United States Bail-out of Banks - Case Study Example

INTRODUCTION Washington has embarked on a massive mission to rescue banks in the United s that are grappling in the sub-prime mess. This has been done despite the White House's initial rejection of such a plan for homeowners who could be facing foreclosures, banks and mortgage companies which participated in the creation of the problem. Taking a laissez-faire stance, the government behind the scenes has instituted a covert bailout. Many public and quasi public institutions are therefore dispensing huge amounts of money quietly to financial institutions which are saddled with almost worthless mortgage securities. Unfortunately, many homeowners who are actually at the core of the problem have been left out of the equation. The central bank on its part has implemented a process for auctioning that makes it cheaper and easier for cash-strapped mortgage institutions and banks to borrow from the government. DIFFERENT OPINIONS REGARDING THE US BAIL-OUT PROGRAM While some economists have argued in favour of the bail-out plan, an almost equal number have argued that the move will not save the country from its economic downturn as the country's economy continues on its way towards a deeper recession. Proponents of this move argue that without the institution of such measures to rescue banks and mortgage firms, the recession would most probably get longer with a potential for developing into a depression. Immediately after the announcement of a tentative bailout plan, data showed rising unemployment, a hunkered-down consumer and declines in business spending. The biggest challenge however is the tight credit market after WaMU (Washington Mutual) bank collapsed - the largest bank to fail in the country's history. The government's bail-out plan involves the release of a stimulus package that includes a proposal to allow some companies purchase mortgages worth up to 730, 000 US dollars. Others argue that without capital injection from private businesses, banks and other financial institutions will find it very difficult to continue loaning, and the economy will not be able to grow. Analysts predict that it could take up to four years for banks to recover from their losses with the economic slowdown expected to continue into 2009. The government's lending operation according to others will prevent mortgage companies from collapsing but will not in any way solve fundamental problems that face the housing sector. The United States' government bail out of banks has been an issue of great controversy. It is an issue that has received much attention in the media with strong opinions being voiced in its favour from some quarters and against it in other quarters. Given that different groups and individuals have different views regarding this program, it is necessary that an analysis should be performed using a representative sample to accurately determine the general attitude of citizens regarding the move. ATTITUDE DISTRIBUTION The attitude distribution of a group of respondents on a particular issue can be represented as a frequency distribution (Armitage and Conner, 2001). In this case, the baseline represents the entire range of views with one end comprising those who strongly favour the issue while the other end comprises those who are against it in similar measure. Between these two extreme ends on the baseline will be a neutral zone that represents of indifferent attitudes on the particular subject under study. The ordinates of the distribution will be a show of the popularity of each attitude relative to the others. Louise Thurstone developed one of the first theorists to develop a productive measurement scale (Armitage and Conner, 2001). He invented three distinct methods that can be used in the development of a one-dimensional scale. These included the method of paired comparisons, method of successive intervals and the method of equally-appearing intervals. While scale values are constructed differently for each of the above methods, the scales that are developed are similarly rated by respondents. THE THURSTONE SCALE In the field of psychology, the first formal technique developed to be used in the measurement of attitude was the Thurston scale. Developed in 1928 by Louise Thurston, it was initially intended for use in measuring religious attitudes. The scale basically involves the use of statements concerning a specific issue, with each statement being assigned a numerical value that indicates how unfavourable or favourable it is judged to be. Respondents check every statement they agree with and their attitudes are indicated after calculating the mean score. In general, the Thurston scale can be taken to be a normal distribution based method prototype for scaling-dominance matrices (Armitage and Conner, 2001). While the algorithm behind this theory is quite simple, its theory is very complex. In its basic application, the frequency dominance matrix is into proportions translated and then interfaced with standard scores. The underlying logic for this method is derived from the Law of comparative judgment also formulated by Thurston. After interfacing, the scale is derived by adjusting the left column marginal average of the standard matrix. One main limitation with the algorithm used in Thurston's scale is its interdeterminacy when one-zero proportions are encountered (this necessitates the returning of z values as minus or plus infinity). The scale can only be used to measure attributes that are linear and as such does not apply to attributes such as beauty, excellence, length, area, volume, price and so on (Miles and Manstead,1997). CONSTRUCTION OF ATTITUDE SCALE BASED ON THURSTONE'S METHOD In constructing an attitude scale, the researcher starts by defining the scale under development (Miles and Manstead, 1997). In constructing an attitude scale to measure the people's attitudes about bank bail-outs by the United States government, it will be assumed that the scale to be developed is one dimensional in nature. Describing this concept should be done as clearly as possible to ensure that those who formulate the statements to be used in the study have a clear view of the subject to be measured. This may be presented for instance as a focus command. For the bail-out program the focus command will be: To generate statements that specifically describe people's attitudes towards the government's bail-out plan for banks. The focus command will ensure that those who are assigned the task of generating statements know exactly what your objective entails. Also, it ensures that acronyms and the technical language used are clearly understood and spelled out. THE STATEMENT LIST The second step in measuring attitude using the Thurstone method involves data collection. The researcher formulates a questionnaire that contains several statements with alternative answers which are also provided. In designing the statement list, it is necessary to consider special cases such as those presented by neutral statements (Miles and Manstead, 1997). If the complications fail to produce neutral statements, the scale will be divided into two parts which is not characteristic of normal distributions. The entire range of attitudes should be considered in providing alternative responses with an aim of insuring that there will be overlapping throughout the scale in rank orders of different respondents. In coming up with the list of statements, it is important to follow certain basic criteria. A relatively large set of statements is appropriate (for example between 80 and 100) since it is upon this huge pool that final scale items will be selected. The statements should be similar in structure and grammar without differing in meaning (Stewart, Cynthia, Walter, 1996). For instance, each may be worded as statements that respondents could agree or disagree with. In other words, "statements" may not be a mixture of statements and questionnaires. CRITERIA FOR FORMULATING STATEMENTS USED IN THE THURSTONE METHOD The statements should be concise so as to avoid fatiguing respondents who will be required to read the entire list. The statements should give subjects/respondents the chance to reject or endorse them according to the level of disagreement or agreement with their attitudes. Statements should also be included that are phrased to allow respondents to express no definite rejection or endorsement. It is also important to ensure that all statements included in the list somehow indicate an idea regarding the respondent's attitude about the subject under study. Further, double barrelled should only be used as examples of neutrality in cases where no better neutral statements can be used, otherwise they should be avoided. The researcher should also ensure that a fair number of statements will belong to the attitude variable under study. Based on an objective criterion irrelevant statements that are left deliberately or unintentionally in the series will be automatically eliminated. The criterion may however be unsuccessful if most of the statements are clearly not related to the variable in focus. In the US government versus bank bail-out case, the original statement pool could be set at 100. Further reviews will be done to reduce the final number of statements used in the study. In the US government- bank bailout study, 20 final statements will apply. One statement in this case could be formulated as follows: The United States' government bail-out plan for banks will help the country rise out of its state of depression. RATING THE SCALE ITEMS Once the statements have been adequately selected, the participants are asked to rate each and every statement on a scale depending on the level each statement indicates an attitude. A typical scale will range from 1 to 11. Close attention should however be taken in assigning ratings to avoid any likelihood that participants will give their attitudes towards the subject statement or that they will agree (or disagree) with the statements as they have been formulated. Their task at this point is to rate each statement in terms of "favourableness" of attitude. In the US government-bank bail-out situation for example, each statement could be rated up to a value of five (considering the sample statement: The United States' government bail-out plan for banks will help the country rise out of its state of depression) where; 1= strongly disagree, 2= Agree, 3=Not sure, 4=Disagree and 5=Strongly Disagree. COMPUTING SCALE SCORE VALUES After respondents have checked their preferred alternative choices, the researcher begins to analyze the rating data for each statement. This involves the computation of the inter-quartile range and median. The median or 50th percentile is the value below and above which half of the ratings fall. Q1 (the first quartile) or the 25th percentile is the value above which three-quarters of cases fall, and below which one quarter of all cases fall. Similarly, the 75th percentile which is also the third quartile is the value below which three-quarters of cases fall, and above which one quarter of all cases fall. The inter-quartile range (Q3-Q1) is the difference between the first and third quartiles. Quartile and percentile values can easily be computed using spreadsheet and statistical programs. In order to facilitate the process of selection, the researcher could sort and enter inter-quartile range and medians in a table in ascending by median, and by inter-quartile range in descending order. In tackling the US government - bank bail-out situation, a table can be used as shown below Table 1: showing a sample table of Q1, Q3 and Q3-Q1 values for three cases Statement/serial number Median Value First quartile (Q1) Third quartile (Q3) Inter-quartile Range (Q3-Q1) 2 1 1 2 1 8 1 1 2 1 10 1 1 2.5 1.5 (A total of 100 statements) Applicable value Applicable value Applicable value Applicable value SELECTING FINAL SCALE ITEMS At this point, the task at hand requires the researcher to select final scale statements. Statements whose intervals across median ranges are equal are selected. Further, a statement whose inter-quartile ranges are smallest should be selected - this statement has the lowest variability in according to judges. In case the best statistical alternative is a statement that may cause confusion, the next best alternative should be selected (Stewart et al., 1996). Scale values can then be written in parenthesis beside each statement and serves as an indication of attitude. Higher values are in most cases used to represent more favourable attitudes. Alternatively, scale values are determined graphically and indicated on the graph by any suitable method such as by using small arrow heads. The measure of ambiguity Q is calculated for each statement based on responses received from respondents. An ambiguous statement will be placed over a wide range by respondents and will have a correspondingly high Q value. On the other hand, if a statement is uniform and concise in meaning, respondents will position it at an almost same position on the scale and will have a correspondingly low Q-value. Other scale values may then be determined through extrapolation. VALIDITY OF THE SCALE Before its acceptance on grounds of validity, the method applied in measuring attitudes must be subjected to an experimental test. A measuring instrument by nature ought not to be affected seriously in its measuring function by the object that it is measuring. The extent to which the measuring instrument is affected shows its validity or limitedness for use as a measuring instrument. Similarly, the range of applicability of an attitude measuring method must be ascertained. One experimental test may involve the construction of two scales for one issue under the same pool of final statements. One scale will be made based on returns from militaristic readers while the other will be based on returns from many pacifists. Establishment of the validity of the scale values is concluded if both scales are similar. It will then be necessary to apply opinion scales with wisdom. ADMINISTRATION OF THE SCALE The scale developed can then be used as a yardstick fro measuring attitudes. A respondent is given the list of statements and asked to disagree or agree with every statement. The respondent's total score is calculated as an average of all the items, which represents his/her attitude towards the issue at hand. While several attitude measuring scales can be used reliably, the Thurstone measuring scale gives information concerning the respondent's latitude of agreement to determine the degree of involvement in the issue unlike the Likert and some other scales (Anthony, Steven, Anthony, 1989). CONCLUSION While some economists have argued in favour of the bail-out plan, an almost equal number have argued that the move will not save the country from its economic downturn as the country's economy continues on its way towards a deeper recession. Similarly, the ordinary citizen has his/her take on the issue. Given that different groups and individuals have different views regarding this program, it is necessary that an analysis should be performed using a representative sample to accurately determine the general attitude of citizens regarding the government's move. The attitude distribution of a group of respondents on the US government and bank bail-out issue can be represented as a frequency distribution. In this case, the baseline can be set to represent the entire range of views with one end comprising those who strongly favour the issue while the other end comprises those who are against it in similar measure. The Thurstone scale which basically involves the use of statements concerning a specific issue, with each statement being assigned a numerical value that indicates how unfavourable or favourable it is judged to be can conveniently be used to measure popular attitude regarding the bailout decision. Respondents in this case will check every statement they agree with in a list presented to them by the researcher, and their attitudes are indicated after calculating the mean score. Before its acceptance on grounds of validity, the method applied in measuring attitudes must be subjected to an experimental test. One experimental test may involve the construction of two scales for one issue under the same pool of final statements. Establishment of the validity of the scale values is concluded in this case if both scales are similar. It will then be necessary to apply opinion scales with wisdom. While several attitude measuring scales can be used reliably, the Thurstone measuring scale gives information concerning the respondent's latitude of agreement to determine the degree of involvement in the issue unlike the Likert and some other scales. On the other hand, the equal interval measure has its limitations. In previous studies, the results obtained from its use were found to be invalid. REFERENCES Thurtone l and Chave E 2007 Measurement of attitude http://www.brocku.ca/MeadProject/Thurstone/Chave_1929/1929_03.htmL Armitage J and Conner M 2001 Efficacy of the theory of planned behaviour A meta-analytical review British Journal of Social Psychology Miles A and Manstead W 1997 The Blackwell reader in social psychology Wiley-Blackwell Anthony R, Steven J Anthony G 1989 Attitude structure and function Lawrence Erlbaum Associates Stewart C Cynthia H Walter R 1996 Handbook of organization studies Sage Publications Read More