By Anat Admati, Martin Hellwig
The previous few years have proven that dangers in banking can impose major expenditures at the financial system. Many declare, even if, more secure banking approach will require sacrificing lending and fiscal development. The Bankers’ New outfits examines this declare and the narratives utilized by bankers, politicians, and regulators to rationalize the inability of reform, exposing them as invalid. Anat Admati and Martin Hellwig argue that we will have a more secure and fitter banking approach with no sacrificing any of its merits, and at basically free of charge to society. They search to interact the wider public within the debate by way of slicing during the jargon of banking, clearing the fog of misunderstanding, and providing the problems in basic and obtainable phrases.
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Additional resources for The Bankers' New Clothes: What's Wrong with Banking and What to Do about It
Sample text
No new equity is required. Shareholders expect to get something in return for their investments in the corporation. If a corporation retains its earnings and makes bad investments or wastes the money, shareholders are dissatisfied, and this is reflected in low share prices. 17 In some situations, however, shareholders may prefer that profits be retained and reinvested. This is the case if the corporation has tremendous growth opportunities that shareholders would like the corporation to exploit.
Investments made with retained earnings do not require any additional borrowing and are therefore attributed to equity. No new equity is required. Shareholders expect to get something in return for their investments in the corporation. If a corporation retains its earnings and makes bad investments or wastes the money, shareholders are dissatisfied, and this is reflected in low share prices. 17 In some situations, however, shareholders may prefer that profits be retained and reinvested. This is the case if the corporation has tremendous growth opportunities that shareholders would like the corporation to exploit.
12 The shareholder equity of a corporation represents the difference between the value of the corporation’s assets and the corporation’s commitments to its creditors. As before, the evolution of equity over time reflects gains and losses on the corporation’s investments, with a leverage effect from borrowing. The more equity a corporation has relative to its assets, the larger the losses it could sustain that would still not wipe out the equity. When corporations have little equity, they are like the homeowner whose mortgage is a high percentage of the value of the house.