MBAF 603 – Finance historically provides the network
Read the following statements and let me know your thoughts on whether you agree or disagree with them:
1.- Finance historically provides the network for linking investors with capitalists and entrepreneurs. It is the transfer of funds from those who have idle funds to
those who have opportunities for putting those funds to work in creating wealth. A basic tenet of finance is to maximize wealth for shareholders.
2.- Financialization is the process of re-distributing wealth from those who invest and those who create wealth to those who facilitate the financing and investing
processes. Re-distribution comes in the form of excessive fees and charges imposed by financial institutions on financial transactions.
3.-The Netherlands and Britain fell from global economic prominence due to the financialization of their economies. The United States is following the same path. The
United States is experiencing financialization on several economic fronts.
4.- The re-distribution of wealth from shareholders to executives results in the concentration of wealth at the executive level without comparable creation of wealth
for workers and shareholders. An example is the retirement package of Pfizer’s chief executive. As reported in the New York Times in 2006, the package resulted in a
windfall of 200 million dollars to the C-E-O while stockholders realized a 40 percent loss in company value during his tenure.
5.- Another example of financialization is the mortgage lending industry. Home ownership is an equity builder for mainstream Americans. Equity is built up in the home
as the mortgage is paid down, coupled with home improvements and custodial care of the property.
6.-Financialization results when homebuyers are duped into high-risk mortgages structured to offer upfrontqualification but down-the-road foreclosure. These mortgages
are often re-structured and sold as mortgage pass-through securities to general investors.
7.- Financial institutions collect millions of dollars in fees from the transactions. Upon foreclosure, the properties are turned over rapidly, resulting in more fees.
The homeowners lose any equity or opportunity to build equity. The purpose of this entire process appears to be generating fees, not creating equity wealth.
Other examples of financialization include credit card companies, trading and brokerage bonuses, and the national debt.