Link to original article: http://www.businessweek.com/magazine/content/10_39/b4196050744977.htm
Summary :
Summary :
Wall Street’s credibility is being questioned because they are not providing enough information about their fixed incomes, currencies, and commodities (FICC). The last time they shared anything about their mortgage-trading revenue was in 2007. Since then, Wall Street firms’ have kept a tight grip on the financial statements being relayed to their clients. The insufficient source of FICC keeps the shareholders and potential investors from making wiser decisions about their investments. They need to know, with full transparency, what goes on with their own investments and make sure that Wall Street firms’ aren’t just taking their money and using it to pay off other failed investments of individual markets. It will definitely decrease the confidence customers may have in the results of Wall Street firms. More importantly, when they do this it adds to the huge problem that U.S.’s economy is already in, that being recession. Relating to that, the Dodd-Frank Act which is suppose to prevent future financial crises has been uneventful in helping investors gain more informative financial statements to keep from making poor investment choices.
Connection:
The “Users of Financial Statements” are most definitely connectable to this article. Examples of internal users would be Wall Street firms’ such as Goldman Sachs, JPMorgan, Morgan Stanley, Bank of America, and Citigroup. They are actually the five largest firms of Wall Street. The external users would be, in this case, mainly focused on the “shareholders” and “potential investors.” The shareholders pay for shares in a company, but what’s going on is that they don’t really get to know what the money is spent on or where it’s gone to because the data provided is made awry or super vague. The same thing happens for potential investors except that the firms can even go further into being hazy or shadowy about their work. They could be selling them bundles of good and bad mortgages packaged together which Wall Street firms can make even more money off of than individual clients.
The “Users of Financial Statements” are most definitely connectable to this article. Examples of internal users would be Wall Street firms’ such as Goldman Sachs, JPMorgan, Morgan Stanley, Bank of America, and Citigroup. They are actually the five largest firms of Wall Street. The external users would be, in this case, mainly focused on the “shareholders” and “potential investors.” The shareholders pay for shares in a company, but what’s going on is that they don’t really get to know what the money is spent on or where it’s gone to because the data provided is made awry or super vague. The same thing happens for potential investors except that the firms can even go further into being hazy or shadowy about their work. They could be selling them bundles of good and bad mortgages packaged together which Wall Street firms can make even more money off of than individual clients.
The next connection that can be made to this article is “Business Activities.” The three general activities involved are: financing, investing, and operating activities. Two examples mentioned for financing activities in this article are issuing shares and being able to pay dividends on shares to the shareholders. Wall Street firms need to be able to pay the dividends with their retained earnings, but if they sell mortgages of high value cheaply to bad customers who still can’t pay off the mortgage price the mortgages will become in high supply and low demand which drops their values.
The investing activities in this article involve sharing partial information about the sale and purchase of properties, plants, and shares from the Wall Street firms. Examples could be about the mortgage-trading revenue or how the money (funded by shareholders and investors) is managed.
The investing activities in this article involve sharing partial information about the sale and purchase of properties, plants, and shares from the Wall Street firms. Examples could be about the mortgage-trading revenue or how the money (funded by shareholders and investors) is managed.
The third one would be operating (day-to-day) activities, but this article is not specific on which customers and does not provide numbers in any expenses or amounts owed.
Reflection:
Reflection:
I think that if firms are forced to be more transparent about financial statements or FICC provided to shareholders and potential investors, it would inadvertently help bring back the economy from recession. Even if it doesn’t, then at least they aren’t adding to recession problems.
What I see happening is that non-transparency of information from firms would increase recession, because firms would be allowed to work “in between the black and white rules of accounting standards and CAAPs.”
What I see happening is that non-transparency of information from firms would increase recession, because firms would be allowed to work “in between the black and white rules of accounting standards and CAAPs.”
They could package mixed mortgages of good and bad and clients would unknowingly invest in them. Individuals could be offered places of high value with temptingly cheap or lowered mortgage prices. Who would not want to buy that? Even people who can’t afford would, which can be a problem when companies just allow them to be sold for easy profit. The more people that can afford to buy the less valuable places in general become. Sometimes the value drops so much the mortgage price which they need to pay off becomes higher than what it’s worth. Therefore many people end up not paying off the now costly mortgages or were unable to afford it in the first place, because the company made the bad decision of allowing them to buy without a thorough background check. To sum it all up, “If you cannot figure out a plan in which to pay everything off despite the great deal, do not buy or invest in it. If you are a firm or company, then you better start clearing up any shady areas of work because no one’s going to think much of your credibility in completing any deals. Lastly, either idea helps stop the recession, so why not?”
