UGA FHCE 3100 - Ch.13 (5 pages)

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Ch.13



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FHCE 3100 1st Edition Lecture 21 Outline of Current Lecture II Regulation of Current Lecture Exam Prep Cumulative aspects are chapters 1 4 predominately talking about the history of the consumer movement the agencies that came about and still in place today chapter 5 summarizes 1 4 so read chapter 5 Assignment 4 is predominately about chapter 5 Ex who was the president who started the dept of agriculture Ch 12 and 13 is the only new content on exam hand held skimmers are being put no ATMs to steal your credit card info Ch 12 continued Bankruptcy for 2 Exam q which 2 of the big 3 American manufacturers filed for bankruptcy What are the dates Both companies GM and Chrysler separately filed for bankruptcy protections o Chrysler on April 30 2009 o General Motors on June 1st 2009 Ford did not file for bankruptcy Ford got a line of credit General Motors General Motors filed for Chapter 11 bankruptcy after failing to successfully negotiate deals with bond holders Bond holders loan money to GM were encouraged to turn their bonds into stocks so GM would not have to pay interest on the bonds These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute They refused stocks would be worth zero after a bankruptcy GM was largely a nationalized institution by then the US government owning 60 and the Canadian 12 5 the remaining private stakes mainly being owned by employees o Canada helped bail out American auto industry so they could go through bankruptcy and come back out as publically traded company GM and Chrysler Both companies terminated agreements with hundreds of their dealerships and GM discontinued several of its brands as part of bankruptcy proceedings Pontiac Hummer and Saturn gone o Hummer s line was too big Gas prices contributed to auto industry collapse Ford Motor Company was able to survive without entering bankruptcy partly due to a large line of credit which it obtained from gov in 2009 However stock was trading at 1 01 per share Existing Bankruptcy June 10 2009 Chrysler emerged owned primarily by the United Auto Workers UAW union and by Italian automaker Fiat SPA 10 day bankruptcy November 17 2010 General Motors Co GM UL pulled off the biggest initial public offering in US history on 11 17 2010 raising 20 1 billion after pricing shares at the top of the proposed range in response to huge investor demand Became a publically traded company again o Had to use SEC and create an IPO as a new company How did it get to this point Auto industry employees paychecks In 2008 All auto related industries and after market service businesses employed approximately 3 1 million people in the US The UAW negotiated wage was roughly 28 an hour in 2007 Total compensation is the cost of labor to the companies and for GM it is about 73 per hour and for Toyota about 48 o The people buying the cars are really paying for their salaries Jobs Bank The Big 3 paid more than 12 000 idled employees their full salary and benefits in Jobs bank program that was established in the 1984 UAW labor contracts to protect workers salaries and discourage layoffs The union s intent was to protect jobs via a plan to guarantee pay and benefits for union members whose jobs were extinguished by technological progress or plant restructurings o This was negotiated by the Auto Union o They don t allow this anymore In the restructuring in the auto industry problematic for auto industry How did it get to this point Auto industry employees budgets The volume of cars sold in the US was significantly tied to home equity lines of credit with 24 of sales financed this way in 2006 When the availability of these loans suddenly dried up in 2008 due to the subprime mortgage crisis vehicle sales declined dramatically from 17 million in 2006 to 10 6 million in 2009 How did crash of housing market impact the auto industry crash and vis versa Most recently October 13 2004 Shares of Fiat Chrysler began trading on the NYSE under the ticker symbol FCAU Fiat Chrysler opened at 9 and quickly moved as high as 9 55 before pulling back a bit Chrysler hasn t been publically traded in the US States in more than 7 years At that time it was known as DaimlerChrysler Daimler DDAIF agreed to sell Chrysler to private equity firm Cerberus in 2007 Chapter 13 Saving Banking Credit and Debt Issues Chapter Preview In the US about 7 500 commercial banks serving the businesses and consumer s needs This puts the US in a class by itself In most other developed nations only a handful of banks dominate the landscape Roles of Banks in economy Facilitate borrowing and lending Facilitate payments Risk management o Issue financial assets that allow firms to share risks o Provide guarantees and lines of credit Financial Intermediaries Banks include o Commercial banks o Savings and loan associations S L s Also sometimes called or thrift institutions o Credit unions Ownership of Banks Most US banks are privately owned In most cases a bank s stock is held by a large number of investors so a bank has many owners It is relatively easy to establish a new bank in the US Bank Market Structure There are a large number of banking firms in the US but the number is falling due to mergers between banks Thousands of US banks are very small each having only a single office Many banks today have multiple branches or offices A is a firm that owns one or more banking firms Historic Development of the Banking Industry The modern commercial banking industry began when the Bank of North America was chartered in Philadelphia in The next slide provides a timeline of important dates in the history of US banking prior to WWII Banking Act of 1933 Glass Steagall allowed commercial banks to sell on the run government securities but prohibited underwriting and brokerage services It also prohibited real estate and insurance business But it did protect commercial banks by not allowing other financial intermediaries to offer commercial banking activities Historical Development of the Banking Industry The history had one other significant outcome Multiple Regulatory Agencies o 1 Federal Reserve o 2 FDIC o 3 Office of the Comptroller of the Currency o 4 State Banking Authorities Bank Products SAVINGS Savings provide a safety net and are also helpful for putting together money for future needs such as a down payment on a house Traditionally an of 3 to 6 months of salary set aside as savings is recommended as a


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