Of these, I believe two in particular depict the role of accounting in the financial crisis, these being the effects of fair values and the overly complex (and thus allegedly detrimental) nature of financial reporting. Let us first consider the issue foremost in the criticism against the accounting profession: that of fair values. According to Laux and Leuz (2010), the main allegations against fair value accounting in relation to the financial crisis were that they reported overstated leverage prior to the crisis and overstated losses during it, leading to excessive write-downs. These write-downs depleted the capital of banks and investment institutions, which consequently resulted in them making fire sales (selling their assets at very low prices) in order to meet their capital adequacy requirements. This then offset a downward spiral as a result of the contagion effects of the
During the Financial Crisis of 2008 many factors contributed to the sustained state of economic chaos which ensued in the following months. While many financial institutions were saved by the government and other rescue operations, the collapse of Lehman Brothers remains an outlier in these instances; rather than follow the seemingly apparent protocol of “rescue” the government did quite the opposite in letting Lehman fail. This paper seeks to explain the reason for this decision and investigate the ramifications it had on the economic and political system. Much controversy surrounded the decision to let Lehman collapse and several explanations have developed to justify the actions of the government. Lehman Brothers and its collapse was at the center of a political debate during the Financial Crisis which was based on theories of conspiracy, lessons being taught, and public pressure that was tied to political motives on the part of the Fed.
In addition, such a development could cause financial and capital markets within and outside Europe to constrict, thereby negatively impacting our ability to finance our business, and also could cause a substantial dip in consumer confidence and spending that could negatively impact sales of vehicles. Any one of these impacts could have a substantial adverse effect on our financial condition and results of operations.” (www.sec.gov) I believe this statement represents the Political PESTLE force for Ford Motor Co. because it demonstrates the company’s vulnerability in the global economy based on the financial stability of countries and regions in which the company operates. Whether the financial instability is due to political unrest, economic turns, or other factors, it is a major contributor to the company’s success. Ford must pay attention to the well being of the countries in which it operates,
Elmuti (2000) refers to an interesting disadvantage regarding people. He found that one of the biggest obstacles of outsourcing is the fear of people losing employment. This can lead to morale issues with the remaining employees. In a recent Information Week article written by McDougall (2004), an interview with a financial analyst at Schwab Soundview Capital Markets revealed that language and cultural differences might inhibit growth in offshore BPO
For 9/11 to affect the Gross National Product (GNP) and Gross Domestic Product (GDP) it would have affected the price of an important input, such as energy or had an adverse effect on aggregate demand by mechanisms such as consumer and business confidence; causing financial panic, a liquidity crisis or an international run on the dollar. Estimates for consequences of human-made and natural disasters are crucial for informed decision making by both public and private stake holders. Hostile disasters cause direct impacts including fatalities, injuries, and property and infrastructure destruction. Immediate economic disruptions are psychological, resulting from the inability of consumers and businesses to adapt to changed circumstances following a disaster. The ability to quantify these impacts through models or analysis
These pro and cons will have to be measured by risk and how it will effect the company. After the weight of the risk is measured the company will then need to decide on what strategy will be most beneficial and less risky. 1. Analyze the ethical dilemma faced by Antonio. In this case study Antonio work in the Empress Luxury Lines and he faced dilemma regarding the ethic in the work place.
CHAPTER 17 CAPITAL STRUCTURE: LIMITS TO THE USE OF DEBT 2. The statement is incorrect. If a firm has debt, it might be advantageous to stockholders for the firm to undertake risky projects, even those with negative net present values. This incentive results from the fact that most of the risk of failure is borne by bondholders. Therefore, value is transferred from the bondholders to the shareholders by undertaking risky projects, even if the projects have negative NPVs.
For this reason, the only solution is to have a good risk management plan in place that focuses on the larger threats. So this leads to the question, “what kinds of risks should a company be concerned with?” The author goes on to say that a big part of risk management is understanding the degree of the threat. There are many threats that can bring a company to a complete halt. In the insurance industry for example, anything that prevents the company and its agents from making claims payments, maintaining proper cash reserves, operational risks, financial risks, and especially any risks that involve the IT systems is a threat, because a failure of the systems that keep the company running can be disastrous. Financial institutions such as banks deal with these types of issues on a daily basis because of constant cash flow.
Abstract This essay is mainly analyze the contention raised by the corporate law professor Justin O’Brien, which is, changes to the regulation of financial system participants will not mitigate a future global financial crisis, but rather a change in ethical standards is required. Moreover, follow by the discussion of O’Brien’s statement, there is a judgment that whether it is possible to devise a global regime of ethical behavior that will adequately address the problems exposed in the global financial market. 1. Introduction Along with the development of globalization, everything in this world is connected more closely especially the economy, such as the global financial crisis is evolving from the American financial crisis in 2008. Most of the economists considered that, it is the worst financial crisis after the Great Depression in 1930s.
Financial Sector Enterprises beware! The normal distribution underestimates risk. It has been frequently discussed that returns are not normally distributed. It is my opinion, as the recently appointed CRO of the company, that the use of the normal distribution for estimating risks has become outdated and is no longer reliable in current financial markets. The credit crisis has revealed glaring gaps in the risk management processes of even the biggest players in the financials sector.