Question

In: Economics

A, B, C. Each state issues licenses for private companies to operate savings banks within the...

  1. A, B, C. Each state issues licenses for private companies to operate savings banks within the state. For example, the NY State Banking Department issues licenses (also called "charters") that are mandatory to have before operating a savings bank within NY State.  Separatelyanswering as parts A, B and C, give and explain three different legal requirements in NY State to have a license to operate a savings bank.  
  2. A, B, C. John Kenneth Galbraith described several historic episodes of asset markets going through boom and bust. One episode that he described was the stock market crash of 1929.  Separately answering as parts A, B and C, identify and explain three different causes of the crash of 1929. With each cause that you explain, include how it contributed to the 1929 stock market crash.

use general knowledge

Solutions

Expert Solution

For all banking entites, it involves an evaluation of character and fitness of incorporators and also requirement as to coporate governance and limitation on corporate powers. It involves financial requirements as to minimum net capital and also restrictions on payment of dividends as well as other restrictions such as transaction with affiliate and loan to any one borrower. For all entities,it involves requirement of books and records is it's financial condition and transaction.

The charters license for banks is to ensure the institutions operate in safe and sound manner. They have the power to suspens or revoke the license if certain requirements don't fulfill the license.

According to John Galbraith, he stated that the financial euphoria episode have common attributes that have occurred in the past and will occur in the future.

The price of the objects like land,stock,bonds,housing mortgage etc of speculation goes up. The increased prices attract more buyer and buyers exert more pressure on price. The speculation reach beyond it's own intrinsic value. During the 1920s, the stock market underwent a historic expansion and stock prices reached to unprecedented levels, investing in the stock market seemed an easy way to make money. By the end of decade millions of people started buying on margin and leverage is leverage. That's not the real assest, it's borrowed. So the Euphoria that stock prices are never going to go down. But when some stock or any piece of assest price rise to new level of heights beyond it's true Intrinsic value. The regulation of false information and insider trading also contributes towards the downfall in the long run.The end is always going to result like the stock market crash of 1929.

If we look back in history we are going to understand that whenever there is a financial opportunity ahead that the market is going to boom and if that price reaches to overvalued evaluation. People think this time it's different but that's not the case.  


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