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Investment Banking In 200 A Brave New World Essay

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Investment Banking in 200 (B): A Brave New World
1. In the wake of the Great Depression, Congress had enacted the 1993 Glass-Steagall Act to prohibit the combination of depositary institution and investment bank and brokerages. However, following the changes of technological advances, both individual and corporate customers’ desired for a one-stop shop. Citicorp, the second largest commercial bank and Travelers Group, the third largest brokerage house lobbied for merger’s regulatory approval. Because of a Republican Congress and President Clinton the Gramm-Leach-Bliley Financial Service Modernization Act was passed. To compete in a global market companies, need to make changes in order to be competitive. I don’t believe that the government could have foreseen the crisis of 2008, partly because I think they believed companies would have acted ethical and not taken one such high risk investments.
2. …show more content…

I believe that Goldman Sachs could have been competitive without taking large leverage investments. During the 10 years leading up to the 2008 crisis, Goldman never exceeded a leverage above 30x most other investment banks were leveraged up to above 40x. With a lower leverage Goldman would be able to write off its subprime loans more easily.
3. The Fed placed a $29 billion loan against a collection of Bear’s assets thought to be worth $30 billion. With J.P. Morgan absorbing the first billions of bad investments. The Fed believed that Bear’s struggle was due to liquidity problems and in the end would be repaid in full. However, with Lehman the problem was solvency. Lehman had increased their leverage ratio 10x during the years leading up to 2008 and had given Lehman a high debt-to-equity ratio.
4. Yes, with investors requiring greater levels of returns, investment banks were required to take on loans with higher levels of

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