Summary: More on banking! Specifically more about a crucial job in the economy’s financial regulation ecosystem– the bank examiner. We hear about a “natural experiment” that shows that, in the absence of bank examiners, banks basically acted liked kids throwing spitballs in a classroom without a teacher! We also hear that we will likely face a shortage of bank examiners in the future. Uh oh! Inspired by this fact, our teaching idea is a career-exploration exercise created by Prof. Natalia Smirnova. Students use the rich BLS data to explore their own futures.
Summary: Another chapter in the Banking Turmoil of 2023– the end of Credit Suisse, a long-standing Swiss banking institution. The Indicator recaps how it got to the end of a road full of bad bets, unprofitable lending and scandal. We also hear about the discomfort in markets in the aftermath of the UBS-Credit Suisse merger down due to the write-down of “CoCo” bonds We seized this opportunity to create a quick, refresher (or even intro!) exercise on capital structure.
On this episode from Planet Money, they discuss the events and people that led the creation of the Fed, relevant in 2022 in light of the pressure the Fed is facing in as inflation continues to rise. A quick guide to J.P. Morgan’ s influence and help with founding the Fed so big bailouts no longer had to fall on his pockets.
The people who lose their passkey to bitcoin have no way of accessing their possible fortune. Find out what this means for all the lost or untouched bitcoin.
Cornell Professor Vicki Bogan describes what a bond is, how it is different from a stock, and how they help companies grow. Also, learn what happens when you purchase a junk bond.
Discussion Prompt: From your listening (and additional research if you wish), briefly explain the difference between stocks and bonds. What do you think are the pros and cons of investing more in stocks or more in bonds, or a portfolio of both?
Learn from Planet Money’s Summer School what causes financial bubbles with examples such as the dotcom bubble and the Great British bicycle bubble. Also, hear about how behavioral biases, greater fools theory, and herd behavior make bubbles much worse.
Despite national and global efforts to discourage money laundering, there were recent reports from the Financial Crimes Enforcement Network suggest suspicious transactions and funding during the investigation of Russian interference in the 2016 election. This podcast further discusses some of the failures of banks to report suspicious activities in a timely manner. Matthew Collins from the Brookings Institute states that if our government really wants to hammer down on money laundering and other financial crimes, it is crucial to invest more funds into regulatory bodies such as FinCen.
This podcast discusses research conducted by Daniel Reck regarding the enormous amount of wealth American’s keep overseas to avoid being taxed. Different policies that were enacted, specifically in 2008, aimed to increase the disclosure of offshore wealth, which were somewhat successful in the prevention of tax evasion.
Shares in Tesla stock doubled in price from May to December of 2019. Currently, there is not much competition in the electric automobile industry. There is concern, however, that competition from well known brands such as Audi, BMW, or Mercedes will hinder sales for Tesla due to consumer loyalty.
In the United States bond market, only two companies currently hold a triple-A rating: Microsoft and Johnson & Johnson. Most companies are falling into triple-B and double-B bond ratings. Once companies fall below a triple-B rating, their bonds are considered to be “junk bonds”. Due to the current low interest rates, even if a company has a low rating, they still can receive a loan at a low price which means there is little incentive to achieve a high bond rating. With the record high level of corporate debt in the U.S., there will be little financial flexibility for these companies if a recession hits.
Original Air Date: February 5, 2020
Length: 9 minutes
Discussion prompt 1: Should the government incentivize companies to cut back on their debt and improve their bond ratings? If so, how should the government do this?
Discussion prompt 2: What are the long term economic implications of the extensive amount of corporate debt in the United States?
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