Blacksburg, Virginia Keywords: EUROPEAN UNION, EUROZONE, GREECE FINANCIAL CRISIS, IRELAND BANKING CRISIS, EUROPEAN CENTRAL BANK Copyright 2011 Sara F. Taylor Financial Crisis in the European Union: The Cases of Greece and Ireland Sara Frances Taylor ABSTRACT The 2008 eurozone financial crisis has only worsened as of summer 2011 raising questions about the economic future of the eurozone and sending shock waves through economies around the world. Greece was the first state to receive a bailout from the European Union and the International Monetary Fund, surprisingly followed only six months later by Ireland. The goal of this thesis is to analyze the challenges posed to smaller, weaker economies within the eurozone, specifically Greece and Ireland, since the recent eurozone financial crisis. This study is based on the experiences of both Greece and Ireland as very different members of the single currency. How and why did these states meet the criteria for euro convergence? To what extent was there support for the euro in both countries in the past? To what extent is there support today after the near collapse of both economies and the rescue packages brought about by the EU? As a result of the recent financial crisis, Greece...
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...sidestepping best practice and ignoring internationally agreed standards.[9] This allowed the sovereigns to mask (or "Enronize") their deficit and debt levels through a combination of techniques, including inconsistent accounting, off-balance-sheet transactions as well as the use of complex currency and credit derivatives structures.[9] From late 2009, fears of a sovereign debt crisis developed among investors as a result of the rising private and government debt levels around the world together with a wave of downgrading of government debt in some European states. Causes of the crisis varied by country. In several countries, private debts arising from a property bubble were transferred to sovereign debt as a result of banking system bailouts and...
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...accounts, common sense, and their own statistics and documents; that both the IMF and World Bank are not the benevolent entity seeking to provide monetary stability to countries that are impoverished, or have experienced devastation such as the Philippines. Here is a brief description of how the IMF and World Bank take over entire countries with the stroke of a pen: A country is underdeveloped, and is experiencing social anarchy, malnutrition, and economic ruin. The World Bank will come in and offer the country a huge loan, to build infrastructure, schools, power supplies, roads, and other means to a 1st world lifestyle or one similar. Of course, the Government, or Dictator depending on who it is will usually take the loan, in the understanding they can easily profit fabulously from it. Here is the problem: As John Perkins Explains in his Book 'Confessions of An Economic Hit Man', both parties to the loan is well aware paying back the loans is impossible. The World Bank and IMF can then seize the land, resources, and install an American form of Corporate Control to profit the shareholders of the...
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...Table of Contents Problems with AIG and Credit Default Swaps 1 Financial Crisis 1 Why study AIG case 1 Define what a CDS is and history of AIG 2 AIG background 2 What are Credit default swaps? 3 What happened at AIG? 5 Why is the AIG case so special? 7 Government Reactions 8 Expert Opinion 10 Causes, How it can be Solved, Possible Ways it Can be Prevented 11 Works Cited 14 “Financial derivative products were financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." -Warren Buffett Problems with AIG and Credit Default Swaps Financial Crisis: Credit derivatives are believed to be one of the primary causes behind the financial crisis in 2008, and they continue to be an existing threat to the global economy in the future. Many economists have indicated that the breakdown in the credit derivatives market was the main reason behind the collapse of large corporations like Lehman brothers and AIG, as opposed to the subprime mortgage market. Why study AIG case: The failure of AIG can be primarily attributed to greed. Like many other insurance companies, AIG was too risky on credit default swaps. By the time of the crisis, the company had written more than $441 billion in swaps on bonds and securities, including mortgage-related securities. The collapse of the mortgage market unveiled the problems of credit derivative products and drew widespread attention to this huge and dangerous market. American International...
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