Financial crisis of 2007–2010

The financial crisis of 2007–present is a crisis triggered by a liquidity crisis in the United States banking system. It has resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets around the world. In many areas, the housing market has also suffered, resulting in numerous evictions, foreclosures and prolonged vacancies. It is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.  It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial commitments incurred by governments, and a significant decline in economic activity. Many causes have been proposed, with varying weight assigned by experts.  Both market-based and regulatory solutions have been implemented or are under consideration, while significant risks remain for the world economy over the 2010–2011 periods.
The collapse of a global housing bubble, which peaked in the U.S. in 2006, caused the values of securities tied to real estate pricing to plummet thereafter, damaging financial institutions globally. Questions regarding bank solvency, declines in credit availability, and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during late 2008 and early 2009. Economies worldwide slowed during this period as credit tightened and international trade declined. Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st century financial markets. Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion, and institutional bailouts.

Read more on Wikipedia: http://en.wikipedia.org/wiki/Financial_crisis_of_2007–2010

Michael Brandl on Obama’s economic plan

Carlos Slim is world’s richest man (Forbes)

There are 9 Mexicans among the most powerful on the planet and Carlos Slim is world’s richest man today,12 months were enough to recover 18 thousand 500 million dollars, of which 25 billion lost in the crisis, enough to accumulate a fortune today 53 thousand 500 million, making it the richest man on the planet, according to Forbes, which yesterday released its new list of the wealthiest in the world. Arturo Elias Ayub, director of strategic alliances, communications and institutional relations of Telmex, said in an interview that this is the result of the confidence investors have in Mexico and in the group, then we must not forget that this wealth Forbes measured by the value of listed companies in the financial markets and there was an increase in the share price. “Nobody has the money in his pocket. This is the share that has the Mr. Slim in business, but everything is upside down and creating jobs, providing services and hopefully have many Mexicans here creating 250 thousand direct jobs and more than indirect one and half million, “he said. The Mexican left second to Bill Gates with 53 billion dollars for 14 years. The person who had headed the list, in third place is Warren Buffett with 47 billion. On Wednesday the New York Business magazine released its famous list of the richest men in the world, fortunes of a billion dollars later, that this edition adds 11 thousand billionaires, 218 more than in 2009 but not yet reached a record 125 thousand rich 2008, before the crisis. And by the recovery of its wealth, Slim could be traced back to Gates and Buffet. The founder of Microsoft, which in 2009 had lost 18 billion dollars, could recover 13 billion, moving from the 40 billion to 53 billion this year, “only” 500 million dollars less than Slim. Buffet, owner of the powerful international investment fund, Berkshire Hathaway, as Mexican businessman had seen vanish 25 billion of his fortune; recovered and spent 10 billion of 37 billion to 47 billion dollars this year, 6 thousand 500 million dollars less than Slim. And this, powerful chairman of Grupo Carso, also recovered 18 thousand 500 million, increased from 35 billion to 53 thousand 500 million, an increase of almost 53%. But this year not only did well to “telecommunications titan,” as Forbes calls it, also, to a greater percentage, several Mexican businessmen who appear in the list, and are practically the same in recent years. Even the drug trafficker Joaquin El Chapo Guzman Loera, who was inaugurated in the Forbes list of the previous edition, repeated although no change in his fortune of a billion dollars, the “minimum” to ensure a place in the famous rank . The most outstanding in terms of percentage increase is that of Larrea and family Germain, mining Grupo Mexico, who took a quantum leap: 2 thousand 600 million in 2009 to 9 thousand 700 million dollars now, 7 thousand 100 million more, meaning an increase of 273 percent on their fortunes. This is the third richest Mexican. MEXICANS :Nine Mexicans appear among the richest men in the world in the forbes 2010 rich list .

Here is Forbes ranking of the 20 richest people in the world:

1. Carlos Slim (Mexico) – $US53.5 billion, telecommunications
2. Bill Gates (USA) – $US53 billion, Microsoft
3. Warren Buffett (USA) – $US47 billion, Berkshire Hathaway
4. Mukesh Ambani (India) – $US29 billion, petrochemicals, oil and gas
5. Lakshmi Mittal (India) – $US28.7 billion, steel
6. Larry Ellison (USA) – $US28 billion, Oracle
7. Bernard Arnault (France) – $US27.5 billion, LVMH
8. Eike Batista (Brazil) – $US27 billion, mining, oil
9. Amancio Ortega (Spain) – $US25 billion, retail
10. Karl Albrecht (Germany) – $US23.5 billion, supermarkets
11. Ingvar Kamprad & family (Sweden) – $US23 billion, Ikea
12. Christy Walton & family (USA) – $US22.5 billion, Walmart
13. Stefan Persson (Sweden) – $US22.4 billion, Hennes & Mauritz
14. Li Ka-shing (Hong Kong) – $US21 billion, diversified
15. Jim Walton (USA) – $US20.7 billion, Walmart
16. Alice Walton (USA) – $US20.6 billion, Walmart
17. Liliane Bettencourt (France) – $US20 billion, L’Oreal
18. S. Robson Walton (USA) – $US19.8 billion, Walmart
19. Prince Alwaleed Bin Talal Alsaud (Saudi Arabia) – $US19.4 billion, investments
20. David Thomson & family (Canada) – $US19 billion, news and information company Thomson Reuters

 The full Forbes ranking of the world’s billionaires can be seen at www.forbes.com/billionaires

A Bankruptcy to Save GM

…General Motors is quickly going down the same path. There is no doubt that it
needs a serious restructuring. It burned through $9 billion of cash in the first 9 months of
2008. It has a labor cost 50% higher than U.S.-based Toyota plants, and it produces cars
nobody wants. It is saddled with massive pension and healthcare obligations and it is
essentially insolvent: its total liabilities are more than 50% greater than the book value of its assets.
Critically, GM’s position on the verge of bankruptcy is not because of the severity
of the current financial and economic crisis. The current crisis is simply the proverbial
straw that breaks the camel’s back. Without the crisis, the camel would not have lasted
long anyway…

…read more

(C) Luigi Zingales

Blowing the Whistle

Blowing the Whistle
Which External Controls Best Reveal Corporate Fraud?
New research suggests that the best way to promote fraud detection is to extend the Federal Civic False Claims Act to corporate fraud.

LinK: Video

Adair Morse is assistant professor of finance at the University of Chicago Graduate School of Business.
Luigi Zingales is Robert C. McCormack Professor of Entrepreneurship and Finance at the Universtiy of Chicago Graduate School of Business

As the new millennium dawned, so did a spate of U.S. corporate scandals. The names Enron, WorldCom, and numerous others are tainted by cases of corporate fraud and malfeasance. These frauds and the accompanying outrage spurred the passage of the Sarbanes-Oxley Act (SOX). The underlying premise of SOX was that institutions charged with uncovering fraud had failed in their duties, and their incentives and monitoring needed to be enhanced. Read the rest of this entry »