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The Role of Corporate Governance during Credit Crunch - Term Paper Example

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The author states that one of the major ingredients of the recent global recession was the collapse of the American banking system. The author analyzes the correlation of prevailing corporate governance and the menacing credit crunch as the banking system succumbed…
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The Role of Corporate Governance during Credit Crunch
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Download file to see previous pages It has been a global observation that one of the major ingredients of the recent global recession was the collapse of the American banking system, in the context of which, financial analysts, as well as the general populace, are of the unanimous agreement that every possible step should be taken in order to avoid the failure of large banks (Gros, 2009). Bear Stearns, which used to be the fifth largest among American investment banks, had experienced a 93% slump in its share price prior to being sold at a meager $2 per share in 2008. This breathtaking financial mishap had sent out the signals that the nation’s economy was approaching an alarming crisis (Waggoner & Lynch, 2008). The crash came as a shock because the organization, despite having a healthy capital, “could not meet its obligations” (Norris, 2008). According to the chief of the American apex bank, Timothy Geithner, the unprecedented collapse of Bear Stearns could herald a series of erratic and severe effects for the operation of the American financial system as well as the national economy (Berman, 2008). The criticality of this failure could lead to a frenzied situation by shaking the confidence of investors in similar companies. Owing to the exceptionally high pressures that the world economy as well as the financial systems experience, the injury caused by the collapse could be harsh and unmanageable (Beams, 2008).
Lehman Brothers were plagued with high leverage whose total worth cannot be quantified, and hence it was prone to be insolvent even if its assets were slightly devaluated. Under the unfavorable circumstances of the global recession, the main drawback of Lehman Brothers that had surfaced as a bad scar was that the company had pushed itself into a zone of self-deception over the years. Like most of the financial institutions, Lehman Brothers too failed to pay necessary attention to its asset value. ...Download file to see next pagesRead More
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