The Discount Window as a Monetary Policy Tool

The discount window is a monetary policy tool (managed by central banks) that permits genuine institutions to scrounge money from the central bank, mostly on the basis of short-term, in order to obtain fleeting paucities of liquidity, which may be caused by either internal or external intervals.Advertising We will write a custom report sample on The Discount Window as a Monetary Policy Tool specifically for you for only $16.05 $11/page Learn More The interest that is charged by the central bank is known as the base rate, discount rate or repo rate. However, the borrower must provide collateral on such loan (Federal Reserve 1). The main idea behind the discount window is to give banks liquidity whenever they necessitate it without making them much dependent upon it. In 2007, the Federal Reserve successfully did this by decreasing or increasing the discount rate. This means that by decreasing the discount rate, the Federal Reserve is attempting to enhance the development by making liquidity easier to be obtained, and by increasing, it indicates that Federal Reserve is worried about inflationary on the economy and that is why it is endeavoring to decrease the amount of money in the economy (Bogle 12). What Was Happening to the Banks at That Time? The financial crisis of 2007 was stimulated by the shortfall of liquidity in the US banking system. This caused large financial institutions in US to get themselves into hot water and even some collapsing. The financial sector was impacted by the world crisis in February, 2007. The financial crisis was caused by the major loss which had been reported by the world’s largest bank (HSBC). The bank had lost holdings by $10.5 billion. This led to the crisis which had been compared with the Great Depression. For about 100 mortgage companies had to report about selling their activities or about their shut down throughout 2007. As crisis continued to dig out, other financial institutions decid ed to merge or announce to look for merger partners. The top managers (such CEO’s) who could not bear the situation, made a decision of relinquishing their jobs, a good example is the CEO’s of Citigroup and Merrill Lynch, who relinquish within two weeks (Dozark-Frideres 1). Moreover, this financial crisis of 2007 caused huge panic in financial markets and as a result, a lot of investors were totally discourage, hence they began taking away their money from shrinking mortgage bonds and equities and invest it in other secure ways, such as commodities as â€Å"store of value.†Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More However, due to overwhelming number of investors in commodities following the collapse of financial firms, the speculation of commodity has resulted to food crisis and an increase of oil prices, because of commodity super-cycle. In addition, the financ ial investors who are looking for fast returns have taken away trillions of money from the risky mortgage bonds and equities, making some to invest in raw materials and food (Bogle 45). In 2006, provisions for prospect defaults and mortgage defaults influenced the income at the 8533 depository institutions of the United States. These defaults caused the decrease from $35.2 billion to $646 million by the FDIC. This resulted in a decrease of 98%. Having analyzed the financial situation in t world, it may be stated that the country’s economy has not experience such problems since 1990. 2007 was considered to be the worst year for performance for most financial firms in the country. Turning to the problems of insured depository firms, is should be mentioned that the companies had lost about 31% in comparison with 2006. Thus, the income of the insured depository firms in 2007 was $100 billion, while in 2006 it was about $145 billion. In same year (2007), the profit decreased from $35.6 billion Q1 to $19.3 billion in Q1 of 2008, a decrease of 45% (FDIC 1). Below is a bar graph that shows the quarterly U.S. bank earnings from 2004 to 2008. Quarterly U.S. Bank Earnings from 2004 to 2008 Furthermore, there was a situation when the discount window became the same as the federal fund rate. This situation became possible due to the fact that the supply curve of reserves became horizontal. This was provoked by the Fed desire to offer as many loans as possible at the discount rate to prevent them from bankruptcy. There was a situation in 2007 when discount rate and the federal fund rate equaled each other. This situation became possible in a number of reasons. â€Å"As iff rises above id, banks will borrow more and more at id, and re-lend at iff. The supply curve is horizontal (perfectly elastic) at id (Wright and Quadrini n.p.).Advertising We will write a custom report sample on The Discount Window as a Monetary Policy Tool specifically for you for only $16.05 $11/page Learn More The situation is showed below. Table 1. Equilibrium in the fed funds market (Wright and Quadrini n.p.) It is possible to consider the situation when the discount rate and the federal fund rate equaled each other: on the 16th of March, 2008 the discount rate was cut 25 bps and was reduced to 3.25% and indicated an intermeeting move (Chronology n.p.). What Was Happening to the Economy? The economy of the United State of America was also in hot soup. Betwixt June 2007 and November 2008, it was report that Americans lost approximate a quarter of their net value. The prices of house had decline to 20% from their peak in 2003, while other prospect markets indicating a potential decline of 30 to 35%. By mid-2008, the US total home equity decline to $8.8 trillion for its peak in 2006 that valued at $13 trillion. To understand the level of the problem, it is important to consider the activities from a broad U.S. stock index. The decline in Nove mber 2008 was 45% if to calculate from the peak in 2007. The declination of the total retirement assets from 2006 to 2008 was about 22% (in 2006 the numbers reached $10.3 trillion, and in 2008 the activities hardly reacted $8 trillion). Meanwhile, the investments and the savings made a loss of $1.2 trillion. At the same time, a loss of $1.3 trillion was considered in the activities of the pension assets (Dozark-Frideres 1). Below is a graph showing US housing price performance from 1998 to 2007. Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More How the Discount Windows Usually Operate To save the situation, or at least do not support its further damaging development, the Federal Reserve Bank have created three different discount window programs. These discount window programs were directed at depository institutions. â€Å"Primary credit, secondary credit and seasonal credit† (Federal Reserve 1) are the discount window programs implemented by the Federal Reserve Bank. However, although all credits are fully secured, each credit has its own rate of interest. In the primary credit program, loans are normally prolonged for a short term (for about 24hrs) to depository firms in order to meet the financial conditions. For the financial firms that are not under primary category can apply for secondary credit so that they can settle their severe financial problems or short-term liquidity necessities. On other hand, seasonal credit is prolonged to comparatively small depository firms that have persistent intra-year ebb and f low in funding necessities, like seasonal resort communities or banks in agriculture. Now, it is important to consider the discount rate charges in the primary credit, in the secondary credit, and in the seasonal credit. Turning to the primary credit, the charges are more than the normal level of short-term market interest rates. Using the secondary credit, the charges are going to be above the primary credit. Using the seasonal credit, the charges are going to be set on an average of certain chosen market rate. The depository institutions had an opportunity to choose the discount window program depending on the conditions of each offer. The discount rates have been formed by every Reserve Bank’s board of directors (Federal Reserve 1). How Did It Exactly Operate in 2007? In the response, the USA central bank together with central banks across the globe and the Federal Reserve took several measures to address the crisis. Below is how the discount window operated in 2007. The discount rate was decreased from 5.75% (August) to 4.75% (December), and the Federal funds rate was also lowered from 5.25% (August) to 4.25% (December). They also formed lending institutions, which offered loans with low collateral to banks and other financial firms. The financial institutions were encouraged to apply for loans, either under primary, secondary or seasonal credit, but this depended on their qualification (Dozark-Frideres 1). Did the Discount Window Continue to 2008 and Why? The discount window programs continued in 2008. Here are a number of reasons for such decision. The main reason for extending discount window in 2008 was the fact that still many financial institutions had not fully recovered from this crisis. In December 2008, the Federal Reserve decreased the federal funds rate further to a range of 0-0.25%. Moreover, in November 2008, the Fed said that it wanted to purchase MBS of the GSE at a price of $600, in order to decrease the mortgage rates (Dozark-Fri deres 1). The Federal Reserve Bank could not leave unstable financial situation in the country without support, so the decision was made to continue the discount window programs up to the time when the financial stability is implemented in the world bank system. What Does the Discount Window Do With Sterilized Funds in the Federal Reserve? The discount window can open market operations, whereby it venders bonds domestically, hence gaining new cash that can go around the home economy (Federal Reserve 1). Moreover, according to the Federal Reserve, â€Å"U.S. branches and agencies of foreign banks that hold reserves are eligible to borrow under the same general terms and conditions that apply to domestic depository institutions† (Federal Reserve 1). Why Did Not the Federal Reserve Allow Lehman Brothers to Use the Discount Window in 2007? The Federal Government did not want to bail out Lehman brothers, as it had had already drawn the line somewhere, and other financial firms cou ld not stay connected with Lehman assets on the spot (Siris 1). At the same time, many financial institutions â€Å"could not get comfortable with Lehman’s assets in an instant† (Siris 1). Federal Government hoped that Lehman had enough assets to recover from crisis and stabilize the situation. The theoretical ability of Lehman to keep the company afloat was one of the main reasons why it was refused in discount window program. Still, the firm suffered more than it was expected and there was a threat Lehman’s bankruptcy impacted each organization at the Wall Street (Siris 1). In conclusion it should be stated that discount window programs provided by the Federal Reserve Bank were effective and they made it possible for many different companies remain afloat. At the same time, the inability of the programs to fund each organization and cover the expenses or each company made the Federal Reserve Bank draw the line which did not satisfy the expectations of many fin ancial institutions at the Wall Street. But, in general, the activity was successful. Works Cited Bogle, John. The Battle for the Soul of Capitalism. London: Yale University Press. 2005. Print. â€Å"Chronology – Fed funds rate changes since 1994.† Reuters. June, 2010. Web. Dozark-Frideres, Taryn. How Did the Central Banks in the U.S. and Europe React to the Global Financial Crisis? 2010. Web. FDIC. FDIC Quarterly Banking Profile. 2008. Web. Federal Reserve. The Federal Reserve Discount Window. 2010. Web. Siris, Peter. Government Did Not Want To Bail Out Lehman Brothers. 2008. Web. Wright, Robert E. and Vincenzo Quadrini. Money and Banking. Irvington, NY: Flat World Knowledge 2009. Web. This report on The Discount Window as a Monetary Policy Tool was written and submitted by user Jadyn Perry to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

Twilight of the UAW

Twilight of the UAW Free Online Research Papers The past two years have seen the biggest attacks since the foundation of the UAW in 1936. This included cutting wages for new hires in half, eliminating company responsibility for retiree healthcare, the closing of dozens of factories, and the loss of hundreds of thousands of jobs. With the whole economy entering the worst recession since the 1930s, the auto companies are now trying to destroy the UAW completely. The demands being put on autoworkers will drive down union wages, benefits, and working conditions to be equal to or worse than those of non-union autoworkers. Joel Bergman. â€Å"In Defense of†¦Ã¢â‚¬  After securing a deal for $17.4 billion in government loans in December, GM and Chrysler have been in negotiations with the UAW to restructure the companies to make them â€Å"viable.†. The proposed contract changes would be devastating: they would eliminate the cost-of-living-adjustment, limit supplemental unemployment benefits, reduce break times, and destroy other key benefits. There would also be major cuts in company payments into the UAW’s retiree healthcare fund, a key concession from the 2007 contract. Although Ford has not asked for government loans, they are demanding the same cuts from the UAW. GM and Chrysler have already announced plans to cut tens of thousands more jobs and close more than 15 plants in the next two years. Bret Hoven. â€Å"Crisis in †¦Ã¢â‚¬  On top of it all, General Motors was unwilling to bail out its former parts unit, Delphi. So, in return, the Chairman and CEO Robert Steve Miller decided to file for Chapter 11 protection. Through bankruptcy, Miller reckons, he can get what he needs from the UAW and GM to make the money-losing company profitable again. Delphis failure means a massive and painful overhaul, possibly for all parties. The move by Miller, who has been involved in bankruptcy filings by Bethlehem Steel, United Airlines, and auto parts maker Federal Mogul Corp., has grave consequences for Delphis 24,000 UAW workers and another 11,000 retirees. While the UAW gets penalized, so to speak, foreign auto makers get state and local tax breaks to build new plants in the U.S. Because of this, every big auto maker is expanding production in the Chinese market and exporting vehicles to the U.S. Durbin, Dee-Ann. â€Å"UAW Authorizes†¦Ã¢â‚¬  The two-day strike by the UAW against GM illustrates clearly the steep decline of the importance of unions in the United States economy. Once perhaps the most powerful union in America, UAW membership among the big three auto companies has fallen by 40 per cent since the last national contract in 2003, and by much more since the 1980s. This union represented about one quarter of a million workers at GM as recently as 1994, but its active membership there has shrunk to under 75,000. As a result of this latest contract, GM will unload its present and future health care liabilities into a trust fund run by the union. Apparently, GM reduced its liabilities for health care by over $15 billion. Also the company eliminated any uncertainty over its future liabilities concerning medicare towards its active and retired employees. In return, GM committed to keeping a number of plants operating in North America, and made a few other concessions such as cutting wages for workers and retirees. Joel Bergman. â€Å"In Defense of†¦Ã¢â‚¬  In addition, GM offered retirement incentives, ranging from $35,000 to $140,000 to nearly all of its 113,000 U.S. hourly workers. The early retirement plan would trigger the largest retirement of union workers from a Detroit automaker in recent memory and help GM reach its goal of cutting 30,000 hourly jobs. GM will make the offers to workers in three categories: (1) Those with 30 or more years of service will receive a $35,000 incentive to retire with full pension and other benefits. (2) Those with between 27 and 30 years on the job will be given credits to bridge the gap to retirement, but no special payout. (3) Those with lower seniority will be offered more than $100,000 in a lump sum payment to leave the company with only the pension benefits they have accrued. The WorkPlace. â€Å"Twilight of†¦Ã¢â‚¬  In reality, these events are not independent market forces of global competition which just happen to have unfortunate results for some workers. Nor is it a question of foreign workers gaining what U.S workers are losing in foreign markets. However, we can expect to see the Chinese cars coming next year at a cost of 40% less than comparable American cars. Richard Freeman, a Harvard University economics professor stated that he was not sure if the UAW can hold on to its wages and benefits in the face of this ‘foreign wave’ of new imports. The WorkPlace. â€Å"Twilight of†¦Ã¢â‚¬  Therefore, it is absolutely necessary for autoworkers to fight against these attacks. The Big Three, with the help of Congress, are attempting to make autoworkers pay for a crisis they did not create and have no control over. They have been struggling to maintain profitability for several years, during which the auto industry has sold over 17 million vehicles annually in the U.S. Now, with rising unemployment, diminishing wages, and tighter restrictions on loans, it is unlikely more than 10 million new vehicles will be sold in 2009. Joel Bergman. â€Å"In Defense of†¦Ã¢â‚¬  The solution as of now is that base wages for UAW workers will remain the same, but the deal limits supplemental pay that laid-off workers receive while they collect unemployment benefits. The ratified deal also ends the controversial â€Å"Job Banks† program that ‘let workers collect most of their pay from the company when laid-off.’ Other solutions that would eliminate future problems would include cutting wages and benefits, gaining control of health care issues, reducing production costs and material cost through merging with foreign auto makers, using low competitive supplier sources and leveraging scales. Sharon Silke. â€Å"UAW suspends†¦Ã¢â‚¬  So, how did the UAW get into this position in the first place? Auto manufacturers, forced to increase production to maintain profits, could not simultaneously create a market that could keep up with today’s production levels. During this period, wages have fallen while manufacturers have significantly overproduced cars, trucks, SUVs and minivans that no one could buy. People were forced to take out low-interest mortgages, second mortgages, extra credit cards and car loans in order to maintain the same standard of living they enjoyed in the past. Joel Bergman. â€Å"In Defense of†¦Ã¢â‚¬  People were unable to pay off their debts as banks foreclosed on their mortgages, forcing them to go bankrupt and even live on the street. All of this could have been avoided if the UAW had not fought off concessions that would have helped the U.S carmakers fend off imports in the 80’s and 90’s. Like the steel and airline industry, now the UAW is paying the price. The WorkPlace. â€Å"Twilight of†¦Ã¢â‚¬  We should support unions because they are responsible for almost every advance made by working people. Rises in the standard of living dont just happen by themselves. The 8-hour day, the 40 hour week, unemployment insurance, disability insurance, and OSHA laws are all from the union movement. Carolyn Fninski. â€Å"Peace-Train†¦Ã¢â‚¬  Concerning our economy and society, not having the UAW right now would have a horrific effect on society. The most productive auto manufacturing plants would probably be shutting down. Then, if U.S auto factories were to shut down, whole communities would be destroyed, families torn apart and millions of people would be forced into poverty. This would be a mortal blow to the UAW and the trade union movement in the U.S. The UAW has always made fiercely loyal commitments to improve the lives of their workers. Among other things they were the first to improve job security, make available comprehensive training and education to staff, provide employer paid health insurance plans for industrial workers, and take a political stance for employees. The UAW has always allied with the Democratic Party, fighting for the American worker and not for the big bucks companies. They’ve undertaken many economic and social issues and, luckily for the American union workers, they have often prevailed. (Michael Goldfield 199) Thanks to their hard work, the UAW has provided employees with rights and benefits that non-unionized workers could never dream of. UAW members have the right to seek justice through the National Labor Relations Board. They are protected from unfair labor practices. Even in a time of crisis like today, employers don’t have to limit productivity. Still, their workers are ensured jobs at all times. Whether non-union workers benefit from the above conditions or not, the UAW and it’s union counterparts and non-union counterparts, benefit immensely. That is why the UAW and the Big 3 (GM, Chrysler, and Ford) are still the driving forces of our economy today. Bergman, Joel. â€Å"In Defence of Marxism.† 16 Jan 2009. The Financial and the Auto Sector. 18 Mar 2009 Durbin, Dee-Ann. â€Å"UAW Authorizes Strike Against Delphi.† 17 May 2006. Washington Post. 19 Mar 2009. Fninski , Carolyn. â€Å"Peace-Train: Support Unions.† 4 Sept 2008. For The Colorado Daily. 19 Mar 2009. Goldfield, Michael, The Color of Politics, New York, New Press, 1997. Hoven, Bret. â€Å"Crisis in the Auto Industry-Nationalize and Re-Tool to Save Jobs!† 11 Mar 2009. UAW Local 879. 15 Mar 2009 Silke, Sharon. â€Å"UAW suspends jobs bank, delays retiree fund payments.† 14 Dec 2008. USA Today. 15 Mar 2009 The Workplace. â€Å"Twilight of the UAW.† 10 Apr 2006. 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Essential of forensic investigation Case Study Example | Topics and Well Written Essays - 5000 words

Essential of forensic investigation - Case Study Example The humanity has been served by the forensic science for decades, yet there are major flaws which influence the court decisions in criminal cases and the case of ‘Murder of Marilyn Sheppard in 1954’ underlines how fatal can be the forensic science investigations. On the pretext of the case, the study analyzes the ways of recovering evidence, the ways of analyzing them and the way they were presented at court. The paper also examines the details of the police investigation and the sort of evidence used in the investigation. It also focuses on the techniques used in the examination and the relevance of the techniques in the current forensic examination. Further, the paper examines the types of evidence, number of evidence taken into consideration or overlooked. The evidence taken into consideration was the only prime evidence or it was part of a bigger picture is also discussed in this study along with analyzing the fact that whether they were given due importance by the court and the police investigation or not. If yes, how was the evidence used used at trial, and, if not, why? It also speculates the possible conclusion, if the case is tried now. The case study also examines the factors that went wrong as well as the factors that can be consi dered as good practices. It also identifies the desirable or necessary changes that would have affected the outcome of the case. For examining the crime scenes the only scientific process is the forensic science and its investigation reports are quite important for influencing court decisions. In the selected case the decision made once was reversed in the second trial of the case and the second trial of the case was accepted by the court on the basis of new forensic investigation and it proved how important the evidence collected by the forensic scientists and their investigation are for the legal purposes. Often, forensic