Money and Banking – Econ 120 Summer 2012 Professor Shirley Gedeon, PhD NOTE TO SUMMER ONLINE STUDENTS
: This course covers the same material that I cover during the 14-week semester. I have produced dozens of video lectures that capture much of what transpires in the classroom. You see the “blackboard work” and hear my lectures. Everything is contained within the Blackboard website. The significant difference is that there are weekly homework assignments rather than exams. Shirley.email@example.com Office Hours: by appointment - just send an email request) Required Texts: 1. Frederic Mishkin, The Economics of Money, Banking, and Financial Markets, 9th edition. (Available used, new, or as an online book - but be sure that you purchase the 9th edition). 2. Simon Johnson and James Kwak, 13 Bankers (Available new, used, or e-book) 3. Recommended: David Hakes and Edward Gamber, Study Guide for The Economics of Money, Banking, and Financial Markets (be sure that you purchase the 9th edition) Course Requirements: Week I: Financial Markets and Institutions Week II: Business of Banking Week III: Financial Regulation and Structure of Banking Industry Week IV: Monetary Policy: The Tools and Policies of the Central Bank Week V: Tools & Conduct of Monetary Policy Week VI: Assessing Monetary Policy and the Stability of the Financial System Mishkin, Chs. 2 – 6 Mishkin, Chs. 8 - 10 Mishkin, Chs. 11-12
Homework Set Due Discussion Posting Due Homework Set Due Discussion Posting Due Homework Set Due Discussion Posting Due Homework Set Due Discussion Posting Due
Mishkin, Chs. 13-14
Mishkin, Chs. 15-16 Simon Johnson, 13 Bankers and other assigned reading
Homework Set Due Discussion Posting Due Essay on Assigned Topic (See Syllabus below)
Course Grade: Rather than taking a midterm and final exam, you will be evaluated on the basis of: 6 homework sets (80% of grade) Quality of discussion posts on and quality of your comments and responses to other students' posting (20% of grade)
Syllabus Week I: Financial Markets and Institutions In this section you will learn about the sort of short and long term financial instruments that are traded daily around the world. These include such short term (money market) instruments as repurchase agreements, commercial paper, bankers acceptances, and negotiable CD's as well as long term (capital market) instruments such as corporate and government bonds. You will also learn about the major financial intermediaries which buy and sell these instruments. These include insurance companies, commercial banks, pension funds, government sponsored enterprises such as Fannie Mae, and mutual funds. Reading Assignment: 1. Mishkin Chs. 2 – 6 2. Instruments of the Money Market (Under "Assigned Reading" on left-hand menu of course website) Repurchase Agreements Commercial Paper Bankers' Acceptances Week II: Business of Banking In this section you will learn how to read the balance sheets of commercial banks, analyze return on assets and return on equity, and discuss the major challenges that banks face, namely interest rate risk and liquidity risk. You will also be introduced to the various instruments that banks trade to hedge this risk, including credit default swaps, collateralized debt obligations, and asset based securities. Reading Assignment: 1. Mishkin Chs. 8 – 10 2. Profits and Balance Sheet Developments of Commercial Banks, Federal Reserve (find under “Assigned Readings” on Blackboard Week III: Financial Regulation and Structure of Banking Industry – 3/12 – 16 In this module you will study the various laws and regulations in place in the United States that govern the kinds of risk that financial institutions may take. You will also explore the causes of the 1980's savings and loan crisis and why banks were so intent on financial innovation and repealing the Glass Steagall Act.
Reading Assignment: 1. Mishkin, Chs. 11 and 12 2. Simon Johnson, 13 Bankers, Chs. 1 - 4 3. Ben Bernanke, "Financial Regulation and Supervision after the Crisis: The Role of the Federal Reserve, Oct. 2009 Printer Version - Board of Governors of the Federal Reserve System.pdf
Recommended: Simon Johnson, "The FDIC's Resolution Problem"
Week IV: Monetary Policy: The Tools and Policies of the Central Bank In this section you will learn about the money multiplier and how the central bank controls the monetary base. This section introduces the monetary base and discusses how the Fed adjusts its balance sheet to change the money supply. You will examine the balance sheet of the central bank and learn about the emergency tools that the Federal Reserve created in order to provide lender of last resort assistance during the 2007-09 economic crisis.
Required Reading: 1. Mishkin, Chs. 13 & 14 2. Credit and Liquidity Programs of the Federal Reserve http://www.federalreserve.gov/monetarypolicy/bst.htm Week V: Tools & Conduct of Monetary Policy How is monetary policy conducted? How does the Federal Open Market Committee decide whether to try to raise or lower short term interest rates? In this part of the course you will study the federal funds market, Taylor rule, learn about the various lender of last resort actions that the Fed took during the financial crisis, and consider the merits of inflation targeting. Reading Assignment: 1. Mishkin Chs. 15 & 16 2. Instruments of the Money Market, Chapters on Discount Window and Federal Funds Market 3. "Term Asset-Backed Securities" of the Federal Reserve
Part VI: Assessing Monetary Policy and the Stability of the Financial System What caused the economic crisis of 2007-09? Where are the fault lines in the financial system? What have we learned from the economic crisis of 2007-09? What are fundamental challenges that financial systems face, and which are specific to finance in the late 20th/early 21st centuries? Do economies need more or less regulation? Is the global financial system inherently unstable? These are the kinds of questions that we pursue during the final week of the course Reading Assignment: 1. Simon Johnson & James Kwak, 13 Bankers 2. Professor Richard Wolff, Capitalism Hits the Fan. (This is a video which you can check out from the UVM media library in the basement of B/H or you can watch it on Youtube) 3. Inside Job (DVD) - recommended
Assigned Essay: This assignment asks you to stand back and take an aerial view of how the banking system has transformed itself through and by means of the economic crisis. Simon Johnson, James Kwak and Richard Wolff suggest that there are important sociological and political dimensions to the economics of the banking crisis. Write a 1600 - 1800 word (5-7 page, double-spaced) essay in which you explore all of the following: Do not use long quotes from the sources. Paraphrase and cite in the source in the following way: (Johnson & Kwak, p. 67) I. How do Wolff and Johnson/Kwak differ in their understanding of the root causes of the economic crisis? What does one mention that the other does not? II. Chapter 4 of 13 Bankers is a harsh indictment of the Wall St-Washington Corridor. What is your understanding of Johnson's argument in this chapter? Does it make you angry? Do you agree with it? Explain your reaction to this. III. "In the end, the government's strategy succeeded in bringing the financial system back from the brink of ruin, although not in restoring that system to health and stimulating lending to the real economy." Why do Johnson and Kwak take this line? Analyze the government's response to the crisis, focusing on the blank check option vs. the takeover option. IV. How was the bailout "the best deal ever"? What is the evidence of the Wall Street takeover and why are ordinary consumers and workers the big losers and the six banks the new American oligarchy?