FHCE 3100 1st Edition Lecture 21Outline of Current Lecture II. Regulation of Current LectureExam 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, 2009o General Motors on June 1st, 2009 - *Ford did not file for bankruptcy, Ford got a line of creditGeneral 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 bondsThese 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 employeeso *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 companyHow 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 timeit was known as DaimlerChrysler. Daimler (DDAIF) agreed to sell Chrysler to private equity firm Cerberus in 2007 Chapter 13: Saving, Banking, Credit and Debt IssuesChapter 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 landscapeRoles of Banks in economy- Facilitate borrowing and lending - Facilitate payments- Risk management o Issue financial assets that allow firms to share riskso Provide guarantees and lines of credit Financial Intermediaries - “Banks” include…o Commercial bankso Savings and loan (associations (S&L’s) Also sometimes called “_____” or “thrift institutions” o Credit unionsOwnership 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 USBank 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 firmsHistoric 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 bankingprior 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 banksby not allowing other financial intermediaries to offer commercial banking activitiesHistorical Development of the Banking Industry - The history had one other significant outcome: Multiple Regulatory Agencies o 1. Federal Reserve o 2. FDICo 3. Office of the Comptroller of the Currency o 4. State