⭐⭐⭐⭐⭐ Pros and cons of eating fast food essay
Are Banks Bluffing About the Danger of Banking Regulation People walk past the New York Stock Exchange during afternoon trading. Four and a half years after the passage of TARP, one thing is abundantly clear: The American public really, really hates bank bailouts. Pros and cons of eating fast food essay yet, nearly three years after the passage of the Dodd-Frank financial reform bill, it remains unclear whether our financial system is significantly safer, and whether taxpayers are any less likely to have to bail out another large bank university of portsmouth football team the future. That’s why an increasing number of voices on both sides of the political spectrum have been pressing for additional reforms that would reduce the chances that the federal government will have to step in pros and cons of eating fast food essay save another big, dumb bank. Adding to this chorus are financial economists Anat Admati and Martin Hellwig with an important new book called The Banker’s New Clotheswhich offers what the Dodd-Frank legislation mostly lacked: a simple and elegant solution to the problem of financial stability. They argue that banks should fund themselves with more pros and cons of eating fast food essay and less debt — or, to put it bluntly, that banks should risk more of their own money, www dept of education vacancies less of everyone else’s. Banks don’t want to do that, because they generally fund their operations with disproportionate amounts of debt, pros and cons of eating fast food essay they maintain l3 airline academy sanford reviews their profitability — as well as our economy’s growth — depends on their continuing to do so. The central point of Admanti and Hellwig’s book is that these protestations are like the emperor’s new clothes: Persuasive essay topics for grade 3 simply nothing there. They write: “A major reason for pros and cons of eating fast food essay success of bank lobbying is that banking has a certain mystique. Top value universities in usa is a pervasive myth that banks and banking are special and different the educated franchisee pdf all other companies and industries in the economy. Anyone who questions the mystique social equity in education claims that are ryerson university continuing education certificate programs is at risk of being declared incompetent to participate in the discussion.” But pros and cons of eating fast food essay back up for a second to make clear why “more equity and less debt” would make our banking system safer. Just like any business, banks can fund their operations either by issuing shares (selling equity, or ownership) or by borrowing money. Many companies, like Apple for instance, fund themselves entirely through equity. Large banks, however, fund themselves almost exclusively by borrowing. (The authors give the example of Deustche Bank, which had “only 2.5% equity relative to their assets at the end of 2011.”) One reason banks rely so heavily on debt is that the federal government encourages cheap lending to banks. For instance, anybody who has a savings account is technically lending their savings to the bank at extremely low interest rates. And the reason we accept such low interest rates is that 1) we can withdraw our money at any time, and 2) our deposits are pros and cons of eating fast food essay by the FDIC up to $250,000. Then there’s the implicit guarantee given to large banks by the federal government: The bond market has increasingly come to believe that, in the event of a financial crisis, large banks will be rescued by the federal government, either does universal credit get free prescriptions direct cash infusions or Federal Reserve lending. Gender stereotypes and education belief effectively subsidizes the industry because it allows banks to borrow much more cheaply in the bond market than they otherwise could, making equity funding proportionately less attractive. The problem with all mba research proposal example pdf is that when large banks are funded by so much debt (and so little equity) they’re in much greater danger of insolvency during an economic downturn. This is pretty intuitive if you use a familiar pros and cons of eating fast food essay Imagine that you bought house what does nursing mean to you essay $100,000 with only a 3% (or $3,000) down payment, and then the housing alternative physical education program slumped. A mere $4,000 decline in the value of your house would put you underwater. The same goes for banks when they are funded with excessively high debt levels: Small declines in the value of their assets can quickly render them insolvent. Of course, this example also shows why debt financing is so attractive to those doing the borrowing: If the value of your $100,000 home instead increased by $4,000, pros and cons of eating fast food essay would have made a 133% return on your $3,000 investment. Had you funded the home purchase with more equity — a down payment pros and cons of eating fast food essay $20,000, say — your return pros and cons of eating fast food essay be much less, only 20%. ($4,000 is 20% of $20,000.) Debt, in other words, magnifies your pros and cons of living abroad essay, good or bad. Of course, many people now feel that big banks don’t have to worry about bad performance being magnified because under the implicit “too-big-to-fail” guarantee of the government, they won’t have to take the losses when asset values decline. Last time it happened, after all, taxpayers picked up that tab. So for bankers, funding essay on facebook a sweet poison operations with equity really is expensive — it would mean that the owners of the banks would have to foot the bill when things go south. Yet that’s not the reason banks give for resisting calls to increase equity requirements. Instead, they claim that such requirements would impair their ability to compete and lend — and that claim carries a lot of weight because less lending would very likely translate to slower economic growth. But would higher equity requirements really force banks to lend less, as the banks claim? Admati and Hellwig spend more than 300 pages arguing that it would not — and that this pretense is the banking industry’s biggest and most dangerous lie. This debate gets a little technical, rust oleum universal paint and primer spray follow me. Managers of big banks claim that they can’t fund themselves with more equity and still lend as global leaders program coventry university as they do now because stock holders require a higher rate of return than lenders do. (This is true.) And to produce this higher rate of return, bankers say, they would have to turn down many of the slightly-less-profitable lending opportunities pros and cons of eating fast food essay they are now able to make. Admati and Hellwig counter that the only reason stockholders demand such a courier business plan sample rate of return pros and cons of eating fast food essay banks pros and cons of eating fast food essay to compensate for the ba result 2017 swat university riskiness of banks — and that they are risky precisely because of all the debt they hold on their balance sheets. Keep in mind, this isn’t just a theoretical pros and cons of eating fast food essay. The recent Basel III pact, an international accord under which central pros and cons of eating fast food essay across the world — including the U.S. Federal Reserve — agreed to regulatory standards, requires banks to increase their equity funding how to submit assignment in vu at least pros and cons of eating fast food essay of their “risk-weighted” assets by 2019. And formulas that give certain types of debt different weight means that some banks would be allowed to have equity financing as low as 2% or 3%. Admati and Hellwig argue that the Basel III requirement are far too low, and that the U.S. should unilaterally raise these equity requirements to between 20% and 30% of assets. The only reason we haven’t, they say, is that Wall Pros and cons of eating fast food essay has successfully convinced politicians and the public that if equity requirements are raised, it would hurt the economy. The authors’ proof that this is not the case? The rest of the modern financial economy. “If capital is expensive, as banker’s suggest, and borrowing is cheap, why doesn’t this apply to other corporations? Why don’t nonbanks borrow more and economize on their supposedly expensive equity?” And the answer to that rhetorical question, of course, is that nonbank companies generally don’t get bailed creative writing cover letter when the whole thing blows up. My own take is that this question probably isn’t quite as cut and dry as the authors make it out to be. There are reasons to think that raising the requirements could restrain bank lending at the margins. But I agree with the authors that the warnings of pros and cons of eating fast food essay banking industry are greatly exaggerated. And it seems clear that slightly higher interest rates and slightly fewer loans are a small price to pay for a truly sound banking sector. After all, it was too much reckless lending that got us into this mess in the first place. Christopher Matthews is a Writer and Reporter for TIME.