Nobody downloaded yet

Government Intervention (Bailout) - Term Paper Example

Comments (0) Cite this document
RUNNING HEAD: THE US GOVERNMENT BAILOUT PLAN Name Date Class Instructor Most financial experts are of the opinion that investment banks are converting to holding companies in a bid to survive the financial crisis. The mortgage crisis in the US had adverse effects on many investment banks, and this is a strategy to avoid further damage in preparation for the future…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER99% of users find it useful
Government Intervention (Bailout)
Read TextPreview

Extract of sample "Government Intervention (Bailout)"

Download file to see previous pages According to Nelson (2008), one of the main reasons that made investment banks undergo this transformation is panic. Panic is often the indirect result of any financial crisis, and banks have their own usual set of standard reactions in any financial crisis or recession. Since many financial companies, some of which were considered market leaders like Lehman Brothers have collapsed, there is panic among the remaining investment banks. The collapse of large banking industries puts pressure and fear in the banking world. Some of them the remaining banks are financially stable, but due to the fact that the financial market is unpredictable, they seek to consolidate their position through transformation to bank holding companies. Therefore, even though they have financial security, their own feelings of fear are dictating their responses to the market. Transformation to holding companies will enable the companies to have access to large deposits, which is considered to be a funding method that is more stable. Therefore, panic is one of the leading factors in the bank reactions to the economy and the United States government’s bailout plan. Other issues are also affecting the banking response in the United States. According to Plantin (2007), another reason for the change to holding banks is that the investment banks have realized that the model that propelled them to their success does not work anymore, as evidenced by the mortgage crisis, which necessitates a change in strategy. Changing up focus and goals can often be difficult for banks, since they are such large financial institutions, and therefore movement and change can be not only difficult, but frightening. The investment banks have realized that unlike them, commercial banks can mitigate risks through use of deposits from mortgages and savings accounts that are held by customers. This is in contrast to their operations which use majority of financing from other banks, and this is prone to uncertainty, since such transactions can be recalled at any time, sometimes using mere telephone calls. Such investment banks have seen it fit to change their nature of operations and venture into commercial banking business that poses lesser risks. So a change of strategy is imminent, although usually slow in large financial institutions, and also quite stressful, only adding to the panic that banks are currently feeling. There is still one more aspect left to consider as far as the banks are concerned. Another major reason that has made investment banks convert to holding banks is to place them in a better position to benefit from various initiatives introduced by the Federal government to support institutions in the US financial sector. This is a response to the Bailout and will hopefully see banks improve their economic situation during this crisis. There are several benefits of shift to bank holding companies that need to be addressed in order to create a better understanding of the bailout concept. The access to large deposits will enable the companies to increase the effectiveness of their operations throughout the globe. In fact, some experts say that American Express stands to gain by as much as $3.8 billion. American Express' application was approved a month after applying for it (Sloan, 2008). This is due to the reason that while they were investment banks, they only had ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Government Intervention (Bailout) Term Paper Example | Topics and Well Written Essays - 1250 words”, n.d.)
Retrieved from
(Government Intervention (Bailout) Term Paper Example | Topics and Well Written Essays - 1250 Words)
“Government Intervention (Bailout) Term Paper Example | Topics and Well Written Essays - 1250 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Government Intervention (Bailout)

Unemployment and Government Intervention Strategies

...? Unemployment and Government Intervention Strategies Unemployment and Government Intervention Strategies Unemployment is a situation whereby people willing to secure employment at certain payment rate available do not actually work. This is despite their vigorous search for a job. It is worth noting that unemployment figures do not capture the numbers of people who display passivity in search of an employment (Baumol and Blinder, 2011). The rate of unemployment is increasing in United Kingdom. The Office of National Statistics released figures unemployment rate in March 14, 2012. The report reveals that unemployment rate rose to 8.4 %. This is the highest unemployment...
4 Pages(1000 words)Research Paper

Microeconomics: Government Intervention and Failure

...Microeconomics: Government Intervention and Failure Outline Scarce resources where there exists a free economic system are allocated using price mechanisms. In this case, consumer spending decisions and preferences, as well as business decisions on supply, combine in the determination of equilibrium prices. In a free market, price signals are the most important factors; high demand increases profit potential for those supplying products to the market, which, in turn, causes supply expansion in order to meet consumer demand (Besanko et al 169). This mechanism of free markets is a powerful device in the determination of the manner in which recourses will be allocated among various competitors....
7 Pages(1750 words)Essay

Federal Financial Assistance and Wage Control addressed in the different sections which follow. The Morality of Governmental Bailouts in a Capitalist Economy By its very definition, a capitalist or free market economy is built on competition and "survival of the fittest", with little or no government intervention. The success or failure of a business is determined by the way business is conducted and how such businesses deal with fluctuating market forces. In the current economic meltdown, it is quite obvious that many business entities played "fast and loose" with sound economic principles in order to maximize profits by following unsound credit practices and with inadequate risk management or controls in place. By doing so,...
6 Pages(1500 words)Essay

Government intervention

...Government intervention: Introduction: This paper focuses on government intervention in times of economic down turn, the government has mechanisms to improve the current situation, and this involves the use of appropriate fiscal and monetary policies. Classical economists state that government intervention will only make things worse. Keynes (2007) on other hand states that the free market is not always efficient and the government has a role to play in ensuring that the market is efficient. In the great depression of 1930 government did little to solve the crisis, this depression was...
7 Pages(1750 words)Essay

Government Intervention in Business

...Government Intervention in Business Advantages Government intervention when it acts as a regulative body posts a more beneficial effect on business functions rather than disadvantages. Government institutions set the rules of the game. It provides the rules and regulations on how organizations, people should relate with one another. Through obligations and contracts, relationships are formalized and professionalized. As a regulative body, government institutions provide procedures, standards that ensure the quality of business activities and outputs. It gives accreditation for processes, sanitation and safety- in which in this...
8 Pages(2000 words)Essay

Laser Printer and Government Intervention

...Laser Printer/Government Intervention Case Study Figure 1 below shows a standard demand and supply of the dumped laser cartridge in Kuwait; before and after internalizing the externalities. Before intervention of the government, the market results into an equilibrium quantity and price established at the meeting point of the marginal private cost (MPC), or the supply curve and the demand curve represented by P1 and Q1. Producers and consumers benefit from the gains as a result of this equilibrium. The consumer surplus is represented by the variation between the price and the willingness to pay (which is the elevation of the demand curve). In other words, this is...
2 Pages(500 words)Case Study

Government intervention in global business

...Government intervention in global business Table of Contents Research process 3 Key literature 3 Projects contents 4 Economic partnerships 4 Diversification 4 Government spending 5 Taxation 5 Privatization 5 Capital subsidization 6 Outline of preliminary plan 6 Reference List 7 Research process Various economic forces in the world have been responsible for the change in the role of government in economies around the world. Changing role of the governments has also changed the shape and functioning of the economies. This issue has, therefore, received significant attention from researchers in recent years. Different research studies show that there are various ways in which governments intervene in economic activities of a country... . The...
4 Pages(1000 words)Outline

Government Intervention on the Market

...The regulatory origins of the flash crash The regulatory origins of the flash crash The flash crash was the major stock crash that occurred in the United States. The government could have contributed the flash crash by the government regulation on the market stock that reduced cash value. This was motivated by the market reforms that were aimed at eliminating markers who aimed at increasing their trading cost by increasing their market spreads. The main marketers created illiquidity in the market. Market regulations had no instant attempts, which mainly made the market weak for some time. 2. The main cause flash crash was a decline of cash, in relation to market securities proposed by the...
2 Pages(500 words)Assignment

Government Intervention in Market Operations

...Government Intervention in Market Operations The type of Market structure that the U.S government intervenes is the Monopolistic competition. This type of market structure allows a country to have firms with many competitors, but each one of them sells slightly different products. For example, the U.S owns firms that operate independently and they include coffee stores and high street stores. Products may be differentiated the physical appearance of the product like design, performance and the many features that make the product different. In addition, some firms use distinctive packaging and promotional styles. In addition, the firm may create differences through employee skills like...
3 Pages(750 words)Essay

Market Failure and Government Intervention

...Market failure and Government intervention Introduction A market is a place that facilitates exchange and transaction of goods produced and services provided. It always seeks efficient resource allocation across alternative or various users. In a market Adam Smith’s ‘Invisible hand’ rationalize individuals or entrepreneurs acting to maximize self-interest. The main role of a market is efficiency that is appropriately defined in terms of Pareto Efficiency (Aldridge, 2005). Efficiency in a market is where all agents maximize their personal interests. Market failure Market failure is a situation that describes a situation where the effects of demand and supply do not allocate their resources appropriately. This will therefore lead... . Various...
5 Pages(1250 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Term Paper on topic Government Intervention (Bailout) for FREE!

Contact Us