L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY T HE R OLE OF G OVERNMENT IN F INANCIAL.

Slides:



Advertisements
Similar presentations
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY M ANAGING R ISK L ESSON 18.
Advertisements

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY M ANAGING R ISK L ESSON 18.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY H OW A RE S TOCK P RICES D ETERMINED ? L.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY T HE L ANGUAGE OF F INANCIAL M ARKETS L.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Principal and Interest Review: Principal.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY P LANNING Y OUR F INANCIAL F UTURE L ESSON.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY T HE S TOCK M ARKET AND THE E CONOMY : C.
 Planning to use your money for the future  Making Money with Money  Risk is going to be involved  Higher Risk=Higher Rate of Return (or Loss)! 
Ohio Division of Securities Your Name Here Investment Fraud and Investor Protection.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY I NVEST IN Y OURSELF L ESSON 2.
Chapter 11 Section 3.
Spending, Saving, & Investment UNIT 8: PERSONAL FINANCE (1)
A certificate issued by a bank depositing money in an account for a specified period of time (often six months, one year, or two years); a penalty is.
Investing: Taking Risks With Your Savings. Stocks are also known as securities As proof of ownership, you get a stock certificate Stocks What are they?
Investment Vocabulary. Appreciation O An increase in the basic value of an investment.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY The Language of Financial Markets: Quiz.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY F INANCIAL I NSTITUTIONS I N T HE U.S. E.
Ch 9: General Principles of Bank Management
In this Unit We Will: Know the difference between saving and investing Be familiar with the time value of money Be able to compare investment options.
 Goals:  Describe ways to purchase different types of stock.  Explain differences between investing in corporate stocks and corporate bonds.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY W HAT ARE M UTUAL F UNDS ?
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY R ESEARCHING C OMPANIES L ESSON 11.
Understanding Investments. If you could have $100 right now or $150 in one year, which one would you choose? Why?
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY W HAT IS A S TOCK ? L ESSON 3.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY W HAT ARE M UTUAL F UNDS ? L ESSON 6.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY P LANNING Y OUR F INANCIAL F UTURE.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY I NVESTING I NTERNATIONALLY L ESSON 19.
5.1 Savings and Investing 5.2 The Rule of 72 Getting Started.
Saving and Investing. Why Save?  Saving : setting aside income for a period of time so that it can be used later  People save for purchases that require.
What is a Stock? F.H. O’Hara Adapted from 2006 Foundation for Investor Education. All rights reserved.Begin What is a Stock? F.H. O’Hara Adapted from 2006.
The Fundamentals of Investing
Section 12-2-Regulatory Agencies and Laws.   These agencies make or enforce rules and regulations  Agencies provide oversight or supervision of activities.
Chapter 32: Financial Markets Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 13e.
Chapter 6 Saving and Investing. Section 6-1: Why Save?  Deciding to save  People save for purchases that require more funds than available, for emergencies,
S LIDE 1.1 The Language of Financial Markets Quiz Bowl Game Board Invest in This Potent Investments Index or Exchange Earn It Who am I? Financial Markets.
Banking, Saving and Investing Using Money to Make Money.
Vocabulary Currency- Coins and paper bills used to purchase goods/services. Certificate of Deposit- Earns a higher interest rate than a savings/checking.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY B UYING ON M ARGIN AND S ELLING S HORT L.
Bell Ringer #1 Ch What is the difference b/w a savings account and a time deposit? 2. After the stock market crash of 1929, ___________________ was.
Saving and Investing Chapter 6. Deciding to Save Benefits of Saving: (6 months of housing) – Make large purchases without paying interest – Funds for.
Types of Investment Risk Personal Finance. Rate of Return People save and invest their money to receive a return on that saving or investment Investment.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY W HY S AVE ? L ESSON 1.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY B UILDING W EALTH OVER THE L ONG T ERM L.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY W HY S AVE ? L ESSON 1.
McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved Chapter Fourteen Investment Banking, Insurance, and Other Sources of Fee Income.
Investment Vocabulary. Stock Market  A market in which the public trades stock that someone already owns; the buying and selling of stock.
Unit 3 Saving & Investing. A Little Can Add Up Save this each week … at % interest … in 10 years you’ll have $7.005%$4, % $9, % $14,160.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY F INDING F INANCIAL I NFORMATION O NLINE.
Wall Street 2 (Day 3) Take Handout Take out notebook – Write down How did this start? You will Understand how events from 1980’s to 2006 led to crash and.
THE STOCK MARKET. THE FINANCIAL SYSTEM The financial system is a network of institutions which connect investors with borrowers. Institutions in the financial.
Finance & Finance Law. What is finance? Finance describes the act of providing money, capital or other financial resources to assist in facilitating a.
Financial Markets Chapter 11. Financial Intermediaries Example: Nonbank Financial Intermediaries ◦Finance companies make small loans to households, small.
INVESTMENT  acquisition of capital assets, (buildings, machinery, stocks, bonds and shares) SHARES  part ownership of a company BROKER  licensed.
 A.Store of value  B.Bartering  C.Medium of exchange  D.Standard of value.
 Savings – income not used for consumption  Investment – the use of income today that allows for a future benefit  Financial System – all the institutions.
Chapter 6 Why Save?.  Saving benefits the economy as a whole. You save bank lends person can now invest or spend. You earn interest bank earns interest.
Chapter 6.2 Investing: Taking Risks With Your Savings.
Unit Four Savings & Investments Pages
CHAPTER 6 NOTES. Statement savings account: savings account where the depositor receives a monthly statement showing all transactions. Money market deposit.
INVESTMENT FRAUD Heidie George Securities Examiner Division of Securities Department of commerce.
L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY C REDIT : Y OUR B EST F RIEND OR Y OUR W.
Investing in America Aim: How do Americans invest their money? ERHSMr. Graboski.
Investing: Taking Risks With Your Savings
III. INVESTING Investing Options 4. Real Estate – Property
Investing: Taking Risks With Your Savings
Bell Question How might institutions (such as banks/credit unions) help individuals accomplish their financial goals?
FTC – Federal Trade Commission
Standard SSEPF2c- Give examples of risk and return
Review Bell Ringer After the stock market crash of 1929, ___________________ was created to protect peoples’ funds. How much are individual’s savings account.
Presentation transcript:

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS L ESSON 15

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Financial Market Problems 1.Financial markets may fail. 2.Government regulation is aimed at preventing market failure. 3.Regulation is itself subject to government failure. 4.Some investors’ losses result from business decisions that did not work out (no market failure and no government failure). L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.1

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY The SEC and Market Failure The Securities and Exchange Commission (SEC) is a federal agency authorized to enforce securities laws and issue regulations aimed at three problems: 1.Dishonest statements from companies offering stocks. SEC role: reporting and disclosure requirements. 2. Unfair treatment of investors. SEC role: rules and monitoring of trading. 3. Outright fraud and theft of investors’ funds. SEC role: enforcement actions, lawsuits. L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.2

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Government Failure 1.Like markets, government policies and programs may fail. 2.The Federal Reserve System failed to prevent bank failures in the 1930s. 3.In 2008, the SEC failed to identify and take action against a totally fraudulent investment scheme run by Bernard Madoff, in which investors lost billions of dollars. L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.3

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY What is a Ponzi Scheme? Named after Charles Ponzi, who was born in Italy but became a swindler in North America. Ponzi schemes operate with no real profits or assets. Investors are recruited with promises of high gains. Early investors are paid with money collected from later investors. Eventually such a scheme collapses since no real profits or assets exist to sustain it. L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.4

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY History’s Largest Ponzi Scheme Operated by New Yorker Bernard Madoff, Investor losses estimated at $65 billion. The scheme was based on no real assets or investments; it paid early investors with money from later investors. The scheme, clearly with SEC jurisdiction, went undetected by the SEC: ■ SEC was repeatedly tipped off ■ Multiple examinations and investigations ■ Yet fraud went undetected Bernard Madoff L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.5

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Pay Your Money, Take Your Chances 1.Investing in stocks: potential for high returns, but with risk 2.Some investors’ losses arise from ordinary business risk 3.No government agency can remove this risk 4.When fully informed investors lose money because of business results: ■ there is no market failure ■ there is no government failure L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.6

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY A Classification Game Indicate your answer: Move to that side of the classroom for “market failure.” Move to that side of the classroom for “government failure.” Stand in place if there is no market failure and no government failure. L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.7

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Pay Package Snag Investment fund managers take on excessive risk because their pay packages reward them for high returns, but provide no penalty for losing shareholders’ money. The fund’s disclosures meet the letter of the law but they understate the risk. Market failure No failure, stand in place Government failure L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.8

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Grocery Startup Webvan.com pioneers the online grocery business, grows too fast, and fails. Although there is no fraud, because of the business risk investors lose all the money they put into it. Market failure No failure, stand in place Government failure L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.9

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Home-loan Mess Government housing policy requires risky loans to less qualified customers, and many of the new homeowners are then unable to make their payments. Financial distress spreads and the housing market crashes. Market failure No failure, stand in place Government failure L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.10

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY AOL-Time Warner After full disclosures and despite high hopes, a merger of media giant Time Warner with Internet startup AOL loses billions of dollars of investor money. Market failure No failure, stand in place Government failure L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.11

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Senior Sales Push A high-pressure phone bank sells stocks over the phone to uninformed residents of nursing homes. Although investigators can find no violations of law, it is clear that the buyers did not understand the risks. Market failure No failure, stand in place Government failure L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.12

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Your Results May Vary After becoming fully informed about the risks and returns of holding stocks for the long term, an individual investor finds that stocks have gone down overall for a ten-year period. Market failure No failure, stand in place Government failure L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.13

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Two Kinds of Risk Security-specific risk: the risk that any one stock or bond might fail. Systemic risk: the risk that the entire system could fail because of interconnections among bankers, brokerages, and other financial institutions. L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS S LIDE 15.14

L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Why You’re Responsible L ESSON 15 – T HE R OLE OF G OVERNMENT IN F INANCIAL M ARKETS Government regulation aims mainly at disclosure and fair dealing, but it cannot guarantee a return on investments. Criminals operating fraudulent investment schemes will claim to be safe, registered, and licensed. Even when regulation is adequate to handle security- specific risk, systemic risk may occur. S LIDE 15.15