Cost Vs. Care Essay

Cost by Day 3 your analysis and assessment of the ethical and economic challenges related to policy decisions such as those presented in the Washington Post article. How does this type of situation contribute to the tension between cost and care? Substantiate your response with at least two outside resources. Cost and Care in the US Kovner and Knickman (2011, p.280) suggested that health economist in the US used various methods to the measured value created by healthcare, the standard measure is the quality adjusted life years (QALY). The two factors whose product results in the QALY are 1) measure of the patient’s quality of life on a scale where 0.0 is essentially death, and the 1.0 is perfect health, and 2) the number of years the treatment will extend the person’s life. Applying QALY in the Provenge is by multiplying the value that is $93,000 with the number of extended months that are four. The product is $372,000 per quality adjusted life year. Provenge is just one of the expensive drugs that is utilized in the US and paid by government and other insurance. Herper (2010) reported that the most expensive drugs cost more than $200,000 a year. These are those that treat rare diseases, mostly genetic, which inflict to less than 10,000 patients. Example is the drug, Solaris, which cost $409,500 a year. This is a monoclonocal antibody drug that treats the paroxysmal nocturnal hemoglobinuria. Another drug is Elaprase that cost $375,000 a year. This medicine treats an ultra-rare metabolic disorder called Hunter’s syndrome. The article also mentioned that the high cost of medicine is necessary to support the few patients who will ever need. I believe that for this reason, the cost for this drug is justifiable, but not in the case of the Provenge. American Cancer Society (2013) suggested that prostate cancer occurs mainly in older men; six cases in ten are diagnosed from ages 65 and older and rarely before age 40. While National Cancer Institute stated that the estimated new cases of prostate cancer in the United States in 2014 are 233,000 and estimated deaths are 29,480. These data defines that prostate cancer medications shouldn’t belong to the most expensive medication. At present, there is a $7,535 per capita spending in the US per year (Milstead, 20, p. 194). Emergence of expensive medications that will be approved by the government will increase this number. The government needs to develop programs that wi ll cut this cost  without sacrificing the necessary treatments needed by patients. One program can be giving incentives to companies that do researches and come up with an alternative and affordable drug for prostate cancer such as Prostvac-TRICOM, Ad/prostate-specific antigen vaccine Ad5-prostate-specific antigen and the DNA/prostatic acid phosphatase vaccines (Lubaroff, 2012). Ethically, everyone should be treated equally in healthcare. The four principles that are relevant for health care are respect for persons, beneficence, nonmaleficence and justice (McAdams, n.d.). The government uses the principles of respect for a person, beneficence and justice in approving expensive treatments and medications. The US government gives their respect by performing their duty as the healthcare provider and having a goal of 21st health care excellence. It provides beneficence by being kind and providing healthcare programs to below the poverty population; on individual with a particular disability; on veterans and their family; and, on the ageing population. It practices justice by creating a law that healthcare facility/agency cannot deny a treatment in emergency setting; and by sharing the cost of healthcare. Summary Cost versus care will always be a debate in the politics area. If we base all our actions through the principles of ethics, all necessary treatments should be delivered in the health system of the government. All patients should receive interventions for the treatment of disease and to prolong life as they wish to be. That is the reason we have the POLST, the Advance Directives and the Informed Consent. The government’s role is to source funding from everywhere to meet the needs of the patients. Funds may come from the shares of cost, from the co-pay, from the deductible, from the out of pocket, from the stocks and bonds, from â€Å"sin â€Å" taxes and other forms of taxes, and from other sources of investment for health funds. The government, at the same time, should regulate the companies or individuals that take advantage of the private, company and government insurance that demand a higher price of service or products. References: Cancer Society. (2013). What are the key statistics about prostate cancer? Retrieved from the http://www.cancer American.org/cancer/prostatecancer/detailedguide/prostate-cancer-key-statisti

How to Maintain Biodiversity

There are several important ways in which humans can slow biodiversity loss, although there is no way to bring back the species that have already gone extinct. Protecting Areas Creating protected areas where human activity is limited is the best way to prevent deforestation and exploitation of organisms and the resources they need to survive. In order to truly make a difference, much planning needs to go into the creation of a protected area. It needs to consider all elements of the ecosystem it is trying to protect, so that it isn’t too small.It needs to include all resources that are utilized by its inhabitants; for example, leaving out a stream where half of the mammals go to drink would not make a protected area very effective. Preventing Species Introductions It is often much easier and less expensive to prevent a problem from developing in the first place than to try to fix it once it occurs. This is the case with invasive species, which can wreak havoc when introduced t o ecosystems that aren’t prepared to deal with them.Many governments prohibit bringing foreign plants and animals into their countries without authorization; some even go so far as to disinfect landing planes and the shoe-bottoms of people on them. Informing / Educating Education is a powerful tool, and the more people know about biodiversity loss, the more they will be prepared to help slow it. Spreading the word about detrimental human effects on plants and animals can encourage people to change their ways and effect changes to preserve biodiversity.Slowing Climate Change Climate change is the documented cause of several extinctions that we know about, and has likely caused hundreds of species to go extinct about which we may never know. Any efforts as individuals, organizations, or governments, to slow current human-caused global warming is a step towards slowing biodiversity loss. Promoting Sustainability Sustainable agriculture is much better for the environment than gra zing and cropping that rely on clearing swathes of forest or field.

Apush Chapter 9 Study Guide Essay

Lindsay Adams Mrs. Wilkinson APUSH Pd. 5 12 September 2013 Chapter 9 Study Guide 1. How did the revolutionary American ideas of natural human rights, equality & freedom from the governmental tyranny affect developments in the immediate post-Revolutionary period? (1783-1789) Revolutionary American ideas from government tyranny affected development in the post-Revolutionary period by making it impossible for a strong federal government to be created. Since the colonies fought to get out of a federal government, they did not want to create another one, so, congress was forced to make a weak federal government called the Articles of Confederation. It gave no power to the government, but gave all power to the central governments of the colonies. 2. What significant change to the new United States resulted from the revolutionary war? Freedom from England was the primary change of the new United States. The colonies, now called states, were officially independent from Great Britain when the Treaty of Paris was signed in France in 1783. Other alterations included the lack of an executive branch of government, more rights, freedom of religion, freedom of speech, and several others. 3. Describe the powers of the national government under the Articles of Confederation. The Articles of Confederation created a one-house legislature as the Confederation’s main institution, making the government a unicameral system of government. In addition, Congress could settle conflicts among the states, issue coins, borrow money, and make treaties with other countries and with Native Americans. Congress could also ask the states for money and soldiers. 4. What were the major weaknesses and strengths of the Articles of Confederation government? Why do some historians call it the â€Å"Critical Period†? The Articles of Confederation was drafted during the years 1776 and 1777, while the colo nists were still fighting for independence, it created a weak national government with most of the governmental powers retained by the states. The Articles provided no separation of branches. There was no president or any other independent executive, nor was there a federal judicial branch. Congress, the legislature, was the only branch of government. Members elected to congress  did not vote as individuals, but as states. While congress did have some powers, it could not enforce its laws on the states or the people. States were permitted to coin their own money. There was no regulation of commerce between the states and states could even enter into treaties with foreign nations and declare war, with the consent of Congress. Congress could not tax the states or the people; it could only request funds to run the government. Since the Revolution created an enormous debt, and there was no way to tax the colonies with such a weak government, the need for a federal government was great. 5. What motivated the â€Å"founding fathers† to call for a convention to modify the Articles? What was the significance of Shay’s Rebellion? The Founding Fathers wanted a new constitution because the current government of the Articles of Confederation was not working due to the balance of powers between state/federal governments and Shay’s rebellion. The document gave state governments too much power and left the federal government helpless in both defending and caring for American interests which led to almost no unification of the states. Th e federal government was powerless to stop Shay’s rebellion and Congress had little power. The Articles of Confederation had no chief executive, Congress had no power to tax citizens directly, no power to draft an army, had no national court system, no power to settle arguments among states, and many more. Shays Rebellion was a rebellion against the Articles of Confederation in 1787. There were many unfair â€Å"laws† that the working class couldn’t fight, there were polling taxes and that made it hard for the working class to vote, there was no common currency so the working class would sometimes be cheated out of money, and it was really hard for them to set prices on their goods. 6. Explain the Virginia Plan, the New Jersey Plan, and the Connecticut Compromise. The NJ plan was an attempt to make the country vote by equal representation where each state would send the same amount of delegates to represent them. The Virginia plan was an attempt to start representation by population where the states would send more or less delegates depending on how big the state was. The CT Compromise/Great Compromise benefitted both large and small states. There was representation in the House based on population and equal representation in the Senate. 7. Explain the 3/5th Compromise. States ideally wanted to have more representation in the House of Representatives, in order to have more voice in the federal government. However, southern states, which refused to give Blacks the slightest of rights (due to the already entrenched ideals of slavery) wanted to make the most of their black populations to achieve greater representation. It was eventually decided (in part because of Southern threats to not join the new nation) that each slave would count as â€Å"3/5 of a person† for representation purposes. 8. Explain the first three articles of the Constitution. Which body of the government was described in each article and how did federal powers under the new Constitution contrast with federal powers under the Articles? The first three articles of the Constitution established all three branches of government and their powers. The first article defines the Legislative Branch, its powers, members, and workings. The second Article of the Constitution that defines the Executive Branch, its powers, duties, and means of removal. The Article of the Constitution that sets up the Judicial Branch and defines treason is the third article. The constitution possessed more federalist ideas, giving more power to the national government rather than the states. 9. Who were the Anti-Federalists, what was their major objection to the Constitution, and why did they lose their struggle to the Federalists? The Anti-Federalists did not want to ratify the Constitution. They argued that it gave too much power to the national government at the expense of the state governments. These were the people of a high class. Because the majority of the states supported the Constitution and anti-federalists wished to remain a union, they accepted the document which was also issued with a bill of rights. 10. Which of the social changes brought about by the Revolution was the most significant? Could the Revolution have gone further toward the principle that â€Å"all men are created equal† by ending slavery or granting women’s rights? Women became more politically involved throughout the revolution although no women’s rights were officially established until later on. Native American relationships with the Americans improved as well. Small opposition against slavery initiated in Pennsylvania. The biggest change was that people felt like they had a voice in their government instead of having birthrights determine who was in charge. Yes; if slavery was abolished and women’s rights were established, that statement could have been more valid. Big Question:  Should the Constitution be seen as a conservative reaction to the Revolution, an enshrinement of revolutionary principles or both? The Constitution should be seen both as a conservative reaction to the Revolution and an enshrinement of revolutionary principles because it reflected conservative principles but also promoted the idea of a strong republicanism. The wealthy were still in power; most of those in Congress were wealthy. The rights of certain people were still limited under the Constitution like women and slaves. However, the government was still based on the consent of the people and government’s power was limited. The system of check and balance is the most original aspect of the Constitution. The re were three branches, the legislative, executive, and judicial and each had its own power as well as an opportunity to check the other branched to assure that no branch abused its power. Key Terms & People: Virginia Statute for Religious Freedom Shay’s Rebellion Articles of Confederation Daniel Shays Old Northwest Patrick Henry Northwest Ordinance Great Compromise Land Ordinance of 1785 The Federalist

Arthur Miller, Death of a Salesman (750 words) Essay

Arthur Miller, Death of a Salesman (750 words) - Essay Example Even from a cursory reading of the play, it is clear that the way Willy deals with reality and fiction is quite strange and Willy pretends to believe in the fiction that he has created for himself. Although as we well know, it is the reality of his life that wins in the end. Willy is unable to happiness find simply because his focus remains on making friends and he has a false belief in his own abilities that have led him to be a failure in life. The failure also extends to some of those who are influenced by him especially his son, who Willy thinks will follow his footsteps (Foster, 1961). However, the son ends up taking his own path since his lack of faith in Willy is evident from the events of the play. In his own world, Willy believes that he is successful and extremely popular amongst his clients as a salesman. He thinks that he has friends across the region and is well respected by others in his company as well as the business. This fantasy could have been true had he actually been a good performer and had made the efforts that could have given him the success he needed. What he failed to see was that he was nothing more than average in sales and had no more than a few friends. For example, he expected lots of people to be present at his funeral from all around the region but only five people came to the event. Of course, the death of an ordinary salesman or even a highly successful salesman is certainly a banal event. It was Willy’s imagined supremacy that put him at a disadvantage since he did not realize what he was doing wrong. Willy failed at making his American dream a reality not because the dream itself is unachievable, but because Willy did not put in enough effort. There certainly are people who find happiness through putting in their efforts, getting rich and making a life for their families but Willy lived a life of lies. He was sure of the fact that his friend Charley and his son simply could not be

PHD dissertation proposal Essay Example | Topics and Well Written Essays - 1500 words

PHD dissertation proposal - Essay Example Present day applications of information and communications technologies in healthcare have posted the domain to such a level that the physicians seem to be possessing supernatural powers. Telemedicine is one such tested, reliable and a dependable application of information and communications technologies in healthcare. In the recent past, researchers and practitioners have defined telemedicine as a branch of e-health that uses communications networks for delivery of healthcare services and medical education from one geographical location to another. It is deployed to overcome issues like uneven distribution and shortage of infrastructural and human resources [Sood et al. 576]. Telemedicine not only promises to address certain healthcare issues but it also aims to enhance quality and speed medical services. Telemedicine has shown to save time by avoiding unnecessary travel and also saves costs as far as the consumers of healthcare services are concerned. Telemedicine has been considered equally useful for developed as well as developing countries, telemedicine has been tried by using almost all the communications modalities ranging from plain old telephone system to 3G mobile communications networks [Garawi, 91]. Although the technology of telemedicine holds immense potential to address some of the mentioned above issues but still this technology of social relevance has not gained its ground at the rate comparable to other information systems such as those centered on eBusiness/eCommerce, the more so when there is plenty of evidence justifying the need for telemedicine [Rissam, 9]. Unfortunately, healthcare has been stated to be one of the slowest sectors to adopt and implement information technology [England, 177]. It is a fact that very little is known about hospitals’ adoption of information technology (Burke, 350). Healthcare systems world over can be characterized as laggards in

Why does the EU rely so much on policy networks to make its political Essay

Why does the EU rely so much on policy networks to make its political system function - Essay Example Policy changes have taken place only with the consent of the group. Interest groups have always favored state bureaucracies maintaining stable relationships with the groups. Hence policy networks have helped the policy makers fulfill their procedural ambitions and obtain a ‘negotiated order’ For this reasons even after decades of formulation, these policies for the functioning of political system continue to exist (Mazey & Richardson, 2001).The paper intends to trace out the possible reasons behind EU’s everlasting reliance on policy networks for managing the political system thereby addressing the background and importance of these policy networks. The European Union EU operating for 50 years possesses a unique background. Under the co-decision procedure the Council consisting of all member states works with the European Parliament for budget formulation and other decisions. Overall, the decision making body contains EU Council, Parliament and the European Commis sion. The legislations for EU comprises of Primary legislation influencing daily lives of member countries’ citizens and Secondary legislation containing directives, regulations and also certain recommendations. The decision based upon majority votes, can be simple or qualified, depending entirely on the addressed issue (Mazey & Richardson, 2001). It appears that the structure of the EU displaying behavioral traits and functioning is very different from the regular or traditional ones found in most other organizations (How does the EU work, 2008). State bureaucrats display efficiency in framing policies under the scope of their limited capacities and available information. The users who are served by these bureaucrats extend a high degree of external support to the political system on obtaining their desired benefits. Thus favoritism and institutional factors act behind decision making (Mazey & Richardson, 2001). Evolvement of European Political System: Horizontal and Vertica l Over the years the European Union has developed a well governed and stable political system. An efficient government operates within the state with concentration of power at the center. Member countries like France, Britain and Sweden are known to possess an ideal political system. Decentralization has been the key to governance. It has always witnessed sharing of political power among large number of actors (Buxbaum, 1996, pp. 14-16). Policies framed under EU governance are concerned with regulation of markets. This has been noticed for environmental and social policies of EU which helps in preventing market failures. The budgetary policies have dealt with compensating potential losers who lose out in market integration. The adoption of a single currency has been aimed towards regulating markets. It has attempted creation and regulation of a single market. The Maastricht Treaty of 1993 has attempted to bring about economic and political union. Viewed form a vertical dimension EU can be termed as a regulatory state. From horizontal perspective it has acted as a hyper consensus government (Buxbaum, 1996, p. 16). The total policy making process has been divided between the governmental head in the European Council and Commission resulting in efficient allocation of power among the EU institutions. Political leadership has been rotational among the member countries. Such a governance framework has led to rising power of the European parliament. Under this multilevel EU framework, networks have helped to improve regulations in the areas of energy, transport and telecommunications. Background for policy networks

IP5 elements of business Essay Example | Topics and Well Written Essays - 1250 words

IP5 elements of business - Essay Example It has also established depots in Del Rio and Carrizo Springs. L & F Distributors is one of Silver Eagle Distribution LP’s competitor in the Texas market. The company was founded in 1978 and is headquartered in McAllen Texas. By virtue of being one of the Anheuser- Busch wholesalers, L & L distributors focuses on mega brands like Bud Light, Budweiser and Michelob (L & F Distributors, 2015). Over the years, the company has grown and gone ahead to acquire rights in other cities like Laredo and Harlingen. The American beer distribution industry where Silver Eagle Distributors LP operates in serves different social and economic functions by directly or indirectly employing people while at the same time contributing to economic growth by paying taxes. The players in the industry also discharge different corporate social responsibility initiatives that are meant to enhance the wellbeing of the general public. Since it is an industry which was started in the mid-17th Century, the beer distribution industry has been subject to various legal regulations as well as political mechanizations. Legislative amendments that have affected the beer brewing industry have directly impacted on the operations of the beer distributors in the market. The sector continues to face changing taxation, distribution and consumption policies. Political lobbying for market classification has also impacted on the operations of Silver Eagle Distributors in the market. Unlike other consumer goods that can be freely sold, advertised and consumed, beer consumption and selling is controlled and regulated by different laws (Croson & Donahue, 2002). Such laws and policies affect how the players operate in the market. Silver Eagles Distributors LP adheres to the existing beer advertising and selling policies that are intended to protect the public from the negative effects of unregulated and uncontrolled consumption. The three tier alcohol

Multimedia Essay Example | Topics and Well Written Essays - 750 words - 1

Multimedia - Essay Example These differences are highlighted below: (i) Face-to-face traditional class: In the physical class, the nursing instructor is the main visible authority, and he or she may use a chalk board, white board, overhead projector and an/or handouts to let the students understand his or her lessons (McKeachie, 2010; Billings and Halstead, 2008). In recent years, advanced technologies have increased the number of teaching tools utilized in the traditional nursing classes—these include but are limited to the use of video clips, demonstrative videos, powerpoint presentations and ELMO (Electricity Light Machine Organization), which is a document camera. Initially, researches have shown that face-to-face learning has become redundant, passive and uninteresting to the students. The use of these multimedia will surely bring some spark and energy into the lessons in as much as the nursing instructors have been duly trained about how to use them (Billings and Halstead, 2008). More importantly, the instructors must be able to elicit some active responses from their students while using the teaching multimedia. If not, it would appear that the nursing instructor was only entertaining the students with modern technologies and not passing across the right messages (McKeachie, 2010). (ii) Virtual Class: One of the beauties of modern technology is that it allows people to study online irrespective of their present location; so far there is an Internet connection (Jairath and Mills, 2006). Some of the useful tools employed in online nursing education include but not restricted to computers, video clips, text (both on-screen and short-messaging), Voice over Internet Protocol (VoIP) applications that allow students to hold one-on-one conversation with their peers and tutors, activity-based tools like simulated interactive discourses, hypermedia software that can elaborate more on themes of studies, skill labs and Internet

Case Research Paper Example | Topics and Well Written Essays - 500 words

Case - Research Paper Example The high costs associated with the implementation of the Sarbanes-Oxley prompts the clients (companies) to pay lesser fees to the audit firms as they try to mi9nimoize their total costs. Ethical issues may, therefore, arise. There is a significant variation in the amount of fees paid by General Electric to auditors before and after the implementation of the Sarbanes-Oxley. The comparison is therefore between the fees before (2000 and 2002) with those of (2004, 2006, 2008, and 2010). In the period between 2000 and 2002, all the fees paid by General Electric to Auditors (in millions), except the financial information systems fees took an upward trend. The audit fees increased by $14.8 while the audit-related fees and the tax fees increased by $7.8 and $7.4 respectively (textbooks.com). After the implementation of the Sarbanes-Oxley, the figures increased still but not uniformly as before. The audit fees and the audit related fees rose significantly between 2004 and 2008 and then dropped to in 2010. The increment is however not bigger than the change in the tax fees, which were reduced drastically after the implementation of the Sarbanes-Oxley. Taking a similar analysis for the Fortune 100 companies yields even more interesting comparison. There is no significant variation in the amount of fees paid by Fortune 100 companies to auditors before and after the implementation of the Sarbanes-Oxley. In the period between 2000 and 2002, all the fees paid by Fortune 100 companies to auditors (in millions), except the financial information systems fees take an upward trend. The audits fees increase by $1.0 while the audit-related fees and the tax fees increased by $1.9 and $3.4 respectively. As in the case General Electric, after the implementation of the Sarbanes-Oxley, the figures still increased (amazon.com). The increase here is more uniform and consistent unlike the case of General Electric. The audit fees

Legal Case Analysis Research Paper Example | Topics and Well Written Essays - 1000 words

Legal Case Analysis - Research Paper Example The issue was framed on the state’s authority to control private commercial enterprises that justified itself on protecting the health of children and women. The proceedings of this case clearly elaborated how children and women worked, and conditions of the factories they worked at as found by the Chief Factory Inspector, Florence Kelley, and her staff. The hearing and testimonies presented in the court constituted the truthful record that formed the foundation of the appeal to the Supreme Court (Ritchie v. People (1895). The laws established that the case was still in effect until the Supreme Court of United State decided that the case was in favor of the National Consumers League. This was according to Muller v. Oregon judgment that was handed over on 24 February, 1908. Soon after the United Stated Supreme conclusion in Muller v. Oregon, Louis Brandeis, the attorney in the National Consumers League, claimed that before the Supreme Court had a hearing challenging the constit utionality of the recently enacted Illinois law modeled precisely upon Oregon law that was upheld by the United States Supreme Court. It was a fair decision since that case of Ritchie v. ... Fifteen years later, the decision became a legal nullity, even though the opinion in 1895 was never completely overruled by either the Supreme Court of Illinois or the United States Supreme Court (Herman, 1987). Wal-Mart Stores Inc. v. Samara Bros. Inc. (Forensic Evidence) On March 22, 2000, in an agreed decision, the Supreme Court of the United States handed a win to Wal-Mart Stores, Inc. It also gave much needed intelligibility for the involved people in the case over a specific dress type and design. In the Wal-Mart Stores Inc. v. Samara Bros. Inc. case, the court held that the plaintiff claimed a trade right following Section 43 (a) of the Lanham Act 2 for product designs that are not registered should provide evidence that the design is unique by showing that it has a secondary meaning as a source’s indication to consumers. The court refused the inherent test for inherent uniqueness raised by the owners of the dress trade in the case, the Clinton Management, and many IP a ssociations. This meant that the tests are unproductive and unworkable in cases dealing with product design and made a decision that product design can by no means be inherently unique; rather, uniqueness must every time be acquired (Lemley et al., 2007). Decision Highlights The court made its decision on the case and the following is a summary: 1. For it to give explanation for the raised question on a particular design of a product to meet the requirements for the trade dress protection in the situation where a registered trademark is non-existent, the court ruled that a petitioner should always avail proof that the design has obtained a secondary meaning. This resolved a tear in the US Circuit Appeal Courts (WAL-MART STORES INC. v. SAMARA BROS. INC). 2. The court

Breakfast Club Essay Example for Free

Breakfast Club Essay 1. Brian is a perfectionist when it comes to school. Only once has he got any grade under an â€Å"A†. Brian’s parents but a ton of pressure on Brian to perform exceptionally in school. 2. Brian is profiled as a nerd. After he got an â€Å"F† on a shop project he brought a gun into school to kill himself. However, the gun went off while in Brian’s locker so he was given a detention. 3. Brian shows a form of Denial in that when he got the bad grade he wasn’t able to accept it and was going to kill himself. 4. A) I feel that I could trust Brian because he seems like an honest, trustworthy kid. B) If Brian was at CBA I don’t think we would be friends because we don’t have many common interests but it’s possible we might be if we had a lot of classes because Brian is a nice kid. C) On Monday I think Brian will be friends with everyone but Clare. By the end of the year I think he will have had a lot of scholarship offers. In 20 years I think he will have a family and a great job. Andy 1. Andy is a very competitive person who wants to be accepted by his father. In fact the reason he’s so competitive is his father who pushes him to be the absolute best in athletics. 2. Andy is profiled as a jock. One day in the locker room Andy was taping his knee and a smaller weaker kid was getting undressed a few lockers down. Andy thought of his father always talking about how he was so bad in school so Andy beats the kid up and tapes is butt together so he gets detention. 3. Andy uses regression as a defense mechanism by taking his anger and stress out by using physical violence on another smaller kid. 4. A) I don’t think I could trust Andy because stress cause’s him to do dumb things. B) If Andy was at CBA I think we would be friends because we are both involved in sports. However, we might not be because he seems a little weird to me. C) I think on Monday Andy will still hang out with his normal group but also talk to the rest of his detention mates. By t he end of the year I think Andy will be going to college to wrestle. In 20 years I think Andy will have a family of his own, he won’t be talking to his father, and he’ll have a bad knee. John 1. John has a very outgoing but sometimes mean personality. The way he is treated at his own house is what causes john to come across harsh and mean sometimes. 2. John is profiled as a Trouble maker/ Criminal. He pulled the fire alarm in school and that’s his reason for being in detention. 3. Like Andy, John also uses regression as a defense mechanism. For example when the principle takes him out of the room he acts like a little kid and knocks books and papers all over the floor. John has no one to discipline him and tell him not to do this. I actually wouldn’t be surprised if John’s parents did when they got mad. 4. A) I don’t think I could trust john with things such as school work but I do think he would be a person it’s ok to tell things too. B) If John went to CBA I think I would want to be friends with him because he’s very funny. However, we might not be friends because we have different interests. C) I think John will go back to scho ol on Monday and cause trouble as usual but I also think him and Clare will have some sort of a relationship. At the end of the year I think John will leave his home and get a job and living place of his own. In 20 years I think John will have a wife and a low income job.

Steinbecks of Mice and Men and the Pearl Essay Example for Free

Steinbecks of Mice and Men and the Pearl Essay Although John Steinbeck is recognized for the themes of his novels, including the struggles of the working class and social injustice, he is also known for his excellent use of the literary elements. In two of his novels, Of Mice and Men and The Pearl, Steinbeck uses different types of tone, diction, and syntax to enhance meaning and strengthen the impact of his message. In Of Mice and Men Steinbeck presents an innocent tone through his character, Lennie, to create meaning in the piece. The tone is brought out through Lennie’s close following of George, which the reader sees when, â€Å"he pulled his hat down a little more over his eyes the way George’s hat was,† (page 4 OMM). This gives the reader the idea the Lennie looks up to George as a role model, as a son would to his father. This child-like perception of Lennie is present throughout the whole of the story and pulls out a strong emotional factor that gives the piece meaning at the close. Steinbeck uses a different tone, one of realization, to enforce meaning in The Pearl. When Kino’s, â€Å"brain cleared from its red concentration and he knew the sound the keening, moaning, rising hysterical cry from the little cave in the side of the stone mountain, the cry of death,† (page 114 TP). The shift in his thought process shows the reader that Kino’s actions were in protection of the pearl, and not his family. This is one of many scenes in the book that signify the engulfing of Kino’s mind in greed. The neglecting of his family gives the reader a sense of disapproval toward Kino and deepens the meaning in the value of the moral that greed is evil. Steinbeck uses different diction in each of these stories, but it serves a common purpose of helping the reader understand the different characters’ backgrounds and experiences, which increases the meaning of each story. The characters in Of Mice and Men use the unique vernacular of American migrant workers in the 1930s. George uses words like â€Å"ain’t† and â€Å"y’all† and Lennie speaks often about living, â€Å"offa the fatta the lan’,† (page 57 OMM). These examples of informal diction give the reader the idea that Lennie and George are uneducated and poor. This colloquial diction not only enriches the meaning of the story, but also brings the characters to life. In The Pearl, Steinbeck uses calm and simple diction to better portray the depth of the characters’ feelings and moods. For example, through his words, Kino shows that the pearl has become more than just a solution to his problems; it â€Å"has become [his] soul . . . If [he] give[s] it up, [he] shall lose [his] soul, (page 87 TP) John Steinbeck uses syntax to engage the reader and set the mood of each scene in both books. By doing this, the meaning in each scene is deepened. However, the syntax used in The Pearl is different from that used in Of Mice and Men. In The Pearl, Steinbeck uses listings to portray each scene thoroughly. At one point, he describes the evils of one night, when â€Å"the coyotes cried and laughed in the brush, and the owls screeched and hissed over their heads. And once some large animal lumbered away, crackling the undergrowth as it went,† (page 91 TP). This gives the rest of the scene a sense of depth in its meaning due to the fact that the reader knows all that is happening and feels the tension in the atmosphere. Steinbeck’s description of the Salinas River at the beginning of Of Mice and Men consists of one long sentence that picks up on all aspects of the scene. â€Å"On one side of the river the golden foothill slopes curve up to the strong and rocky Gabilan mountains, but on the valley side the water is lined with trees—willows fresh and green with every spring, carrying in their lower leaf junctures the debris of the winter’s flooding; and sycamores with mottled, white, recumbent limbs and branches that arch over the pool,† (page 1 OMM). Through this elongated sentence structure, Steinbeck better portrays the joyfulness and tranquility of the river, which pulls the reader into the scene and creates more meaning in the actions that take place. In both Of Mice and Men and The Pearl, John Steinbeck puts his own twist on tone, diction, and syntax, which gives each novel’s message more importance and meaning. But the meaning itself is always up to the reader to â€Å"take [†¦] from [the novel], and read his own life into it,† (Prologue TP).

Reflection Paper on Criminology Group Presentation

Reflection Paper on Criminology Group Presentation I found that making this academic presentation to be a very challenging experience. This was mainly down to working with a group of people that I dont know, another factor that may have contributed is that I had to study an area of London that Im not familiar with. Despite how challenging I thought the experience was I also found that working on, and presenting the presentation to be a rewarding experience, this was because I was able use theories I had learned and apply them to a specific area. The groups we were in were allocated at random, this was done by giving each person a number between one and four, the number you were given is the group that you are in, this led there to mixed groups with mixed levels of ability. I found the process to be quite bothersome as I was split from the friends I had formed in the seminar group, the group I was put into consisted of four people. After being allocated into are groups were told that for the presentation we could choose any post code to research as long as it was in London. After this we were then told that we had to gather information about that specific area and that we had to use different theorys to explain the information we had gathered. At the end of the seminar the group I was in all exchanged contact details so we could talk over the up coming independent learn week. Over the independent study week we decided as a group which area we want to study which was Harlesden. The task I was given was to pick a crime of my choice and gather statistics on the crime using the Metropolitan Police statistics website, later on I would use the theories that we had been taught in our lectures and seminars to explain the crime I had picked. Another part of my task was to find statistics and information about the housing in Harlesden and try and compare them with the crime statistics I had gathered. It took a bit of time but I did finally decided on the crime I was going to pick and the crime was robbery. After I decided I then looked on the internet for information and statistics for robbery, the main website I used was the Metropolitan Police statistics website as it was reliable and we were shown how to navigate the website in the seminar. Finding reliable robbery statistics was quite straight forward to do as the statistics on the website were up to date and were fairly easy to understand. This was quite the opposite to the information on housing on the MET Police statistics website, the most difficult part, for me at least, was trying to decide what information was relevant and useful and separating it from the useless irrelevant information. Another factor that hindered me was that the majority of the information was outdated which made it unreliable. This problem was not just isolated to me as other members of my group also faced being confronted with too much information and having to deal with outdated statistics. It was useful that the group I was in would meet up twice every week outside of the seminars to discuss the progress that we had each made, it also meant that we could discuss any issues that we were having and voice any concerns that we had about the presentations. One problem with this was that one member of the group almost always never showed up to the meetings which isnt useful for the group or the individual. During one of the first meetings we had I told my group about the problems I was facing trying to find reliable information on housing, the group helped me decided that I should just gather the statistics for robbery in Harlesden. After I have done this they told me I can then use these statistics and compare it with the previous year, the thinking behind this was that by comparing the robbery rates of this years and the previous year we can show whether or not the actions being taken by the police or preventions the police ha ve put in place to decrease robbery in Harlesden are truly working, they also suggested that I should compare Harlesdens robbery rate against the MET total as this would show how Harlesden compares with robbery rates in terms of the whole of London. In my presentation I used three theories to explain robbery, the three I chose to use were the classicist approach of rational decision, zones of transition theory and also the relative deprivation theory. All three of these theories had been taught in the lecture, nevertheless I found that by doing my own personal reading and internet research it helped me fully understand these theories and then be able to apply them to the statistical data and explain robbery. The readings and internet research that I did meant that I was able to write a great statement on why robbery in Harlesden is committed, whilst also knowing the theories to a degree that I would be able to explain them during my presentation. As a group before the deadline we decided that it would be easier and more useful to do four individual presentations instead of one big presentation. During my presentation I felt that my presentation skills could have been better, this was maybe because it was the first presentation I had to do at university and nerves may have played a part. The fact that we decided to do individual presentations may also have been a factor because when your in a group others could bring up points that maybe you might have forgotten in the moment and help you through moments when you need it. All but one of my groups individual presentations seem to go alright, the one that went quite wrong was the person that never showed up to any of the group meetings, there presentation was one slide long with not much information on it and they didnt seem to have tried to complete any of the tasks we set them to do. It was quite frustrating to see because if they had turned up to group meetings they would hav e found that completing the presentation to be quite easy. If I was to change anything it would most likely be to practice my presentation skills, as I felt that this was the part that let my presentation down, this would have made presenting the presentation easier and may have even improved the grade that I received. Before I began to look at Harlesden I little idea where it was, and had almost no information about the area. This meant that I got my first impression of Harlesden from the MET police crime statistics, this in turn gave me the feeling that maybe Harlesden was a area that was maybe rife with crime. This changed however after having done more investigating in to area and having spoken to the two people in my group that live there, my impressions have now changed and I now view Harlesden like most other place, there are some better areas and there are some worse areas. This shows how working in a group can be beneficial as they helped me see that I shouldnt judge a place on just statistics and that you need to speak to people that live in the area to fully understand the area. If I had been in a group with people that didnt live in Harlesden I believe that my first impression of the area would still be the impression that would have today, yet having people in my group who had experien ced Harlesden first hand and could talk about the experiences they have had helped assist in changing my first impression. I felt this presentation helped me because I was able to improve on my weakness which I had which was my presentation skills and this allowed me to improve this in a later presentation I did for another module. So reflecting on my experience of this presentation allowed me to improve the capacity to reflect on action so as to engage in a process of continuous learning (Schà ¶n, 1983:173). This experience also showed that I was able to complete my research and gather information and deliver it in a presentation which was a new thing for me. At first I didnt feel confidence that I would be able to deliver a good piece of work, but by working with others it has shown me that if you all work together on a piece of work it doesnt seem as daunting and it will make the experience more rewarding. Bibliography Schà ¶n, D (1983) The Reflective Practitioner: How Professionals Think In Action. New York: Basic Books

Gun Control Essay -- Persuasive Essays

In the wake of all the school shootings in the past fifteen years gun control has become a more serious issue than before. Gun control has always been a concern in the United States, but not until the first major school shootings at Columbine High School in Littleton, Colorado did this topic become a reality to the American public. In 1999, this massacre left fifteen people dead including the assassins. And just recently on March 5, 2001 did the tradition continue, when Charles Andrew Williams killed two classmates, leaving many injured in Santee California.   Ã‚  Ã‚  Ã‚  Ã‚  School shootings has become a very popular topic in the arguments for gun control. Gun control laws focus on making guns more difficult to obtain, as well as easier to trace (Smith 4). Although, many see gun control as a violation of their amendments. The second amendment in the constitution proclaims that as citizens of the United States, a person has â€Å"the right to bear arms.† Now, this amendment does not apply to everyone, those who have been convicted of a felony may not own a gun. One can take three sides in the political battle over gun control. The sides are for gun control, against gun control, or gun control with restrictions. It is all very confusing, but somehow the Democratic and Republican parties make it easier for us to understand. In their own words of course, and sometimes they might agree with each other. Sometimes....   Ã‚  Ã‚  Ã‚  Ã‚  The Republican Party be...

The Role of Duty In William Shakespeares Hamlet Essays -- Shakespeare

The Role of Duty In William Shakespeare's Hamlet    Killing a person is not something that anyone can take lightly.   In the story of Hamlet, the uncle of the play's focus character, Prince Hamlet of Denmark, has murdered the prince's father, stolen the crown, and weds his mother.   The ghost of king Hamlet comes to the prince and tells him that he must avenge his murder.   The play follows Hamlet's quest of revenge against his murdering incestuous uncle.   The question that's left to the reader to answer is whether or not the final killing of Claudius was an act of duty or desire for young Hamlet.   Some may suspect that the reason he went through with his act of revenge was because he wanted to, but the majority of readers seem to come to the conclusion that his final act was an act of duty.    Hamlet's first thoughts on the revenge he has to perform went as follows:      Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   I'll wipe away all trivial fond records, all saws of books,   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   all forms, all pressures past, that youth and observation   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   copied there; and thy commandment all alone shall live.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   (A1, S5,L99-103)    This statement makes it perfectly clear that Hamlet views what he has to do as a job that he has to do for his father.    In act 2, scene 2 Hamlet meets an actor who easily displays intense emotion and passion on matters that have just come to his head.   Hamlet asks himself in the soliloquy that followed if he was a coward for not completing his task yet.   This makes it obvious that killing Claudius isn't something that Haml... ...on has resulted with Leartes and his mother both dead, and himself mortally wounded.   Had his quest of murder been for desire and not for duty, he wound have killed Claudius before any of this had happened.   But since he had to first test the ghost, and then wait to kill Claudius when he wasn't praying, Hamlet ends up dying in this scene, along with a host of others.   On the slightly brighter side, Hamlet finally gets the revenge his father needs.    The answer to the question of duty or desire arises another question.   If we arrived at the same circumstances as Hamlet, could we have acted quicker?   Although it seems like Hamlet went about this the wrong way because everyone ended up dead, I don't suspect that there are many of us that could have performed this still-villainous act at the drop of a hat.         

Essay --

The Rise of China as a superpower: Paper in MLA format The international political and economic environment of China is changing. â€Å"There is a significant difference between a country that takes 30 years to grow and one that takes 300 years† (Yang Xuedong). The big economic reforms from Deng Xiaoping and the opening of China to the world brought the country on the way to a superpower. Since the beginning of the 1980s the Chinese economy booms with an average growth rate of almost 10%, during the economies of the West have grown 1% to 3%. The gross national product has increased from 760 billion Yuan to 7200 Yuan which mean that it has ten folded over the last 25 years. How could China grow that much and can it still continue to grow? In the beginning of the 1950s China was a poor country with no industry or infrastructure and the country was destroyed and ruined by the civil war which the communists won. On October the 1st 1949 Mao Zedong called out the â€Å"People’s Republic of China† and started to build a communist state. In 1959 Mao called out â€Å"the Great leap forward†. Farmers should build infrastructure and they were mainly forced to advance the rural industrialization. The â€Å"Great leap† ended as a disaster and Mao almost lead China into ruin. Even later in the culture revolution of China (1966-76), a big evolution didn't happen. The opposite happened and millions of students got send to rural regions for hard manual work. Couples were separated and they children were taken away and they got forced to do hard work. After the death of Mao in the 1976, Deng Xiaoping, who accomplished the economic miracle, took over China. He reopened state courts and public schools. Pa rty leaders hoped that more lawyers would try giving peopl... ...eas are energy system, things in relation with political freedom or privatization of the economy etc. China is on a crossroad of different development opportunities. How China will look like in another 50 years we can't say but its best day are over. In conclusion, China has had an amazing run too power. It found the way out of poverty into wealth. The old agriculture ideas from Mao are and the bad working conditions for people are in the past. China got opened up to the world and is one of the most open countries now. The economic system is perfectly working the last 20 years and China could afford to build new and beautiful cities. Even when China is still a communist country, the power is by the people. We can't say if China is still able to grow or if it is highest point of power but we can say that China had had the best evolution the world has ever seen.

The Formulation of Accounting Standards

The Corporations Law which came into effect in January 1991, has made substantial changes to the way business is conducted in Australia. Previously some illegal practices are now legal, and some legal practices are now deemed to be illegal. Under the Corporations Law finical statements have to be made out in accordance to the various accounting standards. AASB 1024 and AASB 1013 are two such standards. Both these standards have been through a reform process over the last few years, and changes that have been made to them, have determined the level of compliance to the Corporations Law. The formulation of accounting standards is based on the premise that financial information should be available to users of these statements to enable them to make decisions about the allocation of scarce resources and in the evaluation of such decisions. The ASC is the sole administering body of the Corporations Law, and it is directly accountable to the Commonwealth Attorney-General and the Commonwealth Parliament. Prior to the changes of the Corporations Law in 1991, compliance with applicable Accounting Standards as not necessary, provided that the financial statements gave a true and fair view. Yet after 1991 changes, the compliance with the applicable Accounting Standards increased. Section 298(1) of the Corporations Law requires that ‘a companies directors shall ensure that the company†s financial statements for a financial year are made out in accordance with applicable accounting standards. † By the interaction of section 298(1) and 299(1), â€Å"where the accounts are made out in accordance with applicable accounting standards but do not otherwise give a true and fair view of the matters †¦ the directors must add such information and explanations as will give a true and fair view of those matters. † Under section 224 of the Australian Securities Commission Act 1989, saw the establishment of the Australian Accounting Standards Board (AASB). The AASB supports an accounting regulatory system whereby legislation provides a â€Å"framework under which accounting regulation can be developed and implemented by a thorough due process† AASB 1024 Consolidated Accounts is one such standard. AASB 1024 requires â€Å"the consolidation of companies which are controlled even if there is less than majority ownership. The effects of most intra-group transactions will then be eliminated a part of the consolidation process† (Henderson & Peirson 1994). A company is required to present consolidated accounts only when it is the parent entity of an economic entity which is a reporting entity. The consolidated accounts are comprised of a consolidated profit and loss account and a consolidated balance sheet. This balance sheet includes all the entities controlled by the reporting entity at the end of the financial year. Compliance with AASB 1024 became mandatory for financial statements published on and after December 31, 1991. In 1991 changes were also made to definitions in the wording of AASB 1024. To remove the option to deconsolidate one or more subsidies of the reporting entity, The definition of ‘group accounts† was replaced by ‘consolidated accounts†. The Corporations Law also broadened the base of the ‘economic entity† to which consolidated accounting applies , no longer allowing other forms of ‘group accounting† reporting. In the Editorial of the Australian Financial Review on August 5, 1991, appeared the following paragraph: â€Å"The recently introduced standard on consolidations (AASB 1024) aims at producing a clear picture of the financial health of reporting companies. It will certainly catch a lot of off-balance sheet devices† The functions of consolidation or group accounting is not universally accepted. AASB 1024 and the relevant sections of the Corporations Law presume that the functions is to depict the affairs of an economic entity or group of companies. One would expect consolidated accounts to contain the data in separate accounts, but not including data which are not sourced nor excluding data which are. There is concern as to the utility of the consolidated financial statements. One such event, the $2. billion bail out of the State Bank of South Australia, confirmed the presence of doubt regarding the accounting data about groups. â€Å"The recent introduction of AASB 1024 ‘Consolidated Financial Statements† and the consequential amendments to the Corporations Law may play a significant role in determining off balance sheet financing, but these reforms have been long overdue and there still remains doubt as to their effectiveness† Prior to the changes, where the operations of a subsidiary were totally different from those of its parent company it was argued that it would be misleading to consolidate the accounts of the companies. One immediate way of establishing the impact of AASB 1024 on companies reporting practices would be, if investments, which formerly were not reported as subsidiaries, were reported as such after December 31, 1991. If compliance with AASB 1024 has had any impact on company reporting practices it could be expected that former associates as well as former subsidiaries for which separate sets of accounts were prepared, would now be included in the consolidated accounts. After AASB 1024 became effective, referencing was no longer made to parent and subsidiary companies, but rather to controlling entities. By this change in definition, resulting from the consolidation of an investment was taken as evidence that introduction of AASB 1024 has ‘influenced management†s choice of accounting policy. Consolidated accounts now give an accurate picture as to the profit and loss and provide more meaningful information for users of the accounts, however it would appear that there is substantial compliance with the consolidated accounts standard, yet little influence on the financial statements. The second standard to be examined is AASB 1013 ‘Accounting for Goodwill†. Goodwill probably is the most â€Å"intangible of intangibles because it is difficult to determine just exactly what it is† . In practice it has evolved to include everything contributing to an existing business†s advantages over a new one or anything that enhances a company†s earning potential. Goodwill defined is as an entity†s unidentifiable intangible assets. These assets that are unidentifiable include â€Å"loyal and efficient employees, an established clientele, suppliers †¦ and a good name and reputation. † (Henderson & Peirson 1994). Goodwill is measured as the difference between the price paid for an entity and the fair value of the identifiable net asset acquired. Fair value is defined as the ‘amount for which an assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm†s length transaction† . A distinction is drawn between internally generated goodwill and purchased goodwill. Both internally generated goodwill and purchased goodwill give rise to probable future economic benefits. However only the latter â€Å"is to be recognised as an assets because ‘internally generated goodwill is not usually capable of reliable measurement† â€Å". .† (Henderson & Peirson 1994). AASB 1013 was approved on April 18, 1988 and the purpose of this was in ‘regard to the acquisition of an entity, is to specify the manner of accounting for goodwill and discount on acquisition †¦ † . Prior to the dates before the goodwill standards were introduced, most preparers and their auditors â€Å"chose to ignore their professional responsibility to ensure compliance with the accounting standards. Prior to the introduction of the standard, little attempt was made to establish that the amount attributed to goodwill actually reflected unidentifiable assets. This meant the goodwill amounts was inflated by omission of valuable intangible assets. With the omission of these valuable intangible assets from the balance sheet therefore understates the net worth of the reporting entity. The introduction of an accounting standard regarding goodwill had the purpose of appropriate determination and achieving the proper recording of other acquired assets. Since the introduction of the standard, the recognition in the financial reports has reached ‘plague proportion†11 with accounting for intangibles reveals an increase in the numbers of companies recognising and amortising goodwill. It is now common place to see the recording of † †¦ brand names, software, patents and licences and even assets of a more nature like intellectual or sporting property† 11. AASB 1013 also served to minor service which was to reminder the reporting entity that the intangible assets, once recognised, attracted the same obligations as that of non-current assets, including depreciation and amortisation. Accounting for goodwill has always attracted interest, and all those involved with it have their own view on how it should be reported in the financial statements. â€Å"The failure of the community to accept readily a single concept of goodwill and to adopt the consequential accounting treatment can only be explained by the nature of the product we are considering – its† intangibility11 . Both AASB 1024 and AASB 1013 have received their criticism in the past, yet both of them have many positive aspects. Both these standard have changed management practices in the two fields. There is enough evidence for both standards to suggest that there is compliance with section 298(1) of the Corporations Law, yet in some cases this compliance is limited to the situation and the reporting entity. AASB 1013 has proven to be (prior to its introduction) a relatively large unknown quantity, now having all but changed, and with regard to AASB 1024, a more informed and detailed reports of corporate groups provide more meaningful information.

Individualism in “Harrison Bergeron” by Kurt Vonnegut Essay

Individualism is a very important thing in everyone’s life, its part of our personality as portrayed in the story called, â€Å"Harrison Bergeron† by Kurt Vonnegut, Jr. Taking away that individualism is taking apart some of that person. The book in many ways shows what would happen if no one was different and all the people in the world were the same, or basically how disastrous. One example is when the Bergeron’s were watching TV and the announcer came on to announce. He started out enthusiastically and with fire, but automatically got a shock. He tried to act out and be the announcer man with energy, but since everyone was the same he just gave up and let the ballerina read the announcements in monotone voice. Now I for one would never want to hear n announcer that talked in one tone the whole entire time. I addition Vonnegut shows another example is how all the smart and beautiful people have to wear mental and physical handicaps. They wear those handicaps because the government wanted to make everyone equal. So basically if you were even a little bit smart, you would get a handicap and that went with physical attributes too. Finally, the author uses the character Harrison as how most people should act, but being someone different. He acted out and rebelled against the government when they were forcing everyone to be the same. Instead of going with the flow he chose to be himself, and literally broke the chains that the government was using to handicap him. Overall, being you is the best thing to do in life, but society today is portraying the perfect kid that everyone is trying to be.

Role of Computer in Daily Life

Financial Crises and Bank Liquidity Creation Allen N. Berger †  and Christa H. S. Bouwman †¡ October 2008 Financial crises and bank liquidity creation are often connected. We examine this connection from two perspectives. First, we examine the aggregate liquidity creation of banks before, during, and after five major financial crises in the U. S. from 1984:Q1 to 2008:Q1. We uncover numerous interesting patterns, such as a significant build-up or drop-off of â€Å"abnormal† liquidity creation before each crisis, where â€Å"abnormal† is defined relative to a time trend and seasonal factors.Banking and market-related crises differ in that banking crises were preceded by abnormal positive liquidity creation, while market-related crises were generally preceded by abnormal negative liquidity creation. Bank liquidity creation has both decreased and increased during crises, likely both exacerbating and ameliorating the effects of crises. Off-balance sheet guarantees such as loan commitments moved more than on-balance sheet assets such as mortgages and business lending during banking crises.Second, we examine the effect of pre-crisis bank capital ratios on the competitive positions and profitability of individual banks during and after each crisis. The evidence suggests that high capital served large banks well around banking crises – they improved their liquidity creation market share and profitability during these crises and were able to hold on to their improved performance afterwards. In addition, high-capital listed banks enjoyed significantly higher abnormal stock returns than low-capital listed banks during banking crises.These benefits did not hold or held to a lesser degree around marketrelated crises and in normal times. In contrast, high capital ratios appear to have helped small banks improve their liquidity creation market share during banking crises, market-related crises, and normal times alike, and the gains in market shar e were sustained afterwards. Their profitability improved during two crises and subsequent to virtually every crisis. Similar results were observed during normal times for small banks. †  University of South Carolina, Wharton Financial Institutions Center, and CentER – Tilburg University.Contact details: Moore School of Business, University of South Carolina, 1705 College Street, Columbia, SC 29208. Tel: 803-576-8440. Fax: 803-777-6876. E-mail: [email  protected] sc. edu. †¡ Case Western Reserve University, and Wharton Financial Institutions Center. Contact details: Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, 362 PBL, Cleveland, OH 44106. Tel. : 216-368-3688. Fax: 216-368-6249. E-mail: christa. [email  protected] edu. Keywords: Financial Crises, Liquidity Creation, and Banking. JEL Classification: G28, and G21.The authors thank Asani Sarkar, Bob DeYoung, Peter Ritchken, Greg Udell, and participants at presentations at the Summer Research Conference 2008 in Finance at the ISB in Hyderabad, the International Monetary Fund, the University of Kansas’ Southwind Finance Conference, and Erasmus University for useful comments. Financial Crises and Bank Liquidity Creation 1. Introduction Over the past quarter century, the U. S. has experienced a number of financial crises. At the heart of these crises are often issues surrounding liquidity provision by the banking sector and financial markets (e. . , Acharya, Shin, and Yorulmazer 2007). For example, in the current subprime lending crisis, liquidity seems to have dried up as banks seem less willing to lend to individuals, firms, other banks, and capital market participants, and loan securitization appears to be significantly depressed. This behavior of banks is summarized by the Economist: â€Å"Although bankers are always stingier in a downturn, [†¦] lots of banks said they had also cut back lending because of a slide in their current or expe cted capital and liquidity. 1 The practical importance of liquidity during crises is buttressed by financial intermediation theory, which indicates that the creation of liquidity is an important reason why banks exist. 2 Early contributions argue that banks create liquidity by financing relatively illiquid assets such as business loans with relatively liquid liabilities such as transactions deposits (e. g. , Bryant 1980, Diamond and Dybvig 1983). More recent contributions suggest that banks also create liquidity off the balance sheet through loan commitments and similar claims to liquid funds (e. g. Holmstrom and Tirole 1998, Kashyap, Rajan, and Stein 2002). 3 The creation of liquidity makes banks fragile and susceptible to runs (e. g. , Diamond and Dybvig 1983, Chari and Jagannathan 1988), and such runs can lead to crises via contagion effects. Bank liquidity creation can also have real effects, in particular if a financial crisis ruptures the creation of liquidity (e. g. , Dellâ⠂¬â„¢Ariccia, Detragiache, and Rajan 2008). 4 Exploring the relationship between financial crises and bank liquidity creation can thus yield potentially interesting economic insights and may have important policy implications.The goals of this paper are twofold. The first is to examine the aggregate liquidity creation of 1 â€Å"The credit crisis: Financial engine failure† – The Economist, February 7, 2008. According to the theory, another central role of banks in the economy is to transform credit risk (e. g. , Diamond 1984, Ramakrishnan and Thakor 1984, Boyd and Prescott 1986). Recently, Coval and Thakor (2005) theorize that banks may also arise in response to the behavior of irrational agents in financial markets. 3James (1981) and Boot, Thakor, and Udell (1991) endogenize the loan commitment contract due to informational frictions. The loan commitment contract is subsequently used in Holmstrom and Tirole (1998) and Kashyap, Rajan, and Stein (2002) to show how banks can provide liquidity to borrowers. 4 Acharya and Pedersen (2005) show that liquidity risk also affects the expected returns on stocks. 2 1 banks around five financial crises in the U. S. over the past quarter century. 5 The crises include two banking crises (the credit crunch of the early 1990s and the subprime lending crisis of 2007 – ? and three crises that can be viewed as primarily market-related (the 1987 stock market crash, the Russian debt crisis plus the Long-Term Capital Management meltdown in 1998, and the bursting of the dot. com bubble plus the September 11 terrorist attack of the early 2000s). This examination is intended to shed light on whether there are any connections between financial crises and aggregate liquidity creation, and whether these vary based on the nature of the crisis (i. e. , banking versus market-related crisis). A good nderstanding of the behavior of bank liquidity creation around financial crises is also important to shed light on whether banks create â€Å"too little† or â€Å"too much† liquidity, and whether bank behavior exacerbates or ameliorates the effects of crises. We document the empirical regularities related to these issues, so as to raise additional interesting questions for further empirical and theoretical examinations. The second goal is to study the effect of pre-crisis equity capital ratios on the competitive positions and profitability of individual banks around each crisis.Since bank capital affects liquidity creation (e. g. , Diamond and Rajan 2000, 2001, Berger and Bouwman forthcoming), it is likely that banks with different capital ratios behave differently during crises in terms of their liquidity creation responses. Specifically, we ask: are high-capital banks able to gain market share in terms of liquidity creation at the expense of low-capital banks during a crisis, and does such enhanced market share translate into higher profitability? If so, are the high-capital banks able t o sustain their improved competitive positions after the financial crisis is over?The recent acquisitions of Countrywide, Bear Stearns, and Washington Mutual provide interesting case studies in this regard. All three firms ran low on capital and had to be bailed out by banks with stronger capital positions. Bank of America (Countrywide’s acquirer) and J. P. Morgan Chase (acquirer of Bear-Stearns and Washington Mutual’s banking operations) had capital ratios high enough to enable them to buy their rivals at a small fraction of what they were worth a year before, thereby gaining a potential competitive advantage. 6 The recent experience of IndyMac Bank provides 5Studies on the behavior of banks around financial crises have typically focused on commercial and real estate lending (e. g. , Berger and Udell 1994, Hancock, Laing, and Wilcox 1995, Dell’Ariccia, Igan, and Laeven 2008). We focus on the more comprehensive notion of bank liquidity creation. 6 On Sunday, Mar ch 16, 2008, J. P. Morgan Chase agreed to pay $2 a share to buy all of Bear Stearns, less than onetenth of the firm’s share price on Friday and a small fraction of the $170 share price a year before. On March 24, 2008, it increased its bid to $10, and completed the transaction on May 30, 2008.On January 11, Bank of America announced it would pay $4 billion for Countrywide, after Countrywide’s market capitalization had plummeted 85% during the preceding 12 months. The transaction was completed on July 1, 2008. After a $16. 4 billion ten-day bank 2 another interesting example. The FDIC seized IndyMac Bank after it suffered substantive losses and depositors had started to run on the bank. The FDIC intends to sell the bank, preferably as a single entity but if that does not work, the bank will be sold off in pieces.Given the way the regulatory approval process for bank acquisitions works, it is likely that the acquirer(s) will have a strong capital base. 7 A financial cris is is a natural event to examine how capital affects the competitive positions of banks. During â€Å"normal† times, capital has many effects on the bank, some of which counteract each other, making it difficult to learn much. For example, capital helps the bank cope more effectively with risk,8 but it also reduces the value of the deposit insurance put option (Merton 1977). During a crisis, risks become elevated and the risk-absorption capacity of capital becomes paramount.Banks with high capital, which are better buffered against the shocks of the crisis, may thus gain a potential advantage. To examine the behavior of bank liquidity creation around financial crises, we calculate the amount of liquidity created by the banking sector using Berger and Bouwman’s (forthcoming) preferred liquidity creation measure. This measure takes into account the fact that banks create liquidity both on and off the balance sheet and is constructed using a three-step procedure. In the f irst step, all bank assets, liabilities, equity, and off-balance sheet activities are classified as liquid, semi-liquid, or illiquid.This is done based on the ease, cost, and time for customers to obtain liquid funds from the bank, and the ease, cost, and time for banks to dispose of their obligations in order to meet these liquidity demands. This classification process uses information on both product category and maturity for all activities other than loans; due to data limitations, loans are classified based solely on category (â€Å"cat†). Thus, residential mortgages are classified as more liquid than business loans regardless of maturity because it is generally easier to securitize and sell such mortgages than business loans.In the second step, weights are assigned to these activities. The weights are consistent with the theory in that maximum liquidity is created when illiquid assets (e. g. , business loans) are transformed into liquid liabilities (e. g. , transactions deposits) and maximum liquidity is destroyed when liquid assets (e. g. , treasuries) are transformed into illiquid liabilities â€Å"walk†, Washington Mutual was placed into the receivership of the FDIC on September 25, 2008. J. P. Morgan Chase purchased the banking business for $1. 9 billion and re-opened the bank the next day.On September 26, 2008, the holding company and its remaining subsidiary filed for bankruptcy. Washington Mutual, the sixth-largest bank in the U. S. before its collapse, is the largest bank failure in the U. S. financial history. 7 After peaking at $50. 11 on May 8, 2006, IndyMac’s shares lost 87% of their value in 2007 and another 95% in 2008. Its share price closed at $0. 28 on July 11, 2008, the day before it was seized by the FDIC. 8 There are numerous papers that argue that capital enhances the risk-absorption capacity of banks (e. g. , Bhattacharya and Thakor 1993, Repullo 2004, Von Thadden 2004). (e. g. , subordinated debt) or equity. In the third step, a â€Å"cat fat† liquidity creation measure is constructed, where â€Å"fat† refers to the inclusion of off-balance sheet activities. Although Berger and Bouwman construct four different liquidity creation measures, they indicate that â€Å"cat fat† is the preferred measure. They argue that to assess the amount of liquidity creation, the ability to securitize or sell a particular loan category is more important than the maturity of those loans, and the inclusion of off-balance sheet activities is critical. We apply the â€Å"cat fat† liquidity creation measure to quarterly data on virtually all U. S. commercial and credit card banks from 1984:Q1 to 2008:Q1. Our measurement of aggregate liquidity creation by banks allows us to examine the behavior of liquidity created prior to, during, and after each crisis. The popular press has provided anecdotal accounts of liquidity drying up during some financial crises as well as excessive liquidity p rovision at other times that led to credit expansion bubbles (e. g. , the subprime lending crisis).We attempt to give empirical content to these notions of â€Å"too little† and â€Å"too much† liquidity created by banks. Liquidity creation has quadrupled in real terms over the sample period and appears to have seasonal components (as documented below). Since no theories exist that explain the intertemporal behavior of liquidity creation, we take an essentially empirical approach to the problem and focus on how far liquidity creation lies above or below a time trend and seasonal factors. 10 That is, we focus on â€Å"abnormal† liquidity creation.The use of this measure rests on the supposition that some â€Å"normal† amount of liquidity creation exists, acknowledging that at any point in time, liquidity creation may be â€Å"too much† or â€Å"too little† in dollar terms. Our main results regarding the behavior of liquidity creation around f inancial crises are as follows. First, prior to financial crises, there seems to have been a significant build-up or drop-off of â€Å"abnormal† liquidity creation. Second, banking and market-related crises differ in two respects.The banking crises (the credit crunch of 1990-1992 and the current subprime lending crisis) were preceded by abnormal positive liquidity creation by banks, whereas the market-related crises were generally preceded by abnormal negative liquidity creation. In addition, the banking crises themselves seemed to change the trajectory of aggregate liquidity creation, while the market-related crises did not appear to do so. Third, 9 Their alternative measures include â€Å"cat nonfat,† â€Å"mat fat,† and â€Å"mat nonfat. † The â€Å"nonfat† measures exclude offbalance sheet activities, and the â€Å"mat† measures classify loans by maturity rather than by product category. 0 As alternative approaches, we use the dollar amo unt of liquidity creation per capita and liquidity creation divided by GDP and obtain similar results (see Section 4. 2). 4 liquidity creation has both decreased during crises (e. g. , the 1990-1992 credit crunch) and increased during crises (e. g. , the 1998 Russian debt crisis / LTCM bailout). Thus, liquidity creation likely both exacerbated and ameliorated the effects of crises. Fourth, off-balance sheet illiquid guarantees (primarily loan commitments) moved more than semi-liquid assets (primarily mortgages) and illiquid assets (primarily business loans) during banking crises.Fifth, the current subprime lending crisis was preceded by an unusually high positive abnormal amount of aggregate liquidity creation, possibly caused by lax lending standards that led banks to extend increasing amounts of credit and off-balance sheet guarantees. This suggests a possible dark side of bank liquidity creation. While financial fragility may be needed to induce banks to create liquidity (e. g. , Diamond and Rajan 2000, 2001), our analysis raises the intriguing possibility that the causality may also be reversed in the sense that too much liquidity creation may lead to financial fragility.We then turn to the second goal of the paper – examining whether banks’ pre-crisis capital ratios affect their competitive positions and profitability around financial crises. To examine the effect on a bank’s competitive position, we regress the change in its market share of liquidity creation – measured as the average market share of aggregate liquidity creation during the crisis (or over the eight quarters after the crisis) minus the average market share over the eight quarters before the crisis, expressed as a proportion of the bank’s average pre-crisis market share – on its average pre-crisis capital ratio and a set of control variables. 1 Since the analyses in the first half of the paper reveal a great deal of heterogeneity in crises, we run these regressions on a per-crisis basis, rather than pooling the data across crises. The control variables include bank size, bank risk, bank holding company membership, local market competition,12 and proxies for the economic circumstances in the local markets in which the bank operates. Moreover, we examine large and small banks as two separate groups since the results in Berger and Bouwman (forthcoming) indicate that the effect of capital on liquidity creation differs across large and small banks. 13 11Defining market share this way is a departure from previous research (e. g. , Laeven and Levine 2007), in which market share relates to the bank’s weighted-average local market share of total deposits. 12 While our focus is on the change in banks’ competitive positions measured in terms of their aggregate liquidity creation market shares, we control for â€Å"local market competition† measured as the bank-level Herfindahl index based on local market deposit mar ket shares. 13 Berger and Bouwman use three size categories: large, medium, and small banks. We combine the large and medium bank categories into one â€Å"large bank† category. 5One potential concern is that differences in bank capital ratios may simply reflect differences in bank risk. Banks that hold higher capital ratios because their investment portfolios are riskier may not improve their competitive positions around financial crises. Our empirical design takes this into account. The inclusion of bank risk as a control variable is critical and ensures that the measured effect of capital on a bank’s market share is net of the effect of risk. We find evidence that high-capital large banks improved their market share of liquidity creation during the two banking crises, but not during the market-related crises.After the credit crunch of the early 1990s, high-capital large banks held on to their improved competitive positions. Since the current subprime lending crisis was not over at the end of the sample period, we cannot yet tell whether highcapital large banks will also hold on to their improved competitive positions after this crisis. In contrast to the large banks, high-capital small banks seemed to enhance their competitive positions during all crises and held on to their improved competitive positions after the crises as well.Next, we focus on the effect of pre-crisis bank capital on the profitability of the bank around each crisis. We run regressions that are similar to the ones described above with the change in return on equity (ROE) as the dependent variable. We find that high-capital large banks improved their ROE in those cases in which they enhanced their liquidity creation market share – the two banking crises – and were able to hold on to their improved profitability after the credit crunch. profitability after the market-related crises. They also increased theirIn contrast, for high-capital small banks, profitabilit y improved during two crises, and subsequent to virtually every crisis. As an additional analysis, we examine whether the improved competitive positions and profitability of high-capital banks translated into better stock return performance. To perform this analysis, we focus on listed banks and bank holding companies (BHCs). If multiple banks are part of the same listed BHC, their financial statements are added together to create pro-forma financial statements of the BHC.The results confirm the earlier change in performance findings of large banks: listed banks with high capital ratios enjoyed significantly larger abnormal returns than banks with low capital ratios during banking crises, but not during market-related crises. Our results are based on a five-factor asset pricing model that includes the three Fama-French (1993) factors, momentum, and a proxy for the slope of the yield curve. 6 We also check whether high capital provided similar advantages outside crisis periods, i. e. , during â€Å"normal† times.We find that large banks with high capital ratios did not enjoy either market share or profitability gains over the other large banks, whereas for small banks, results are similar to the smallbank findings discussed above. Moreover, outside banking crises, high capital was not associated with high stock returns. Combined, the results suggest that high capital ratios serve large banks well, particularly around banking crises. In contrast, high capital ratios appear to help small banks around banking crises, marketrelated crises, and normal times alike. The remainder of this paper is organized as follows.Section 2 discusses the related literature. Section 3 explains the liquidity creation measures and our sample based on data of U. S. banks from 1984:Q1 to 2008:Q1. Section 4 describes the behavior of aggregate bank liquidity creation around five financial crises and draws some general conclusions. Section 5 discusses the tests of the effects of pre crisis capital ratios on banks’ competitive positions and profitability around financial crises and â€Å"normal† times. This section also examines the stock returns of high- and low-capital listed banking organizations during each crisis and during normal† times. Section 6 concludes. 2. Related literature This paper is related to two literatures. The first is the literature on financial crises. 14 One strand in this literature has focused on financial crises and fragility. Some papers have analyzed contagion. Contributions in this area suggest that a small liquidity shock in one area may have a contagious effect throughout the economy (e. g. , Allen and Gale 1998, 2000). Other papers have focused on the determinants of financial crises and the policy implications (e. g. Bordo, Eichengreen, Klingebiel, and Martinez-Peria 2001, Demirguc-Kunt, Detragiache, and Gupta 2006, Lorenzoni 2008, Claessens, Klingebiel, and Laeven forthcoming). A second strand examines the e ffect of financial crises on the real sector (e. g. , Friedman and Schwarz 1963, Bernanke 1983, Bernanke and Gertler 1989, Dell’Ariccia, Detragiache, and Rajan 2008, Shin forthcoming). These papers find that financial crises increase the cost of financing and reduce credit, which adversely affects corporate investment and may lead to reduced 14Allen and Gale (2007) provide a detailed overview of the causes and consequences of financial crises. 7 growth and recessions. That is, financial crises have independent real effects (see Dell’Ariccia, Detragiache, and Rajan 2008). In contrast to these papers, we examine how the amount of liquidity created by the banking sector behaved around financial crises in the U. S. , and explore systematic patterns in the data. The second literature to which this paper is related focuses on the strategic use of leverage in product-market competition for non-financial firms (e. g. , Brander and Lewis 1986, Campello 2006, Lyandres 2006).This literature suggests that financial leverage can affect competitive dynamics. While this literature has not focused on banks, we analyze the effects of crises on the competitive positioning and profitability of banks based on their pre-crisis capital ratios. Our hypothesis is that in the case of banks, the competitive implications of capital are likely to be most pronounced during a crisis when a bank’s capitalization has a major influence on its ability to survive the crisis, particularly in light of regulatory discretion in closing banks or otherwise resolving problem institutions.Liquidity creation may be a channel through which this competitive advantage is gained or lost. 15 3. Description of the liquidity creation measure and sample We calculate the dollar amount of liquidity created by the banking sector using Berger and Bouwman’s (forthcoming) preferred â€Å"cat fat† liquidity creation measure. In this section, we explain briefly what this acronym stand s for and how we construct this measure. 16 We then describe our sample. All financial values are expressed in real 2007:Q4 dollars using the implicit GDP price deflator. 3. 1. Liquidity creation measureTo construct a measure of liquidity creation, we follow Berger and Bouwman’s three-step procedure (see Table 1). Below, we briefly discuss these three steps. In Step 1, we classify all bank activities (assets, liabilities, equity, and off-balance sheet activities) as liquid, semi-liquid, or illiquid. For assets, we do this based on the ease, cost, and time for banks to dispose of their obligations in order to meet these liquidity demands. For liabilities and equity, we do this 15 Allen and Gale (2004) analyze how competition affects financial stability. We reverse the causality and examine the effect of financial crises on competition. 6 For a more detailed discussion, see Berger and Bouwman (forthcoming). 8 based on the ease, cost, and time for customers to obtain liquid fund s from the bank. We follow a similar approach for off-balance sheet activities, classifying them based on functionally similar on-balance sheet activities. For all activities other than loans, this classification process uses information on both product category and maturity. Due to data restrictions, we classify loans entirely by category (â€Å"cat†). 17 In Step 2, we assign weights to all the bank activities classified in Step 1.The weights are consistent with liquidity creation theory, which argues that banks create liquidity on the balance sheet when they transform illiquid assets into liquid liabilities. We therefore apply positive weights to illiquid assets and liquid liabilities. Following similar logic, we apply negative weights to liquid assets and illiquid liabilities and equity, since banks destroy liquidity when they use illiquid liabilities to finance liquid assets. We use weights of ? and -? , because only half of the total amount of liquidity created is attrib utable to the source or use of funds alone.For example, when $1 of liquid liabilities is used to finance $1 in illiquid assets, liquidity creation equals ? * $1 + ? * $1 = $1. In this case, maximum liquidity is created. However, when $1 of liquid liabilities is used to finance $1 in liquid assets, liquidity creation equals ? * $1 + -? * $1 = $0. In this case, no liquidity is created as the bank holds items of approximately the same liquidity as those it gives to the nonbank public. Maximum liquidity is destroyed when $1 of illiquid liabilities or equity is used to finance $1 of liquid assets. In this case, liquidity creation equals -? $1 + -? * $1 = -$1. An intermediate weight of 0 is applied to semi-liquid assets and liabilities. Weights for off-balance sheet activities are assigned using the same principles. In Step 3, we combine the activities as classified in Step 1 and as weighted in Step 2 to construct Berger and Bouwman’s preferred â€Å"cat fat† liquidity creat ion measure. This measure classifies loans by category (â€Å"cat†), while all activities other than loans are classified using information on product category and maturity, and includes off-balance sheet activities (â€Å"fat†).Berger and Bouwman construct four liquidity creation measures by alternatively classifying loans by category or maturity, and by alternatively including or excluding off-balance sheet activities. However, they argue that â€Å"cat fat† is the preferred measure since for liquidity creation, banks’ ability to securitize or sell loans is more important than loan maturity, and banks do create liquidity both on the balance sheet and off the balance sheet. 17 Alternatively, we could classify loans by maturity (â€Å"mat†).However, Berger and Bouwman argue that it is preferable to classify them by category since for loans, the ability to securitize or sell is more important than their maturity. 9 To obtain the dollar amount of liq uidity creation at a particular bank, we multiply the weights of ? , -? , or 0, respectively, times the dollar amounts of the corresponding bank activities and add the weighted dollar amounts. 3. 2. Sample description We include virtually all commercial and credit card banks in the U. S. in our study. 18 For each bank, we obtain quarterly Call Report data from 1984:Q1 to 2008:Q1.We keep a bank if it: 1) has commercial real estate or commercial and industrial loans outstanding; 2) has deposits; 3) has an equity capital ratio of at least 1%; 4) has gross total assets or GTA (total assets plus allowance for loan and lease losses and the allocated transfer risk reserve) exceeding $25 million. We end up with data on 18,134 distinct banks, yielding 907,159 bank-quarter observations over our sample period. For each bank, we calculate the dollar amount of liquidity creation using the process described in Section 3. 1.The amount of liquidity creation and all other financial values are put in to real 2007:Q4 dollars using the implicit GDP price deflator. When we explore aggregate bank liquidity creation around financial crises, we focus on the real dollar amount of liquidity creation by the banking sector. To obtain this, we aggregate the liquidity created by all banks in each quarter and end up with a sample that contains 97 inflation-adjusted, quarterly liquidity creation amounts. In contrast, when we examine how capital affects the competitive positions of banks, we focus on the amount of liquidity created by individual banks around each crisis.Given documented differences between large and small banks in terms of portfolio composition (e. g. , Kashyap, Rajan, and Stein 2002, Berger, Miller, Petersen, Rajan, and Stein 2005) and the effect of capital on liquidity creation (Berger and Bouwman forthcoming), we split the sample into large banks (between 330 and 477 observations, depending on the crisis) and small banks (between 5556 and 6343 observations, depending on the crisis), and run all change in market share and profitability regressions separately for these two sets of banks.Large banks have gross total assets (GTA) exceeding $1 billion at the end of the quarter before a crisis 18 Berger and Bouwman (forthcoming) include only commercial banks. We also include credit card banks to avoid an artificial $0. 19 trillion drop in bank liquidity creation in the fourth quarter of 2006 when Citibank N. A. moved its credit-card lines to Citibank South Dakota N. A. , a credit card bank. 10 and small banks have GTA up to $1 billion at the end of that quarter. 19,20 4.The behavior of aggregate bank liquidity creation around financial crises This section focuses on the first goal of the paper – examining the aggregate liquidity creation of banks across five financial crises in the U. S. over the past quarter century. The crises include the 1987 stock market crash, the credit crunch of the early 1990s, the Russian debt crisis plus Long-Term Capital M anagement (LTCM) bailout of 1998, the bursting of the dot. com bubble and the Sept. 11 terrorist attacks of the early 2000s, and the current subprime lending crisis. We first provide summary statistics and explain our empirical approach.We then discuss alternative measures of abnormal liquidity creation. Next, we describe the behavior of bank liquidity creation before, during, and after each crisis. Finally, we draw some general conclusions from these results. 4. 1. Summary statistics and empirical approach Figure 1 Panel A shows the dollar amount of liquidity created by the banking sector, calculated using the â€Å"cat fat† liquidity creation measure over our sample period. As shown, liquidity creation has increased substantially over time: it has more than quadrupled from $1. 369 trillion in 1984:Q1 to $5. 06 trillion in 2008:Q1 (in real 2007:Q4 dollars). We want to examine whether liquidity creation by the banking sector is â€Å"high,† â€Å"low,† or at a à ¢â‚¬Å"normal† level around financial crises. Since no theories exist that explain the intertemporal behavior of liquidity creation or generate numerical estimates of â€Å"normal† liquidity creation, we need a reasonable empirical approach. At first blush, it may seem that we could simply calculate the average amount of bank liquidity creation over the entire sample period and view amounts above this sample average as â€Å"high† and amounts below the average as â€Å"low. However, Figure 1 Panel A clearly shows that this approach would cause us to classify the entire second half of the sample period (1996:Q1 – 2008:Q1) as â€Å"high† and the entire first half of the sample period (1984:Q1 – 1995:Q4) as â€Å"low. † We therefore do not 19 As noted before, we combine Berger and Bouwman’s large and medium bank categories into one â€Å"large bank† category. Recall that all financial values are expressed in real 2007:Q4 dol lars. 20 GTA equals total assets plus the allowance for loan and lease losses and the allocated transfer risk reserve.Total assets on Call Reports deduct these two reserves, which are held to cover potential credit losses. We add these reserves back to measure the full value of the loans financed and the liquidity created by the bank on the asset side. 11 use this approach. The approach we take is aimed at calculating the â€Å"abnormal† amount of liquidity created by the banking sector based on a time trend. It focuses on whether liquidity creation lies above or below this time trend, and also deseasonalizes the data to ensure that we do not base our conclusions on mere seasonal effects.We detrend and deseasonalize the data by regressing the dollar amount of liquidity creation on a time index and three quarterly dummies. The residuals from this regression measure the â€Å"abnormal† dollar amount of liquidity creation in a particular quarter. That is, they measure how far (deseasonalized) liquidity creation lies above or below the trend line. If abnormal liquidity creation is greater than (smaller than) $0, the dollar amount of liquidity created by the banking sector lies above (below) the time trend.If abnormal liquidity creation is high (low) relative to the time trend and seasonal factors, we will interpret this as liquidity creation being â€Å"too high† (â€Å"too low†). Figure 1 Panel B shows abnormal liquidity creation over time. The amount of liquidity created by the banking sector was high (yet declining) in the mid-1980s, low in the mid-1990s, and high (and mostly rising) in the most recent years. 4. 2. Alternative measures of abnormal liquidity creation We considered several alternative approaches to measuring abnormal liquidity creation. One possibility is to scale the dollar amount of liquidity creation by total population.The idea behind this approach is that a â€Å"normal† amount of liquidity creation may exi st in per capita terms. The average amount of liquidity creation per capita over our sample period could potentially serve as the â€Å"normal† amount and deviations from this average would be viewed as abnormal. To calculate per capita liquidity creation we obtain annual U. S. population estimates from the U. S. Census Bureau. Figure 2 Panel A shows per capita liquidity creation over time. The picture reveals that per capita liquidity creation more than tripled from $5. 8K in 1984:Q1 to $18. 8K in 2008:Q1.Interestingly, the picture looks very similar to the one shown in Panel A, perhaps because the annual U. S. population growth rate is low. For reasons similar to those in our earlier analysis, we calculate abnormal per capita liquidity creation by detrending and deseasonalizing the data like we did in the previous section. Figure 2 Panel B shows abnormal per capita liquidity creation over time. 12 Another possibility is to scale the dollar amount of liquidity creation by GD P. Since liquidity creation by banks may causally affect GDP, this approach seems less appropriate.Nonetheless, we show the results for completeness. Figure 2 Panel C shows the dollar amount of liquidity creation divided by GDP. The picture reveals that bank liquidity creation has increased from 19. 9% of GDP in 1984:Q1 to 40. 4% of GDP in 2008:Q1. While liquidity creation more than quadrupled over the sample period, GDP doubled. Importantly, the picture looks similar to the one shown in Panel A. Again, for reasons similar to those in our earlier analysis, we detrend and deseasonalize the data to obtain abnormal liquidity creation divided by GDP.Figure 2 Panel D shows abnormal liquidity creation divided by GDP over time. Since these alternative approaches yield results that are similar to those shown in Section 4. 1, we focus our discussions on the abnormal amount of liquidity creation (rather than the abnormal amount of per capita liquidity creation or the abnormal amount of liquid ity creation divided by GDP) around financial crises. 4. 3. Abnormal bank liquidity creation before, during, and after five financial crises We now examine how abnormal bank liquidity creation behaved efore, during, and after five financial crises. In all cases, the pre-crisis and post-crisis periods are defined to be eight quarters long. 21 The one exception is that we do not examine abnormal bank liquidity creation after the current subprime lending crisis, since this crisis was still ongoing at the end of the sample period. Figure 3 Panels A – E show the graphs of the abnormal amount of liquidity creation for the five crises. This subsection is a fact-finding effort and largely descriptive. In Section 4. , we will combine the evidence gathered here and interpret it to draw some general conclusions. Financial crisis #1: Stock market crash (1987:Q4) On Monday, October 19, 1987, the stock market crashed, with the S&P500 index falling about 20%. During the years before the cra sh, the level of the stock market had increased dramatically, causing some 21 As a result of our choice of two-year pre-crisis and post-crisis periods, the post-Russian debt crisis period overlaps with the bursting of the dot. com bubble, and the pre-dot. com bubble period overlaps with the Russian debt crisis.For these two crises, we redo our analyses using six-quarter pre-crisis and post-crisis periods and obtain results that are qualitatively similar to the ones documented here. 13 concern that the market had become overvalued. 22 A few days before the crash, two events occurred that may have helped precipitate the crash: 1) legislation was enacted to eliminate certain tax benefits associated with financing mergers; and 2) information was released that the trade deficit was above expectations. Both events seemed to have added to the selling pressure and a record trading volume on Oct. 9, in part caused by program trading, overwhelmed many systems. Figure 3 Panel A shows abnormal bank liquidity creation before, during, and after the stock market crash. Although this financial crisis seems to have originated in the stock market rather than the banking system, it is clear from the graph that abnormal liquidity creation by banks was high ($0. 5 trillion above the time trend) two years before the crisis. It had already dropped substantially before the crisis and continued to drop until well after the crisis, but was still above the time trend even a year after the crisis.Financial crisis #2: Credit crunch (1990:Q1 – 1992:Q4) During the first three years of the 1990s, bank commercial and industrial lending declined in real terms, particularly for small banks and for small loans (see Berger, Kashyap, and Scalise 1995, Table 8, for details). The ascribed causes of the credit crunch include a fall in bank capital from the loan loss experiences of the late 1980s (e. g. , Peek and Rosengren 1995), the increases in bank leverage requirements and implementation o f Basel I risk-based capital standards during this time period (e. g. Berger and Udell 1994, Hancock, Laing, and Wilcox 1995, Thakor 1996), an increase in supervisory toughness evidenced in worse examination ratings for a given bank condition (e. g. , Berger, Kyle, and Scalise 2001), and reduced loan demand because of macroeconomic and regional recessions (e. g. , Bernanke and Lown 1991). To some extent, the research supports virtually all of these hypotheses. Figure 3 Panel B shows how abnormal liquidity creation behaved before, during, and after the credit crunch. The graph shows that liquidity creation was above the time trend before the crisis, but declining.After a temporary increase, it dropped markedly during the crisis by roughly $0. 6 trillion, and the decline even extended a bit beyond the crunch period. After having reached a noticeably low level in the post-crunch period, liquidity creation slowly started to bottom out. This evidence suggests that the 22 E. g. , â€Å"R aging bull, stock market’s surge is puzzling investors: When will it end? † on page 1 of the Wall Street Journal, Jan. 19, 1987. 14 banking sector created (slightly) positive abnormal liquidity before the crisis, but created significantly negative abnormal liquidity during and fter the crisis, representing behavior by banks that may have further fueled the crisis. Financial crisis #3: Russian debt crisis / LTCM bailout (1998:Q3 – 1998:Q4) Since its inception in March 1994, hedge fund Long-Term Capital Management (â€Å"LTCM†) followed an arbitrage strategy that was avowedly â€Å"market neutral,† designed to make money regardless of whether prices were rising or falling. When Russia defaulted on its sovereign debt on August 17, 1998, investors fled from other government paper to the safe haven of U. S. treasuries.This flight to liquidity caused an unexpected widening of spreads on supposedly low-risk portfolios. By the end of August 1998, LTCMâ€⠄¢s capital had dropped to $2. 3 billion, less than 50% of its December 1997 value, with assets standing at $126 billion. In the first three weeks of September, LTCM’s capital dropped further to $600 million without shrinking the portfolio. Banks began to doubt its ability to meet margin calls. To prevent a potential systemic meltdown triggered by the collapse of the world’s largest hedge fund, the Federal Reserve Bank of New York organized a $3. billion bail-out by LTCM’s major creditors on September 23, 1998. In 1998:Q4, many large banks had to take substantial write-offs as a result of losses on their investments. Figure 3 Panel C shows abnormal liquidity creation around the Russian debt crisis and LTCM bailout. The pattern shown in the graph is very different from the ones we have seen so far. Liquidity creation was abnormally negative before the crisis, but increasing. Liquidity creation increased further during the crisis, countercyclical behavior by banks that may have alleviated the crisis, and continued to grow after the crisis.This suggests that liquidity creation may have been too low entering the crisis and returned to normal levels a few quarters after the end of the crisis. Financial crisis #4: Bursting of the dot. com bubble and Sept. 11 terrorist attack (2000:Q2 – 2002:Q3) The dot. com bubble was a speculative stock price bubble that was built up during the mid to late 1990s. During this period, many internet-based companies, commonly referred to as â€Å"dot. coms,† were founded. Rapidly increasing stock prices and widely available venture capital created an environment in which 15 any of these companies seemed to focus largely on increasing market share. At the height of the boom, it seemed possible for dot. com’s to go public and raise substantial amounts of money even if they had never earned any profits, and in some cases had not even earned any revenues. On March 10, 2000, the Nasdaq composite ind ex peaked at more than double its value just a year before. After the bursting of the bubble, many dot. com’s ran out of capital and were acquired or filed for bankruptcy (examples of the latter include WorldCom and Pets. com). The U. S. economy started to slow down and business nvestments began falling. The September 11, 2001 terrorist attacks may have exacerbated the stock market downturn by adversely affecting investor sentiment. By 2002:Q3, the Nasdaq index had fallen by 78%, wiping out $5 trillion in market value of mostly technology firms. Figure 3 Panel D shows how abnormal liquidity creation behaved before, during, and after the bursting of the dot. com bubble and the Sept. 11 terrorist attacks. The graph shows that before the crisis period, liquidity creation moved from displaying a negative abnormal value to displaying a positive abnormal value at the time the bubble burst.During the crisis, liquidity creation declined somewhat and hovered around the time trend by t he time the crisis was over. After the crisis, liquidity creation slowly started to pick up again. Financial crisis #5: Subprime lending crisis (2007:Q3 – ? ) The subprime lending crisis has been characterized by turmoil in financial markets as banks have experienced difficulty in selling loans in the syndicated loan market and in securitizing loans. Banks also seem to be reluctant to provide credit: they appear to have cut back their lending to firms and individuals, and have also been reticent to lend to each other.Risk premia have increased as evidenced by a higher premium over treasuries for mortgages and other bank products. Some banks have experienced massive losses in capital. For example, Citicorp had to raise about $40 billion in equity to cover subprime lending and other losses. Massive losses at Countrywide resulted in a takeover by Bank of America. Bear Stearns suffered a fatal loss in confidence and was sold at a fire-sale price to J. P. Morgan Chase with the Fed eral Reserve guaranteeing $29 billion in potential losses. Washington Mutual, the sixth-largest bank, became the biggest bank failure in the U.S. financial history. J. P. Morgan Chase purchased the banking business while the rest of the organization filed for bankruptcy. The Federal Reserve intervened in some 16 unprecedented ways in the market, extending its safety-net privileges to investment banks. In addition to lowering the discount rate sharply, it also began holding mortgage-backed securities and lending directly to investment banks. Subsequently, IndyMac Bank was seized by the FDIC after it suffered substantive losses and depositors had started to run on the bank. This failure is expected to cost the FDIC $4 billion – $8 billion.The FDIC intends to sell the bank. Congress also recently passed legislation to provide Freddie Mac and Fannie Mae with unlimited credit lines and possible equity injections to prop up these troubled organizations, which are considered too big to fail. Figure 3 Panel E shows abnormal liquidity creation before and during the first part of the subprime lending crisis. The graph suggests that liquidity creation displayed a high positive abnormal value that was increasing before the crisis hit, with abnormal liquidity creation around $0. 0 trillion entering the crisis, decreasing substantially after the crisis hit. A striking fact about this crisis compared to the other crises is the relatively high build-up of positive abnormal liquidity creation prior to the crisis. 4. 4. Behavior of some liquidity creation components around the two banking crises It is of particular interest to examine the behavior of some selected components of liquidity creation around the banking crises. As discussed above (Section 4. 3), numerous papers have focused on the credit crunch, examining lending behavior.These studies generally find that mortgage and business lending started to decline significantly during the crisis. Here we contrast the cr edit crunch experience with the current subprime lending crisis, and expand the components of liquidity creation that are examined. Rather than focusing on mortgages and business loans, we examine the two liquidity creation components that include these items – semi-liquid assets (primarily mortgages) and illiquid assets (primarily business loans). In addition, we analyze two other components of liquidity creation.We examine the behavior of liquid assets to address whether a decrease (increase) in semi-liquid assets and / or illiquid assets tended to be accompanied by an increase (decrease) in liquid assets. We also analyze the behavior of illiquid off-balance sheet guarantees (primarily loan commitments) to address whether illiquid assets and illiquid off-balance sheet guarantees move in tandem around banking crises and whether changes in one are more pronounced than the other. Figure 4 Panels A and B show the abnormal amount of four liquidity creation components around 17 h e credit crunch and the subprime lending crisis, respectively. For ease of comparison, the components are not weighted by weights of +? (illiquid assets and illiquid off-balance sheet guarantees), 0 (semiliquid assets), and –? (liquid assets). The abnormal amounts are obtained by detrending and deseasonalizing each liquidity creation component. Figure 4 Panel A shows that abnormal semi-liquid assets decreased slightly during the credit crunch, while abnormal illiquid assets and especially abnormal illiquid guarantees dropped significantly and turned negative.This picture suggests that these components fell increasingly below the trendline. The dramatic drop in abnormal illiquid assets and abnormal illiquid off-balance sheet guarantees (which carry positive weights) helps explain the significant decrease in abnormal liquidity creation during the credit crunch shown in Figure 3 Panel B. Figure 4 Panel B shows that these four components of abnormal liquidity creation were above the trendline before and during the subprime lending crisis.Illiquid assets and especially off-balance sheet guarantees move further and further above the trendline before the crisis, which helps explain the dramatic buildup in abnormal liquidity creation before the subprime lending crisis shown in Figure 3 Panel E. All four components of abnormal liquidity creation continued to increase at the beginning of the crisis. After the first quarter of the crisis, illiquid off-balance sheet guarantees showed a significant decrease, which helps explain the decrease in abnormal liquidity creation in Figure 3 Panel E.On the balance sheet, during the final quarter of the sample period (the third quarter of the crisis), abnormal semi-liquid and illiquid assets declined, while abnormal liquid assets increased. 4. 5. General conclusions from the results What do we learn from the various graphs in the previous analyses that indicate intertemporal patterns of liquidity creation and selected liquidi ty creation components around five financial crises? First, across all the financial crises, there seems to have been a significant build-up or drop-off of abnormal liquidity creation before the crisis.This is consistent with the notion that crises may be preceded by either â€Å"too much† or â€Å"too little† liquidity creation, although at this stage we offer this as tentative food for thought rather than as a conclusion. Second, there seem to be two main differences between banking crises and market-related crises. 18 The banking crises, namely the credit crunch and the subprime lending crisis, were both preceded by positive abnormal liquidity creation by banks, while two out of the three market-related crises were preceded by negative abnormal liquidity creation.In addition, during the two banking crises, the crises themselves seem to have exerted a noticeable influence on the pattern of aggregate liquidity creation by banks. Just prior to the credit crunch, abnorm al liquidity creation was positive and had started to trend upward, but reversed course and plunged quite substantially to become negative during and after the crisis. Just prior to the subprime lending crisis, aggregate liquidity creation was again abnormally positive and trending up, but began to decline during the crisis, although it remains abnormally high by historical standards.The other crises, which are less directly related to banks, did not seem to exhibit such noticeable impact. Third, liquidity creation has both decreased during crises (e. g. , the 1990-1992 credit crunch) and increased during crises (e. g. , the 1998 Russian debt crisis / LTCM bailout). Thus, liquidity creation likely both exacerbated and ameliorated the effects of crises. Fourth, off-balance sheet illiquid guarantees (primarily loan commitments) moved more than semi-liquid assets (primarily mortgages) and illiquid assets (primarily business loans) during banking crises.Fifth, while liquidity creation i s generally thought of as a financial intermediation service with positive economic value at the level of the individual bank and individual borrower (see Diamond and Rajan 2000, 2001), our analysis hints at the existence of a â€Å"dark side† to liquidity creation. Specifically, it may be more than coincidence that the subprime lending crisis was preceded by a very high level of positive abnormal aggregate liquidity creation by banks relative to historical levels.The notion that this may have contributed to the subprime lending crisis is consistent with the findings that banks adopted lax credit standards (see Dell’Ariccia, Igan, and Laeven 2008, Keys, Mukherjee, Seru, and Vig 2008), which in turn could have led to an increase in credit availability and off-balance sheet guarantees. Thus, while Diamond and Rajan (2000, 2001) argue that financial fragility is needed to create liquidity, our analysis offers the intriguing possibility that the causality may be reversed a s well: too much liquidity creation may lead to financial fragility. 9 5. The effect of capital on banks’ competitive positions and profitability around financial crises This section focuses on the second goal of the paper – examining how bank capital affects banks’ competitive positions and profitability around financial crises. We first explain our methodology and provide summary statistics. We then present and discuss the empirical results. In an additional check, we examine whether the stock return performance of high- and low-capital listed banks is consistent with the competitive position and profitability results for large banks.In another check, we generate some â€Å"fake† crises to analyze whether our findings hold during â€Å"normal† times as well. 5. 1. Empirical approach To examine whether banks with high capital ratios improve their competitive positions and profitability during financial crises, and if so, whether they are able to h old on to this improved performance after these crises, we focus on the behavior of individual banks rather than that of the banking sector as a whole.Because our analysis of aggregate liquidity creation by banks shows substantial differences across crises, we do not pool the data from all the crises but instead analyze each crisis separately. Our findings below that the coefficients of interest differ substantially across crises tend to justify this separate treatment of the different crises. We use the following regression specification for each of the five crises: ? PERFi,j = ? + ? 1 * EQRATi,j + B * Zi,j (1) where ?PERFi,j is the change in bank i’s performance around crisis j, EQRATi,j is the bank’s average capital ratio before the crisis, and Zi,j includes a set of control variables averaged over the pre-crisis period. All of these variables are discussed in Section 5. 2. Since we use a cross-sectional regression model, bank and year fixed effects are not included . In all regressions, t-statistics are based on robust standard errors. Given documented differences between large and small banks in terms of portfolio composition (e. g. Kashyap, Rajan, and Stein 2002, Berger, Miller, Petersen, Rajan, and Stein 2005) and the effect of capital on liquidity creation (Berger and Bouwman forthcoming), we split the sample into large and small banks, and run all regressions separately for these two sets of banks. Large banks have gross total assets (GTA) exceeding $1 billion at the end of the quarter preceding the crisis and small banks have GTA up to 20 $1 billion at the end of that quarter. 5. 2. Variable descriptions and summary statistics We use two measures of a bank’s performance: competitive position and profitability.The bank’s competitive position is measured as the bank’s market share of overall liquidity creation, i. e. , the dollar amount of liquidity created by the bank divided by the dollar amount of liquidity created by the industry. Our focus on the share of liquidity creation is a departure from the traditional focus on a bank’s market share of deposits. Liquidity creation is a more comprehensive measure of banking activities since it does not just consider one funding item but instead is based on all the bank’s on-balance sheet and off-balance sheet activities.To establish whether banks improve their competitive positions during the crisis, we define the change in liquidity creation market share, ? LCSHARE, as the bank’s average market share during the crisis minus its average market share over the eight quarters before the crisis, normalized by its average pre-crisis market share. To examine whether these banks hold on to their improved performance after the crisis, we also measure each bank’s average market share over the eight quarters after the crisis minus its average market share over the eight quarters before the crisis, again normalized by its average marke t share before the crisis.The second performance measure is the bank’s profitability, measured as the return on equity (ROE), i. e. , net income divided by stockholders equity. 23 To examine whether a bank improves its profitability during a crisis, we focus on the change in profitability, ? ROE, measured as the bank’s average ROE during the crisis minus the bank’s average ROE over the eight quarters before the crisis. 24 To analyze whether the bank is able to hold on to improved profitability, we focus on the bank’s average ROE over the eight quarters after the crisis minus its average ROE over the eight quarters before the crisis.To mitigate the influence of outliers, ? LCSHARE and ? ROE are winsorized at the 3% level. Furthermore, to ensure that average values are calculated based on a sufficient number of quarters, we 23 We use ROE, the bank’s net income divided by equity, rather than return on assets (ROA), net income divided by assets, since banks may have substantial off-balance sheet portfolios. Banks must allocate capital against every offbalance sheet activity they engage in. Hence, net income and equity both reflect the bank’s on-balance sheet and off-balance sheet activities.In contrast, ROA divides net income earned based on on-balance sheet and off-balance sheet activities merely by the size of the on-balance sheet activities. 24 We do not divide by the bank’s ROE before the crisis since ROE itself is already a scaled variable. 21 require that at least half of a bank’s pre-crisis / crisis / post-crisis observations are available for both performance measures around a crisis. Since the subprime lending crisis was still ongoing at the end of the sample period, we require that at least half of a bank’s pre-subprime crisis observations and all three quarters of its subprime crisis observations are available.The key exogenous variable is EQRAT, the bank’s capital ratio averaged over the eight quarters before the crisis. EQRAT is the ratio of equity capital to gross total assets, GTA. 25 The control variables include: bank size, bank risk, bank holding company membership, local market competition, and proxies for the economic environment. Bank size is controlled for by including lnGTA, the log of GTA, in all regressions. In addition, we run regressions separately for large and small banks. We include the z-score to control for bank risk. 26 The z-score indicates the bank’s distance from default (e. g. Boyd, Graham, and Hewitt 1993), with higher values indicating that a bank is less likely to default. It is measured as a bank’s return on assets plus the equity capital/GTA ratio divided by the standard deviation of the return on assets over the eight quarters before the crisis. To control for bank holding company status, we include D-BHC, a dummy variable that equals 1 if the bank was part of a bank holding company. Bank holding company membership m ay affect a bank’s competitive position because the holding company is required to act as a source of strength to all the banks it owns, and may also inject equity voluntarily when needed.In addition, other banks in the holding company provide cross-guarantees. Furthermore, Houston, James, and Marcus (1997) find that bank loan growth depends on BHC membership. We control for local market competition by including HERF, the bank-level HerfindahlHirschman index of deposit concentration for the markets in which the bank is p