This assignment is for Honors Economics, P1.
1) Find a credible source on the internet that connects to The Big Short or to your mutual fund. This source should drive your research project.
3) After you read the source that you find, answer the following questions as a blog entry below:
- How does the text connect to your research project? (relevant)
- What evidence do you have that the text you found is credible? (credible)
- Create a clear, specific argument based on the text. (argument)
- Support the argument with thoughtful analysis, using cause/effect, compare/contrast, problem/solution, part/whole, or other methods of analysis. (analysis)
Keep in mind that everyone else will see what you write below, so please keep it professional. This post is due Thursday, 3/21, by 12:00am.
4) Come to class on Friday ready to discuss the reading and the text you found!
If you need support or have questions, my office hours are Monday and Wednesday from 3:15-4:15 in Room 229.
The article that I found this week is called “How to Switch Between Samsung and Apple,” by Quentin Fottrell. This article is about how Samsung is adding a new feature to its phones which allows videos to automatically pause themselves when the user turns his or her face away from the phone. This new feature makes Samsung a big competitor for Apple. Since this is not something that Apple products do, there is a big possibility that customers will be more attracted to the innovative, new technology that Samsung will provide. This situation is particularly relevant to my portfolio of investments because I am currently investing in Apple. Since Samsung is now an even bigger competitor for Apple, this is going to affect whether or not I keep investing in Apple and whether or not I begin to invest in Samsung as well.
ReplyDeleteThis article comes from marketwatch.com, which is the website that my investment portfolio is based off of. Market Watch is indeed a credible source because it constantly updates the stocks for all kinds of industries. Market Watch also has reporters writing articles about how companies are doing in the stock market and how they are doing compared to their competitors. It is important that Market Watch keeps all its information accurate and up-to-date because a lot of people’s money depends on the information that they provide. Making a mistake could potentially cost people thousands of dollars or could also gain them money that they actually should not have won. Therefore, Market Watch is a credible source to rely on because it will surely make sure that it only publishes correct information in order to prevent any misunderstandings.
Based on this article, I have decided to keep the three shares I have invested in Apple, but also invest 5 shares in Samsung because I expect the value of this stock to increase once their new technology is released. Since the article clearly states that “Industry pros say both companies have an interest in making it a challenge to abandon their operating systems,” it would not make sense for me to only invest in one of the companies. Consumers are going to continue to buy from both Apple and Samsung, so the only problem is figuring out which one will be more successful than the other. I believe that once Samsung releases their new phone, more people will be inclined to buy from them than they are to buy from Apple. Thus, I would rather invest more money in Samsung now because I expect to benefit from them in the future more than I will from Apple. However, Apple products are very popular, so I won’t stop investing in them because I think people will continue to buy from them, just not as much as they will from Samsung. For this reason, I expect Apple to continue bringing in a rather consistent amount of money, but I expect Samsung, its competitor, to bring in much more money until Apple finds a way to compete with them.
The article “U.S Sues S&P Over Ratings” offers context the the lawsuit that S&P faces. S&P is being accused of allegedly having false and inaccurate ratings that contributed to the recession. This connects to “A Secret Origin Story” of The Big Short because it shows the development and origins of the economic collapse that turned into the worst recession the nation has ever seen. Both target the mortgage bond market as the main catalyst of the economic crisis that later unfolded. Fraud and ignorance are considered major factors of the economic meltdown in both text. Firms felt that there was nothing to lose and everything to gain. It was the irresponsible management that allowed inflated ratings and created the economic recession.
ReplyDelete“U.S Sues S&P Over Ratings” is a credible source because it was published in The Wall Street Journal. The publication enterprise is a prestigious news source that specializes in economics and finance. If there was any misinformation it would negatively affect their reputation and profit, since there would be a decrease in readers. In addition, this article was created by three reporters, two of whom are Jeannette Neumann and Evan Perez. Jeannette Neumann went to Graduate School of Journalism at Columbia University. She is a reporter at The Wall Street Journal and was a reporter and editor of the Buenos Aires Herald. Evan Perez covers the Justice Department in The Wall Street Journal. He has been a reporter at The Wall Street Journal since 1998 and was nominated for a Pulitzer Prize in 2004. Their combined experience makes this article credible, credibility is enhanced since three reporters were involved in this article.
To prevent an economic crisis from developing again the stock market should be more government regulated. In the aftermath of the recession a lawsuit has been filed against S&P, a major firm that is being held accountable for the economic collapse. “The suit alleges that S&P from September 2004 through October 2007 "knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors in" CDOs and securities backed by residential mortgages” (Perez). The rating firms are being accused of defrauding investors through CDO’s. They were rating falsely so more investors would invest in the mortgage bond. However, it was misleading and investors lost a lot of money. It is possible, but sad that “The firm's "desire for increased revenue and market share" led it to "downplay and disregard the true extent of the credit risks," the suit alleges” (Perez). If firms are blinded by greed they are not able to follow their standard procedures. This can result in bad investments that can lose investors millions if not more. Additionally, “...the government has been investigating whether S&P managers pushed to weaken company standards for rating mortgage-linked deals or ignored the standards entirely” (Perez). It would be fraud and ignorance if S&P ignored its standards and produced inflated ratings. The government has some vindication in sueing S&P. The government should have been regulating standards and procedures, as well as enforcing them from the beginning. S&P is being made a scapegoat by the government to try to prevent another recession in the future. Furthermore, “The argument, brought under state consumer protection laws, sought to skirt First Amendment protections by focusing on what the firm told investors about its rating process rather than actual ratings” (Perez). The rating process is useful if done correctly. However it is not the same to compare a rating process and an actual rating. It is a mistake, similar to recording expected profits rather than actual profits received. Hence, government should regulate the stock market by passing stricter legislation and fines should be implemented to prevent fraud and deter ignorance. It would keep the stock market in check and help it learn its lesson to prevent another economic recession.
The article “Market Swings are Becoming New Standard” by Louise Story and Graham Bowley is one that focuses on the price change and efficiency in the stock market. This week we’ve been working on our investment portfolio where we have to trade and invest in different stock markets in order to invest. This text connects to this week and our next project because the article focuses on price change and in the stock market, price change is important to look at before investing.
ReplyDeleteThe evidence that I found is credible because the article was published in the New York Times, an American daily newspaper founded and continuously published in New York City since 1851. Furthermore, the New York Times has won 108 Pulitzer Prizes which beats any other news organization. The New York Times won’t publish any false information because that will lead to a decrease on the number of viewers that visit the website daily. Louise Story, one of the authors of the article isn’t only a reporter on the Investigations Desk of The New York Times, but she also hosts the TimesCast video program every Friday. She’s written in for The Wall Street Journal, The Boston Globe, and other news sources. Graham Bowley reports for the New York Times from Afghanistan. He covers general news and foreign news for the web site. Both of these authors benefit the New York Times positively because the news source is gaining more recognition.
Price changes are more common than they used to be. Some market analyst pointed out that “stocks simply move faster today because of the quicker pace of news and trading, and so drops and surges in prices that might have been spread over days in past times are now condensed within hours” (Story,Bowley). There is a difference in the stock market specifically in it’s price change compared to how it was during the 1900s. The Times looked at two sorts of historical data to compare the price changes, “the closing prices of the S.& P. 500-stock index as well as the highest and lowest points the index reached during each trading day. Both measures, from 1962 through the end of this August, painted similar pictures of the market — it rises and falls more now in greater size”. All of this is related to volatility. Volatility describes the speed and amount of price changes. The trend toward volatility is pronounced in larger price moves, for instance big and popular companies. Volatility might be beneficial in some occasions but some economists fear it because the violent increase and decrease may undermine confidence in the economic market and can lead to political things which also feeds the volatility loop. The stock market has been more efficient and has progressed since the 1900s but the speed and amount in price changes are giving bad results.
In The Big Short Michael Lewis addresses problems in the economy such as those of having subprime mortgages. In this case, he addresses that house values continually increase as time passes, buyers make a deal to get the house even with high interest rates and low credit, and eventually can’t even afford to handle the house value price in the future. Similarly, in the New York Times “Mortgage Crisis Spreads Past Subprime Loans” by Vikas Bajaj and Louis Story demonstrates that there isn’t just a subprime mortgage problem but a subprime loan problem. Both of these texts are related because all of the authors would agree that people can make loans but should have proof of good credit history because those people will pay the money they owe rather than not pay at all and affect the investor and greater companies that won’t earn any returns. Clearly, subprime borrowers cannot refinance their loans or sell the assets that they have to pay for their mortgages and subprime lenders do not have any alternatives other than to keep gaining clients whose investments they will handle assuming that house prices will never stop increasing.
ReplyDeleteWhen reading “Mortgage Crisis Spreads Past Subprime Loans” I noticed that this article is credible in relation to The Big Short because it was written in the New York Times. The New York Times has been around for many years and is frequently read by many people. Evidently, if many audience members are taking time to read this newspaper it’s because it is informative rather than biased. When it comes to the finance section which includes information on the economy and several businesses, the New York Times is a credible source because it gives readers daily updates on the status of currency value, has several economic graphs on stocks and shares, prices on certain assets for example housing, and this company also has two workers from the Economic Department that have won the Nobel Memorial Prize in Economic Science. Therefore, in terms of finance the New York Times is a reliable source.
Based on both “Mortgage Crisis Spreads Past Subprime Loans” and The Big Short readers can infer that people need to be well informed about businesses and the way that those companies have worked over time because if not both money and time is lost. According to the text I found in the New York Times, one couple lost their home because they could not afford the value of their house which was over $275,000. Although the couple spoke to subprime lenders about how they could not pay that amount or even higher because they had other costs such as paying other loans and helping their daughter with college tuition, the lenders did not care. As long as the property was left in place and in good condition, anyone else can invest in the home and make it their own. The problem however is not that the lender did not coincide with their client but that at the time of investing in the home,the client did not bother to pay for insurance and therefore in the end did not have security. Michael Lewis clarifies this situation by stating “I wanted to help people- but not really” (34). He is demonstrating that subprime lenders may want to help people get a home but in reality all they want is someone who is willing to give up money so that they can invest and have greater returns in the future. The higher the amount for the home, the safetier the investment at the top. Indeed, because many people who have lost their homes would see interest as a fraud, the government should become involved and create investment regulations to create order in the finance world.
Paul Sullivan’s article, “The Best Investing Advice? Maybe Not the Conventional Method” is an example of the constant changes investors have to make in order to be in sync with the market and able to gain money. We have been working on market-watch for the past 2 weeks, getting to know different markets and investing in them to see who gains money and who doesn't, for a final product of a portfolio. Sullivan’s article and our market-watch project connect because Sullivan talks about methods of investing that are not effective and that are effective which can be helpful and useful for when we invest on market-watch.
ReplyDeleteThe NY Times is a well trusted daily news source. It was founded in New York City and has been publishing since 1851. Paul Sullivan a writer for this news source writes the “wealth matters” column. Making the piece credible because he has knowledge on how the economy, market, private banking etc work making this piece strong because, he has a lot of background knowledge on the topic.
On my market-watch game I have gone with the mutual fund investing method. I have been investing shares on markets that I feel will be doing great in the future. Also who have had decent past history even if they are not doing well at that specific moment, just because I have knowledge on those markets. According to Sullivan ““The easiest thing would be to buy and hold or to select a manager with a good long-term track record and buy it and forget it. [What I have been doing so far], that [is not] an effective way of selecting funds.” Due to the fact that I have been investing my shares in markets that I have knowledge in, or at least I thought I did, those are the markets that have been making me lose my money. This connects to the business people in the big short writing information down in their books looking into the future on investments made involving subprime mortgages. Although this method of mutual fund investing did not work out for me, Sullivan presents a different approach that I will try to see if I can gain some money. He mentions “an actual fund, called the Upgrader Fund, which applies this strategy with mutual funds and exchange-traded funds.” This combines what I have been doing before with a new addition. The new addition advice's the investor to sell the share if it is not bringing money, which is a very intelligent move. I was aware that I was able to do this in the game, but now I am more curious to try it because I have invested in about 5 different markets, getting -$34.69 in returns and having only 3 trades. I am willing to use the new addition to the way I invest to see if I actually gain money now.
The article “A New Housing Boom? Don’t Count on It” by Robert J. Shiller discusses how the current point in the housing market consisting of low interest rates and price increases are not concrete indicators of a prospective future for the market. This relates to chapter 2 of The Big Short as the housing market was one of the prominent causes of the great crash in 2008. These investors who were unaware of what they were doing relied on the predicted increases of housing prices to determine the health of the market. With these misconceptions, several companies were misled and hit by the crisis fueled by ignorance.
ReplyDeleteThis article is credible because The New York Times published it. The New York Times is a daily newspaper that was founded in 1851. Since then, The New York Times has won 108 Pulitzer Prizes, making it one of the most eminent newspapers in the country. Because of the success and popularity The Times has gained, it would avoid publishing false information to prevent its reputation from being ruined and losing its readers. Additionally, the author of this article, Robert Shiller, is an economics professor at Yale University and has been affiliated with organizations such the National Bureau of Economic Research, Vice President of the American Economic Association and President of the Eastern Economic Association. Also, he is co‑founder and chief economist of the firm MacroMarkets LLC, all evidently showing that Shiller is a very accomplished and expert economist.
Because of past mistakes, it is vital that the market focus on using other methods of determining success as evidently, reliance on the housing market catalyzed the downfall of the United States’ economy. Before the crash, many lending companies relied on the housing market to sustain their businesses. They would assume that because housing prices always increased, they would stay this way, thus, ensuring these businesses would continuously profit. Because of this, these companies began to give loans to subprime borrowers, believing that the worse that could happen would be that these individuals would default; leaving the companies with homes that would increase in value annually. However, because of these increasing subprime loans, these companies incorrectly allocated their investments and interpretations of the market, contributing to its fall. If the market weren’t as heavily focused on housing, perhaps the impact of the sudden loss of values wouldn’t have been as great. As Shiller stated, “Most experts are not predicting any big change in home prices. As of December, the Zillow-Pulsenomics Home Price Expectations Survey… and the S.& P. Case/Shiller Composite Index Futures were both forecasting modest increases for the next half-decade, implying inflation-adjusted price growth of 1 to 2 percent a year… There is too much uncertainty to justify any aggressive speculative moves right now” (Shiller). Shiller addresses the lesson investors should have realized years ago before the crash don’t put all of your eggs in one basket. If the market learns about new ways to allocate its investments and look into the patterns presented by the market, future disasters can be avoided and restoration can occur. In fact, ignorance was the main contributor to the crash and so, if investors replace this ignorance with equal and diverse investments, not just stocks and bonds, perhaps Wall Street can get back on its feet once more.
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ReplyDeleteThe article “Downward Trend Coming For U.S. Stock Market”, published by Forbes.com, highlights some key characteristics of the stock market. First, it highlights how the market has nearly a “10” percent increase because of seasonal incentives for companies. Similar to the stock market research project because the article helps to understand when it is the right time to invest and gain a market profit because of a stock. In addition the article states “November to April tends to be the best consecutive months for stock market performance, while May to October tends to be the worse”, the article argues this due to the fact when the prices for the stock decrease over time and it is a trend, making it more comprehensive to individuals just learning how to invest. Similar to the topic of ignorance because an investor should have knowledge about what she/he is investing in, raising the
ReplyDeleteThe article I have chosen is a credible source because it published by Forbes, a very well know American Business corporation which posts articles on finance, industry and investing. Due to this, the website Forbes, is among many trusted websites for executives and businessmen due to the company’s real-time reporting, concise analysis and countless reports on different companies, including the fortune 500. Any misleading information could potentially jeopardize their reputation as a leading source for credible marketing topics. Lastly the author quotes Richard Ross, a chartered market technician, which is clearly a good indication about analysing the market.
When looking at the current position of the market, the perfect time to invest is in the “November to April” range because the market has the potential to constantly go up, making it much more easier to get profit off a stock. In the article, the author states that, “The [economic] trend has been firmly in place since 1950. November to April tends to be the best consecutive months for stock market performance”, seeing how it is the best possible time to invest, this is an economic incentive that helps individuals presume in investing in numerous stocks. Adding on the market seems to continuously follow this trend when “The Dow Jones Industrials rose 18% between January and March 16, 2012. It held steady for a while, selling off here and there in April before investors sold in May” (Forbes). Again the author here highlights an example of the right time to invest, seeing that now it is the seasonal period to invest, this could potentially help me invest in companies now because the price of a stock would eventually decrease in the Spring and Summer time. Lastly the author quotes Richard Ross in order for him to continue to prove that the market will decline in the coming months, he states, “Today’s Dow chart looks eerily similar, says Ross. He expects the Dow to correct to 13,254 in the coming months. The index is now at 14,452” (Forbes). Due to the unprecedented amount of analysis from an expert from the market, it is safe to assume that the correct time to invest is now because of the fact that the market progresses during a time period of the year, making it a fundamental key asset to my project, helping me further invest in companies before their stock is down in May.
Source: http://www.forbes.com/sites/kenrapoza/2013/03/19/downward-trend-coming-for-u-s-stock-market/
DeleteThis week, the article I found is called “Earn Starbucks loyalty points beyond cafes” by Bruce Horovitz. This article discusses the new sort of sneaky incentive that Starbucks has created in order to make sure that their customers remain loyal to them outside of Starbucks. This article connects to my research project, because for my research project, I am planning on investing on various companies, Starbucks being one of them. When I am deciding how many shares to buy and then sell, I would like to know how they are spending their money and how much profit they are making. As it looks right now, Starbucks is doing pretty well, but there’s always room for improvement.
ReplyDeleteThe evidence that I have that the article I found is credible is that the article was written by Bruce Horovitz. He is a marketing reporter who is guaranteed to know every little thing about consumers and their products - from the shopping carts to the stomach, he covers it all. This article is also credible because it is published on the USA Today. The USA Today is a national American daily newspaper that is published under the Gannett Company.
Because of this article, I am planning on researching Starbucks even more and discovering what other tricks are they trying to implement on us customers. According to Horovitz,“...consumers base their purchases less on brand familiarity and more on the financial incentives that their favorite brands offer.” I disagree with Horovitz because some individuals actually purchase the coffee because of elite fancy name. And others, purchase it just because they can afford to, but not really taking the financial incentive in mind. This being because the financial incentive is not as rewarding as they say. “Beginning in May, if you buy a bag of specially-marked Starbucks whole bean or ground packaged coffee at the grocery store, drug store or club store, you can still rack up Starbucks Rewards card points that can ultimately earn you a free cup 'o joe or latte or muffin at a Starbucks store.” Basically you have to end up buying coffee on a regular basis in order to get a reward. That would be the same as purchasing coffee at a regular Starbucks, so in the end you're not really gaining anything. You’re just spending your money, proving to them that you're a loyal customer.
The text I found this week is titled, “What Are the Risks Facing Pandora Investors (P)” written by Jeremy Bowman and Isaac Pino. This text talks about the risk of investing in internet radio provider, Pandora. Bowman and Pino agree that investing in this company is a very high risk and high rewarded investment but investors have to be aware of two major downfall of this company. These two major downfalls are that competition is increasing in this industry and Pandora’s revenue is decreasing. This is relevant to my MarketWatch investment project because so far the only company I have invested in has been Pandora. With Pandora having other competitions such as, Sirius XM Radio and Apple indicating intentions of entering the internet radio market, it will affect my gains on the company because it’s value might lower instead of increasing.
ReplyDeleteThe text I found is credible because it’s posted in the website of The Motley Fool Company. This company is a multi-media financial service company dedicated to building the world’s greatest investment community. It has millions of followers and they specialize their service in providing financial solutions for investors of every kind. Moreover, the authors of this article Jeremy Bowman, was an accounting assistant at Ryan and Wetmore PC and an accounting intern at one of Pandora’s competition, Sirius XM Radio. He is also an MBA graduate from American University, Kogod School of Business. Isaac Pino, is currently a Bureau Chief of Industrials and Consumer Goods at The Motley Fool Company. He is also specialized in business because he graduated from the University of Oklahoma, Price College of Business.
With more companies entering the Internet radio market, it will cause a decrease in the market value of Pandora and eventually Pandora will go out of business because of its struggle with its revenue from the start. In order for Pandora to make a profit, they rely heavily on advertising and subscription. However, when you are a paid subscriber you do not receive advertisements in which it affects the advertising revenue. Also according to my source it says, “Pandora is thus left with the choice of to either increase advertising space and risk alienating listeners, or find other revenue streams”. If Pandora increases their advertisement then they will lose their listeners because they would barely hear any of the music they want too since listening to advertising when you want to listen to music is not pleasant. But if they don’t advertise more, then competition might take over and run them out of business. On the other hand, if Pandora consumers really like their service and competition are not having more advance innovations, Pandora listeners might become paid subscribers in which will benefit the Pandora company and increase its market value.
The article I found this week is titled, “San Francisco stops buying Apple computers”, and is from the Daily News website. This article informs its readers about the prompt that the city of San Francisco, California had taken after learning that Apple decided to stop registering its computers for environmental ratings from the Electronic Product Environmental Assessment Tool (EPEAT). The specific action that San Francisco had taken was to stop purchasing Apple computers. Such an action can decrease the amount of profit that Apple can gain, and in turn causes the company’s stock market to decrease. This relates to my portfolio on stock investments because out of the stocks that I am investing in, Apple Inc. (AAPL) is one of them. Because of Apple’s decision, and the fact that I would lose money from my investment if Apple’s stock decreases, I would have to decide whether or not I should continue my investment with Apple.
ReplyDeleteEstablished in 1919, the Daily News has delivered information in an effective and fast way to its readers, notably on a regular basis. Because of the fact that the Daily News is one of the most circulated newspapers within the United States and that it has millions of readers, it would be highly unlikely that the Daily News would publish an article that has inaccurate information. If the Daily News were to do so, the company risks ruining their reputation. It would also be highly important for the Daily News to inform their readers of correct information and any news updates, in order to avoid becoming an non-credible source, and maintain their reputation as the news company that is able to deliver news on a daily basis.
Based on the current stock market for Apple, it would be more beneficial for me if I decided to continue investing with the company. Apple’s decision on withdrawing from EPEAT can create the catalyst for other “Manufacturers [that are] still participating [with EPEAT such as] Dell Inc., Hewlett-Packard, Lenovo, Samsung and Sony” to become more popular and have an increased demand within San Francisco. However, Apple’s demand is high throughout various cities in the United States and its stock market statistics show that it has a history of having steady increases over the years. This is a good sign that the company will be able to maintain their stance as a good investment company today in the future. Based on the article, I wouldn’t be too concerned with losing money from my investment with Apple because one city had decided to stop selling Apple computers. The reason for this is because there are several other cities that would still continue to sell Apple computers. However, it is important to keep in mind that other competitors within the San Francisco area might become more popular, whether it be because more individuals decide to purchase environmentally-friendly products, or because the competitors’ computers are the only other computers that they are able to purchase. In this case, I would decide to invest in any of the companies that has improved the most after San Francisco’s decision to stop buying Apple computers, alongside my investment with Apple.
The article I found this week is called, “Rental-Backed Securities: Wall Street's Clever Plan for Foreclosed Homes?” by John Grgurich, which talks about the housing crash and what wall street does with extra house. The article also discusses what Wall Street wants to do with extra homes today. Similar to The Big Short, people are defaulting because they realized that the house they live in is too expensive for them. This relates to how investments banks give subprime mortgage bonds to people who can't possibly afford to pay back the loan. Banks are allowing people who they know can't afford the houses they're buying to go ahead and purchase them because they are only interested in getting the money they receive from giving out loans just as Michael Lewis mentions in The Big Short.
ReplyDeleteThis articles is from Daily Finance which is where many look to find financial information and advice. People wouldn’t put false information on their website because that would ruin their credibility as financial helpers would be ruined and they would lower in popularity. Even the google search statement below its link states, “Whether you are an investor, saver or spender of money, DailyFinance offers the latest financial news and advice from leading business and finance experts.” DailyFinance is getting its information from experts so they are checking what is published because if any wrong information was published then people could potentially lose money because of the incorrect advice and maybe even get sued as a result. Not only does DailyFinance have to make sure that it protects its own reputation, the experts which provide advice for them and the people who visit the site must also protect their reputation. Business experts wouldn’t risk tarnishing their reputations just because wrong information was published which means they are also checking to make sure they give accurate advice.Therefore, to avoid money loss and tarnishing reputations, DailyFinance checks everything that is on its website which makes it a credible source.
In this article Wall Street wants to give houses to renters so that they can receive money from the mortgages they give to investors. The renter solution from Wall Street could potentially cause another crash since the basis for the idea is the same as the previous basis which started the crash. As the article stated, “If the previously AAA-happy credit agencies are nervous about this new type of investment, maybe the rest of us should be wary as well” (Grgurich). We should be wary because the crash is what we want to avoid since the crash ruined the economy. As Lewis states, “with the extension of the mortgage bond market into the affairs of less creditworthy Americans, it found its fuel in the debts of the less solvent half.” Clearly, the mortgage bond market is a risky business because banks get so caught up in meeting the increasing demand for homes because the investors have high demand for mortgage bonds. The article talks about rental homes instead and the problem with increasing demand when it writes, “The demand for investments would drive the demand for rental homes, and thereby lower the caliber of the renters” (Grgurich). Therefore, Wall Streets’ plan to package up the empty rental properties into securities that can then be sold off to investors is very risky because it has the potential to cause another housing crash. This not only relates to The Big Short but as well as The Big Short project. In thinking about which other prevention strategies there are for any other economic crashes, it should be considered that Wall Street's’ current plan on renting homes to people, risking lowering the caliber of renters, isn’t the best solution. In fact, if prevention is up to Wall Street then we put our entire market at risk because they blindly invest in order to make a profit and don’t even know what they are doing, as The Big Short explains, and therefore aren’t reliable in the sense of thinking how to prevent another market crash.
Karina Tavarez
ReplyDeleteThe article “Jumping Aboard the Train, as if There Won’t Be Another” written by Jeff Sommer is one that explains how the economy may be collapsing into another crisis although the stock market does not make it evident due to stock index growth. This article connects to this week’s topic because we are currently investing in the stock market through companies that have public shares. Additionally it is relevant because it describes the history of Standard and Poor’s 500-stock index by saying it has risen 125 percent since March 2009 and hasn’t fallen for a single week. This is important because an investment’s trajectory over time is a good indicator of how it will continue to do in the future.
This article is credible because it was published in the New York Times which is an American daily newspaper that has been published since the year 1851. This newspaper source wouldn’t include false information in their article because it wouldn’t want to lose readers, that would create a decrease in profit. The New York Times has won the Pulitzer Prize, awarded for excellence in journalism, 108 times. Furthermore this article was written by Jeff Sommer who is a business editor and podcaster. This makes him very knowledgeable in the field of business since he has written various about business including, “As Money Pours Down, It’s No Wonder That Stocks Are Up”, “That Nagging Question of Mutual Fund Fees”, and “This Year, a Weak Economy Is a Relative Term.”
Though the history of a stock can be a good indicator of how a stock will do it’s performance can be determine use the product. As seen in the history of Progenics Pharmaceuticals Inc. indexes were at an all time high in April viewing a years trajectory, while in November they were at an all time low. Currently they have been more on the low side. Since Progenics Pharmaceuticals Inc. is a company that produces innovations to treat diseases, a possible cause of these decreases can be that throughout the year several months create conditions that sicken individuals, whereas other months individuals have less risk of becoming diagnosed with an illness.
Amber Sepulveda
ReplyDeleteBefore the great Wall Street crisis, which occurred in 2008 (in greater ways never imagined), Wall Street workers and their CEOs were blatantly committing fraud and getting away with it. Wall Street was banking in considerable high amounts of money and therefore was able to pay others to be consensus and was also to pay off auditors from revealing the crime they were all subject to. That is why their fraud wasn’t very obvious to the public eye. However, this all changed once many groups of individuals decided to reveal the truth about Wall Street; in “The Big Short” by Michael Lewis, these individuals can be compared to Steve Eisman and his team. All it took was small investigations and a look at their data to figure out that the pieces didn’t entirely fit together; something that the auditors refused to reveal. Now that the fraud of Subprime Mortgage lending was out in the open, many institutions set out to protect other individuals who could potentially fall victim to this scam, one of these being the FBI.
The source I found is from The FBI Federal Bureau of Investigation which mainly addresses the issue of subprime mortgage lending and how to stop it while still protecting the people. The FBI works alongside government to protect its people making the FBI along with its government issued site very credible. The site also offers political news in which the FBI is involved in and information for the public viewer. Any kind of incorrect information could jeopardize the trust people have in the FBI and the credibility they have established for themselves since it was founded. As the FBI began in 1908, on of their goals was to protect the people. That goal is still being maintained to this day.
An auditor’s job is, among many others, to gather the data from the firms assigned to them and deliberately check for fraud, non-compliance with the law, and making sure regulations are kept in check. This was not the case for the auditors who were sent to analyze Wall Street firms’ data. What was actually happening was that these auditors “turned a blind eye” and allowed CEOs to get away with the fraud of mortgage lending. As Lewis states, “The people at the big firms were all being paid to be consensus,” (2). Because not one of the auditors exposed Wall Street’s flaw, Wall Street eventually went belly up in 2008. On page 15 of “The Big Short”, Eisman trashed all subprime originators and stated, “Here is the difference… between the view of the world they are presenting to you and the actual numbers”. In other words, Wall Street firms were telling the public they were generating more money than they were spending which was a complete lie in its entirety. Sadly, it wasn’t the auditors who were able to see the mismatch within the data of the firms; it was individuals like Eisman who drew close attention to the numbers who were the closest things to facts they would receive.
Once this news was available for the public to see and hear, Wall Street’s credibility was no longer at high value. They cheated and committed fraud among individuals of primarily low-incomes. The FBI then took it upon their hands to act like the auditors, who unlike the FBI, decided to fail at their job. The FBI stated, on their site, that they “have developed new ways to detect and combat mortgage fraud, including collecting and analyzing data to spot emerging trends and patterns”. This will ensure that subprime mortgage fraud is kept to a minimum. They also stated, “We are using the full array of investigative techniques to find and stop criminals before the fact, rather than after the damage has been done”. There second statement addresses the fault that the auditors took part in. They allowed for the problem to turn into a huge crisis. The FBI is now trying to target the problem before it happens. As useful as that is, it is a shame that the world had to wait for a huge crisis to occur in order to begin a reform and I believe Michael Lewis would agree with that.
Jonathan Diaz
ReplyDeleteEcon Blogpost
The text I read this week was "Heinz deal sparks SEC Insider trading
investigation" by James O'Toole. This article is about a transaction that resulted in a $1.7
million gain from an investment that was made the day before H.J. Heinz Co, a reputable
ketchup company, announced that it was acquired by another company. This huge gain
lead to suspicions of unlawful insider trading. This text relates directly to the investing I
have been doing on marketwatch.com. So far I am not doing a good job of investing.
However, I bought 72 shares of Diebold Inc., a technology company, because I read in an
article a few days ago that officers in the company purchased a lot of stocks. The article
then went on to state that when insider trading occurs this is a good indicator that the
company's stock will go up. This makes a lot of sense because the top ranking executives
in companies tend to purchase stock from their own companies if they believe they are
going to see gains soon. They can then sell their stock and keep the gains, or reinvest in
other stocks. Insider trading can be a great thing, but later I'll explain how unlawful
insider trading works.
This article is credible because it is from CNN's website and it was written by one
of the news organization's lead financial writers. CNN is a prestigious new organization
that is known for its exceptional reports and news coverage. By publishing false
information on its website, it would be putting its reputation in danger, which could
ultimately lead to the demise of the network. CNN is a credible source because of its
dependence on its reputation and this explains why I believe this article is credible.
In continuation with my investment story, Diebold's stock increased by $0.49 a
share. I sold this stock right away and now my gains are less negative than they were
before. I was scared to keep the stock a bit longer because I feared that stock prices
would plummet the next day. The insider trading I used as a signal to buy stocks is illegal
if information that isn't disclosed to the public is used to make a "wise" investment. This
means that whoever made the $1.7 million gain may have known that H.J. Heinz Co was
going to have new owners, and if so this investor obtained this information from an
employee in Heinz or the company that bought it. In Diebold Inc.'s case, the officers that
bought stock in the company probably used company data, available to the public, to
make intelligent investments and I ultimately benefitted because I noticed that this was
happening. The factor that makes insider trading legal is the "level playing field". If
everyone in the Heinz case knew that it was going to be sold, everyone would try to buy
stocks of the company, thus minimizing returns for the mystery investor that made $1.7
million. However, this investor was "playing with an advantage". All this investor had to
do was buy a lot of stock and hope that the information he or she received was reliable.
The SEC (U.S. Securities and Exchange Commission) is the referee that keeps investing
fair for all parties. Since the Heinz case was suspected to involve insider trading the SEC
froze the bank account with the $1.7 million until the owner presents him/herself in court
to explain his/her investment. This example shows how government intervention is
needed to protect investors, which in turn relates back to my investing. I am constantly
looking up new products that companies are releasing and looking at graphs of stock
prices to make investments. I want this hard work to result in gains, and it is unfair, and
demoralizing to see that someone is making better investments than I am because of
information that should be public, but isn't yet. Therefore, insider trading is quite
elaborate and next time I invest in a company where insider trading is happening I will
try to justify the trading by researching company data.