The potential for further damage remains high. Financial tsunami The tsunami that engulfed financial institutions and shook the economies, and even stability, of most nations, has already caused widespread damage. Among the factors focused on are the role institutional investors play, whether investor activism can address some of the problems, methods to reform top executives' compensation, and the urgent need to refocus attention on innovation in the "real" economy, while achieving sustainable growth. Managerial factors such a lack of diversity, and coercive leadership are discussed. Again, institutional investors have often abdicated their responsibility in corporate governance, giving chief executives a free hand in running both financial institutions and firms heavily vested in the financial services industry. This questionable continues to this day in the United States. Top-level management's salary and incentives are set at astronomically high levels, purportedly since their talent has to be rewarded, a practice which continues whether corporate performance is outstanding or dismal. While many individuals skirted the law, some actions (predatory lending, mingling of healthy and toxic assets, borrowers' moral hazard, etc) verged on the unethical. In addressing the causes underlying what went wrong, the paper's initial focus is on ethical issues. Much has been written about the origins and the domino-like sequence that led to the implosion, and the paper briefly reviews how the situation got so terribly and rapidly out of control. While much of Europe was afflicted by the malaise, particularly because banks in the region had acquired securitized "toxic assets" and had also bought into the notion that the range of financial innovations developed and marketed by banks and other corporations was the key to the continued growth of developed economies. Collapse of the housing market, rising foreclosure rates, and sharp drops in consumer spending added to the mounting challenges. The financial catastrophe that exploded a few years ago did widespread damage to the economic and financial systems of many countries, severely affecting GDP growth, lowering levels of employment, curtailing tax revenues, and, in some developed nations (such as the United States), driving many financial institutions to the brink of bankruptcy. By this analysis this study hopes to provide one link in the chain of a more comprehensive political theory of American finance with its implications for comparative corporate governance, industrial organization and economic performance. This paper identifies and evaluates these group interests in shaping the different parts of the bill and also shows how unfolding historical events affected the final outcome of the legislation. The political process can be seen as a function of group interests played out through the political structure. My intention is to show how politics has helped to shape finance through a legislative history of Glass-Steagall. One of the most significant pieces of legislation, the Banking Act of 1933, or Glass-Steagall, is the case study analyzed in this paper. A political theory of American finance has been advanced by Roe (1991) where he identifies legislation and regulations that have directly affected the activities of U.S. More simply, politics has, to a significant extent and a variety of ways, shaped finance. The general proposition of this paper is that the laws and regulations that have shaped American finance are rooted in the political process. Commercial and investment banks, trust companies, mutual funds, and pension funds are all severely constrained in their ability to monitor firm behavior. financial institutions are fragmented by legislation and regulation. These institutions, predominantly commercial or universal banks, accomplish this through seats on the Board of Directors as representatives of both creditor and shareholder interests. In Germany and Japan, large and powerful financial institutions play an active role in monitoring corporate decisions. One of the more notable differences in forms of corporate governance relate to the role of financial institutions. The most measured comparisons are between the U.S., Germany, and Japan. Industrial organization and corporate governance varies considerably across developed countries.
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