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Bailouts and Bonuses: From Financial Bankruptcy to Moral Bankruptcy?


Code : GOV0041

Year :

Industry : Banking

Region : Global

Teaching Note: Available

Structured Assignment : Not Available

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US Financial Crisis:An Anatomy The housing market bubble burst of 2006 in the US, the subprime mortgage lending, the securitisation of obscure financial instruments, the uncanny leverage ratios of financial institutions and the opacity of financial derivatives were largely blamed to be the immediate causes of the US Financial Crisis (2008). However, these causes were mere results of long-term fundamental economic development across nations, especially in the big surplus and deficit economies of the last decade of the 21st century – China and the US...

Bailout: Historical Evidences from the US The first bailout came in the wake of the 20th century, in the pre-Federal Reserve era, when several banks and trust companies were run by investors. The banking system was then an intricate network of banks, brokerage houses and trust companies in New York City. In October 1907, Augustus Heinze (Heinze), President of Mercantile National Bank, failed in his attempt to corner the stock of United Copper Company. Subsequently, he was forced to resign from the Mercantile National Bank, followed by run on the bank...

Bank Bailouts and Bonuses: The (Im)moral Considerations Among the various factors attributed to financial crisis (2008), CEO compensation has raised many a brow and they were held responsible for the collapse of the global financial market. In the period of consolidation during 1970s and 1980s, across industries in the US, companies gave an attractive severance package for an expelled CEO in the form of ‘golden parachute’. As a result, in 1986, the government brought a change in the tax code charging a penalty tax on excessive golden parachute payments, which was more than three times of an executive’s base pay. However, due to rising criticismagainst golden parachutes, financial companies introduced stock options as the primary form of compensation by aligning management and shareholder interests...

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