law assignment
Question 1:
The universal lending system is the system that you borrow money from a bank, Credit Card Company, other credit providers and you pay them back with interest within a certain period. With mortgages, it takes many years to pay back the money, so the lenders have to watch the money very carefully to ensure they get the money back. To be able to lower the risk for lenders, the US banks figure out an idea which the lenders sell their mortgage from the borrowers to investment banks like Morgan Stanley, Lehman Brothers, and Goldman Sachs, then the investment bank combine those mortgage to create a complex derivatives called a Collateralized Debt Obligation (CDO) and sell the CDO to investors around the world. Investment bank pay rating agency to evaluate CDO and many of them are given a triple A rating so that the CDO is pretty popular among the investors. However, problems emerge when the lenders realize that they could give away endless loans because they will sell these loans to investment banks anyway. The bubble starts when people receive loans while they are not able to pay them back. You can try to image that there are thousands of bad loans are being combined into CDO that appear to be worth billions of dollars but will become worthless because the borrowers are not able to pay the debt. You realize that the bubble is a bomb which can collapse the investment bank system and even the whole financial system. That is why Lee Hsien Loong said: when you can create something out of nothing, it is difficult to resist.
Question 2:
The first regulation regarding the retail bank is equity lending. The leverage ratio is limited when the market is regulated. However, after the deregulation policy implemented, the SEC lifts the limit on leverage giving the investment bank opportunity gambling a lot of more by allowing them sharply increasing their borrowing.
The second regulation regarding the retail bank is fractional reserve bank system. The minimum
The universal lending system is the system that you borrow money from a bank, Credit Card Company, other credit providers and you pay them back with interest within a certain period. With mortgages, it takes many years to pay back the money, so the lenders have to watch the money very carefully to ensure they get the money back. To be able to lower the risk for lenders, the US banks figure out an idea which the lenders sell their mortgage from the borrowers to investment banks like Morgan Stanley, Lehman Brothers, and Goldman Sachs, then the investment bank combine those mortgage to create a complex derivatives called a Collateralized Debt Obligation (CDO) and sell the CDO to investors around the world. Investment bank pay rating agency to evaluate CDO and many of them are given a triple A rating so that the CDO is pretty popular among the investors. However, problems emerge when the lenders realize that they could give away endless loans because they will sell these loans to investment banks anyway. The bubble starts when people receive loans while they are not able to pay them back. You can try to image that there are thousands of bad loans are being combined into CDO that appear to be worth billions of dollars but will become worthless because the borrowers are not able to pay the debt. You realize that the bubble is a bomb which can collapse the investment bank system and even the whole financial system. That is why Lee Hsien Loong said: when you can create something out of nothing, it is difficult to resist.
Question 2:
The first regulation regarding the retail bank is equity lending. The leverage ratio is limited when the market is regulated. However, after the deregulation policy implemented, the SEC lifts the limit on leverage giving the investment bank opportunity gambling a lot of more by allowing them sharply increasing their borrowing.
The second regulation regarding the retail bank is fractional reserve bank system. The minimum