Is a Bachelors Degree Loosing its Merit?

In times like these, a college student has to question if a four year degree is sufficient for obtaining a career-oriented position after graduation. With a significant amount of the work force out of a job, more and more of experienced workers are taking entry level jobs, while pursuing their Masters or Doctorates. Where does that leave a 22 year old college graduate with a Bachelors? Hung out to dry, with no job and thousands of dollars in loans. It seems now that Having a Bachelors holds the same weight as a high school diploma. The only difference is a Bachelors is a lot more expensive.
So what do we do? Stay in school for another 8 years, or at least until the economy is stable again. The problem with this is, you are accumlating debt with little to no income to pay it. Experts are suggesting that college graduates go abroad ( http://money.cnn.com/2009/04/14/news/economy/class_of_2009.fortune/index.htm?postversion=200941610). Apparently, there is great potential in international markets, and going overseas could be lucrative in the long run. Experts are also suggesting that we lower our standards. We may have to take on jobs that we do not necessarily want, and pursue our career goals in the meantime. Another tid bit would be to stay away from the big name companies. Companies doing the most out of college hiring are small firms.

To Invest or Not to Invest?

Due to the recent collapse of the economy, millions of people have lost millions of dollars as a result of plummeting stocks. A lot of people have lost their confidence in the stock market, and they have a lot of questions regarding it? When will it be safe, if ever, to invest again? Do the benefits of investing outweigh the risks (costs)? If I do decide to invest in the future, how do I protect myself and my finances from having to recover from this downfall again?
The truth is no one has the definite answer to any of these questions, but coinincidently nothing about the stock market is definite. New "experts" come out every week predicting when the stock market will turn around but none of them really know. For some investors, the benefits of investing will outweigh the costs, but for others it wont. In the stock market, there is really no guarantee of anything, and this was true long before the recession. In spite of this fact, the fact still remains that our economy cannot truly thrive unless we do invest. With that in mind, we cannot truly financially thrive without investing. This recession has actually created a window of opportunity to make a substantial profit (http://money.cnn.com/2009/02/13/pf/light_lesson_crash.moneymag/index.htm?postversion=2009021706). For the first time in American history, this recession has managed to make the prices of stock cheap. Now is the perfect time to purchase cheap but promising stock and wait for a great return!

Universal Currency?

Due to the current state of the United States economy, and its effects on the rest of the world more and more countries are suggesting a universal currency. The US is not for this idea, with good reason. The majority of nations depend on international trading. Some argue that a universal currency would cut down or eliminate the transaction costs that come with international trading. Another reason countries want to adopt a universal currency is to give them confidence in the currencies of their trading partners (http://www.gocurrency.com/articles/universal-currency.htm). A universal currency would hedge against the depreciation of national loans from country to country due to fluctuations in exchange rates.
On the other hand, implementing a universal currency would not be beneficial across the board. Adpoting one currency means adopting one monetary policy with universal interest rates. The
The problem with that is no two countries are ever in the same economic position. What would be beneficial to one country would be detrimental to another. Countries that oppose a univeral currency, such as the United States, are also worried about nationalism. Currency is a part of so many countries' cultures. Doing away with them would take away from the individuality of nations. Finally, creating a universal currency would mean creating a universal bank. This means a select few people would be responsible for the flow of money all over the world. This has disaster writtien all over it. How would we go about appointing these peoople? What countries would have the greatest representation? Too many opportunities for corruption would arise. As you can see the cost of universal currency greatly outweighs the benefits.

Specialization vs. diversification

In class today, someone asked why more companies are not diversifying their products and services. As a consumer, do we really want them to? When companies operate under a comparative advantage, which is the ability of a firm to produce a particular good at a lower opportunity cost than any other firm, (http://en.wikipedia.org/wiki/Comparative_advantage)consumers get the more for our money. Specialization maintains a certain balance in the market. Under specialization, ideally each firm has something or can do something better and more efficiently than the other, so in turn they are dependent on one another. Here is an example: a produce man depends on fertilizer and pesticide companies and vice-versa. This allows many different firms to make a place for themselves which in turn gives way for more jobs.
On the other hand, let’s say companies begin to efficiently diversify their products and services. They become less dependent on other companies, with no need for these companies they go out of business and people loose their jobs. Efficiently diverse firms are more beneficial to themselves than to consumers or the market as a whole. When companies become independent, competition decreases. This leaves room for more monopolies, and then the consumer suffers due to high prices and a lack of variety. We should consider ourselves lucky that the majority of firms have not found a way to efficiently diversify their business, and that they focus more on specialization.

Desperate America

The economic crisis in the United States has the American people desperate for change. While I won’t argue that a major change is needed, it’s the desperation that scares me. More and more people are starting to look for more government control especially in the business sector. My concern is that government assistance is accompanied by government regulation, and though it may start in the business sector, it has the potential to trickle down to other sectors. (http://www.tnr.com/booksarts/story.html?id=eab3ca7a-f41e-4f94-ba2f-687a87212018&p=1 ) This country is supposedly based on the idea that every citizen has a certain amount of power to some degree that enables the majority to make the decisions. These so called “bail-outs” gives the central government the majority of the power not the consumers. We should be mindful that the decisions that we are making now will shape the scope of how businesses are ran in the future when this economic crisis is over.
The most valued asset for most consumers is their home. If I had to guess I would say that the asset with the next greatest value would be their automobile, and after that their investments such as their stocks and bonds. How do we get money for these houses, and cars, and where do we save our money from? Banks. Coincidently, banks along with the automobile industries, were the main businesses that received the most government aid from the bail out plan. Wall Street also benefitted greatly from the bail out plan. The three main businesses that consumers need and value the most are the ones currently under the greatest government influence. These businesses have the most influence on our lives; it is important that the consumer, us, are not left out of the loop.

Why does it make sense for a company to purchase insurance?

Purchasing insurance decreases the likelihood of having to raise costly external costly. Having to raise costly capital could cause a firm to forgo new investment and profitable projects, or cause new projects to be unprofitable. Insurance prevents the firm form having to use internal funds to pay for losses. It also decreases the likelihood of financial distress which affects the conditions at which claimants contract with the firm. Because the firm would have to pay claimants for risk, it is cheaper to purchase insurance to cover those risks.

What are the assumptions for the CAPM to work?

In order for the CAPM to work, the firm has to be publicly traded and have many shareholders with diversified portfolios. CAPM assumes that management of a firm is risk neutral and there are no agency problems. It also assumes that there are no taxes or transaction costs. CAPM is a model that suggests that risk management does not add value to a firm. The problem with that is the assumptions under CAPM are unrealistic. In a real market, there are taxes and transaction cost and management does not always make risk neutral decisions. For these reasons, risk management can add value to a firm when done efficiently.

Why does risk management create value?

The goal of risk management is to maximize the the value to shareholders by minimizing the cost of risk. It is known that risk is costly. Risk management enables a firm to identify risk and exposure, this allows them to protect themselves against those risks.

Monthly Financial Reports for Banks

An article from CNN (http://money.cnn.com/2009/01/20/news/companies/bank_data.reut/index.htm) writes The Treasury Department is requiring that all banks that received aid through the Trouble Asset Relief Program submit monthly reports on lending activities and data on mortgage-backed securities and asset-backed securities. Some of these banks include Bank of America, Wells Fargo, JP Morgan, and Citigroup. The purpose of the financial aid was to strengthen and restore lending activity for consumers and businesses, but some critics argue that banks are not taking full advantage of this bailout cash by not creating loans. Submitting these monthly reports should drive the banks to create more loans. Why is this important? Financial institutions, such as banks, are a vital component of our economy. They provide loans for consumers for houses, our single most valuable asset, automobiles, and other needs while investing in our businesses. When they fail, the economy fails. We are not going to dig ourselves out of this recession without restoring the strength of one of the basic building blocks of our economy.

Economic Stimulus

An article on CNN(http://money.cnn.com/galleries/2009/news/0901/gallery.stimulus/index.html), talks about how the $825 billion stimulus will affect us. The article states that the purpose of the stimulus is not to turn the recession around, not that it could, but to slow it down. Some effects will be seen immediately while others will not be visible for some years to come (ex. unemployment). Some Republicans are worried this stimulus will create a greater national deficit and that the best approach is in heavier tax cuts and lighter government spending. Democrats argue that the loss from increasing unemployment, economic output, and lost tax revenues will exceed that of the stimulus. It is my belief that the stimulus plan will be somewhat effective. The current state of this recession needs both a long term and short term solution. The stimulus provides a little bit of both. It is not the sole solution, but for a deficit of this magnitude, there is no single resolution. We need long term security, but people also need a means by which to satisfy their immediate needs.

Intro

Blogs for RMI 4750 Class