Equity and trust essays - reflective paper topics


 

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equity and trust essays

equity and trust essaysEquity and trust essays -With inflation at around 1% between 18 gilts offered only a modest return in real terms. Luckily investors had a host of exotic new options.Had they only been bigger, it was argued, they would have had sufficient heft to have survived the inevitable bust.His response, as described in a 2007 paper by Richard Sylla of New York University, was America’s first bank bail-out.Rumours of Duer’s troubles, combined with the tightening of credit by the BUS, sent America’s markets into sharp descent.As credit tightened, Duer and his cabal, who often took on new debts in order to repay old ones, started to feel the pinch.The shift to joint-stock banking is a bittersweet moment in British financial history.Some blamed investors’ sloppiness: they had invested in unknown countries’ debt, or in mining outfits set up to explore countries that contained no ores.This shocking fraud was symptomatic of a deeper rot. Much of the information about new countries came from journalists paid to promote them.Britain’s banks, exposed to the debt and to mining firms, were hit hard.It can also act as a safety net, insuring against floods, fires or illness.To fund this scheme Duer borrowed from wealthy friends and, by issuing personal IOUs, from the public. Already massive, it then ballooned, making almost $2.7m in new loans in its first two months.Debt issued by Russia, Prussia and Denmark paid well and was snapped up.In 1826 more than 10% of the banks in England and Wales failed.In response to this aggressive regulation a group of 24 traders met on Wall Street—under a Buttonwood tree, the story goes—to set up their own private trading club. Within half a century New York was a financial superpower: the number of banks and markets shot up, as did GDP. By bailing out the banking system, Hamilton had set a precedent.Parliament passed a new banking act copying this set-up in 1826. With ownership restrictions lifted, banks like National Provincial, now part of RBS, started gobbling up rivals, a process that has continued ever since.But they also highlight the way in which successive reforms have tended to insulate investors from risk, and thus offer lessons to regulators in the current post-crisis era.It had big upsides: the ancestors of the modern megabank had been born, and Britain became a world leader in banking as well as bonds.With that backstop in place the Mexican and Colombian bonds, which paid 6%, seemed little more risky than 3% British gilts. But there would be no British support for these new countries.The first is that institutions that enhance people’s economic lives, such as central banks, deposit insurance and stock exchanges, are not the products of careful design in calm times, but are cobbled together at the bottom of financial cliffs.Manchester was becoming the world’s first industrial city, refining raw inputs into higher-value wares like chemicals and machinery. As a result, cash-rich Britons wanted somewhere to invest their funds.equity and trust essaysIt cut the supply of credit almost as quickly as it had expanded it, with loans down by 25% between the end of January and March.But beneath the surface two big changes were taking place.It was seen as a great deal: scrip prices shot up from $25 to reach more than $300 in August 1791. The scheming old Etonian was the first Englishman to be blamed for an American financial crisis, but would not be the last.Seeking to protect naive amateurs from risky investments, lawmakers sought outright bans, with rules passed in New York in April 1792 outlawing public futures trading.This was great news for Hamilton, because the two pillars of his system—the bank and the debt—had been designed to support each other.More discerning savers would have asked tougher questions: Mexico and Colombia were indeed real countries, but had only rudimentary tax systems, so they stood little chance of raising the money to make the interest payments on their new debt. Everyone knew that rivalry with Spain meant that Britain’s government supported Latin American independence. Because Madrid’s enemy was London’s friend, they reasoned, the new countries would surely be able to lean on Britain for financial backing.The initial auction, in July 1791, went well and was oversubscribed within an hour.If one man deserves credit for both the brilliance and the horrors of modern finance it is Alexander Hamilton, the first Treasury secretary of the United States.Britain seemed to operate on a one-crash-per-decade rule: the crisis of 1825-26 was followed by panics in 18.And he knew Thomas Jefferson was waiting in the wings to dismantle all he had built.Small private partnerships akin to modern private-equity houses, they were accused of stoking up the speculative bubble with lax lending.Markets for short sales and futures contracts sprang up.By the 1820s London had displaced Amsterdam as Europe’s main financial hub, quickly becoming the place where foreign governments sought funds.Widely disliked and often considered grubby, it has nonetheless played an indispensable role in human development for at least 7,000 years. It can act as an economic time machine, helping savers transport today’s surplus income into the future, or giving borrowers access to future earnings now.The Bank of England jumped to provide funds both to crumbling lenders and directly to firms in a bail-out that Bagehot later regarded as the model for crisis-mode central banking.And there were other ways to cash in: the shares of British mining firms planning to explore the new world were popular.The crumbling Spanish empire had left former colonies free to set up as independent nations.The most remarkable thing about the crisis of 1825 was the sharp divergence in views on what should be done about it.As many as 20 carriages a week raced between the two cities to exploit opportunities for arbitrage. The BUS began to run low on the hard currency that backed its paper notes.The share price of one of them, Anglo Mexican, went from £33 to £158 in a month. equity and trust essays Today Britain’s big four banks hold around 75% of the country’s deposits, and the failure of any one of them would still pose a systemic risk to the economy.That meant a federal debt that would pull together individual states’ IOUs.Exports to the rest of the world were booming, and resources increased with gold discoveries in Australia.But the long chain of mergers it triggered explains why RBS ended up becoming the world’s largest bank—and, in 2009, the largest one to fail.Financial collapses were not merely regular—now they were global, too.By the mid-19th century the world was getting used to financial crises.The Scottish lenders had fared much better in the crisis.Its banks were “joint stock” lenders that could have as many partners as they wanted, issuing equity to whoever would buy it.Yet well-intentioned reforms have made this problem worse.It ends by entrenching public backing for private markets: other parts of finance deemed essential are given more state support.The rise of the new global bond market was incredibly rapid.Government bonds were in plentiful supply given the recent Napoleonic wars, but with hostilities over (and risks lower) the exchequer was able to reduce its rates.Of the $10m in BUS shares, $8m were made available to the public.The 5% return paid on government debt in 1822 had fallen to 3.3% by 1824.Investors were especially keen in Britain, which was booming at the time, with exports a particular strength.On the surface, Britain was doing well in the 1850s.Between 18 Colombia, Chile, Peru, Mexico and Guatemala successfully sold bonds worth £21m ($2.8 billion in today’s prices) in London.In the summer of 1823 it became clear that Spain was on the verge of default. Research by Marc Flandreau of the Geneva Graduate Institute and Juan Flores of the University of Geneva shows that by the end of 1825 Peru’s bonds had fallen to 40% of their face value, with others following them down.It is an approach that seems sensible and reassuring. Walter Bagehot, editor of this newspaper between 18, argued that financial panics occur when the “blind capital” of the public floods into unwise speculative investments.Despite this many banks were unable to meet depositors’ demands. equity and trust essays And America would also need a central bank, the First Bank of the United States (BUS), which would be publicly owned.America’s new bonds would be traded in open markets, allowing the government to borrow cheaply.In financial terms the young country was a blank canvas: in 1790, just 14 years after the Declaration of Independence, it had five banks and few insurers.But Britain’s financial chiefs, including the Bank of England, blamed the banks instead.In 1820 there was just one foreign bond on the London market; by 1826 there were 23.To get to South America and back in six months was good going, so deals were struck on the basis of information that was scratchy at best.Depositors began to scramble for cash: by December 1825 there were bank runs.The first big change was that a web of new economic links had formed. By 1857 America was running a $25m current-account deficit, with Britain and its colonies as its major trading partners. Ask people this question and they are likely to pick familiar technologies such as printing or electricity.To get hold of a $400 BUS share, investors had to buy a $25 share certificate or “scrip”, and pay three-quarters of the remainder not in cash, but with federal bonds.These five crises reveal where the titans of modern finance—the New York Stock Exchange, the Federal Reserve, Britain’s giant banks—come from.From there it led to crashes in Paris, Hamburg, Copenhagen and Vienna.But the really exciting investments were those in the new world.If history is any guide, decisions taken now will reverberate for decades. The response to a crisis follows a familiar pattern. New parts of the financial system are vilified: a new type of bank, investor or asset is identified as the culprit and is then banned or regulated out of existence.Hamilton wanted a state-of-the-art financial set-up, like that of Britain or Holland.Hamilton attacked on many fronts: he used public money to buy federal bonds and pep up their prices, helping protect the bank and speculators who had bought at inflated prices. And he ensured that banks with collateral could borrow as much as they wanted, at a penalty rate of 7% (then the usury ceiling).Britain’s response to the crash would change the shape of banking.Duer and his accomplices knew that investors needed federal bonds to pay for their BUS shares, so they tried to corner the market. On the day it opened it dwarfed the nation’s other lenders.The sight of Britons stuffing Icelandic banks with sterling, safe in the knowledge that £35,000 of deposits were insured by the state, would have made Bagehot nervous.This new bank was an exciting investment opportunity. equity and trust essays His response, as described in a 2007 paper by Richard Sylla of New York University, was America’s first bank bail-out. equity and trust essays




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