Tag Archives: lehman brothers

When to Rein in the Stock Market

EAST LANSING, Mich. — The stock market should be regulated only during times of extraordinary financial disruptions when speculators can destroy healthy businesses, according to a new study led by a Michigan State University scholar.

The study, in the Journal of Financial Economics, is one of the first to suggest when the U.S. Securities and Exchange Commission should get involved in the market.

The answer: rarely. The SEC should step in only when outside financial disruptions make it impossible for large shareholders to fend off “short sellers” – or speculators betting a company’s stock value will decrease, said Naveen Khanna, finance professor in MSU’s Broad College of Business. (more…)

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Criminology and the Global Financial Crisis

The first overt indications of the impending global financial crisis manifested themselves in August 2007, when BNP Paribas announced it was severing ties with three hedge funds specializing in mortgage debt for American real estate properties. The crisis was exacerbated by the immediate freeze on credit by banks to their customers – and to each other. The crisis came to a head in 2008 when the United States government refused to rescue investment firm Lehman Brothers from financial collapse. Subsequent actions by the American government and by foreign governments, as well as actions taken by commercial enterprises world wide, have been focused on repairing the financial damage to sovereign economies and to individuals thrown out of work – and out of their homes.

It is not unreasonable that everyday individuals failed to comprehend the exotic and opaque financial instruments and transactions employed by companies like Enron and individuals like Bernie Madoff. Powerhouse accounting firm Arthur Andersen was also taken in by Enron, and paid for its error in judgment by being forced to close its doors after nearly a century of operation. Madoff utilized the services of investment firm JP Morgan Chase for years, nearly until the time of his arrest. (more…)

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Public Firms Weathered Recession Better Than Expected

The prevailing narrative of the financial crisis revolves around banks’ reduced ability to issue loans, but a new paper by University of Arizona associate professor of finance Kathy Kahle reveals that the credit supply shock did not affect publicly traded firms as much as expected.

Bank losses from toxic assets were responsible for the credit contraction, but those toxic assets – mostly mortgage-backed securities – are not directly related to the performance of industrial firms. (more…)

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