Why did the principal-agent problem for investment banks become more severe following the repeal of the Glass-Steagall Act in 1999?
What will be an ideal response?
Congress repealed the Glass-Steagall Act in 1999, after which some commercial banks began engaging in investment banking. Traditionally, large Wall Street investment banks had been organized as partnerships, but by 2000 they had all converted to being publicly traded corporations. In a partnership, the funds of the relatively small group of owners are put directly at risk, and the principal-agent problem is reduced because there is little separation of ownership from control. With a publicly traded corporation, on the other hand, the principal-agent problem can be severe due to the separation of ownership from control.
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An effective minimum wage tends to create unemployment among unskilled workers because it
A) reduces the demand for their labor services. B) increases the supply of their labor services. C) reduces the marginal productivity of their labor services. D) reduces the quantity demanded for their labor services while increasing the quantity supplied of their labor services. E) generates all of the above.
When an economist talks of scarcity, the economist is referring to the
A) ability of society to employ all of its resources. B) ability of society to consume all that it produces. C) inability of society to satisfy all human wants because of limited resources. D) ability of society to continually make technological breakthroughs and increase production.
If the MPC is 0.8 and net taxes increase by $100 billion, what is the effect on equilibrium output?
a. There is no effect; equilibrium output is not affected by a change in net taxes. b. Equilibrium output will fall by $80 billion. c. Equilibrium output will fall by $125 billion. d. Equilibrium output will fall by $400 billion. e. Equilibrium output will fall by $500 billion.
In the circular flow diagram, which of the following is true in resource or factor markets?
(a) Households buy resources from business firms. (b) Households sell products to business firms. (c) Households sell resources to business firms. (d) Business firms and households resources are unlimited.