17. Investment Banking and Secondary Markets

Financial Markets (ECON 252)

First, Professor Shiller discusses today's changing financial system and recent market stabilization reform introduced by U.S. Treasury Secretary Henry Paulson. The financial system is inherently unstable and would benefit from more surveillance, particularly for consumer protection issues, given the recent subprime mortgage crisis. Although this particular reform might not be successful, more regulators and policymakers are talking about changing the stabilization system and will likely alter the role of the Fed in the future.

Second, Professor Shiller introduces the mechanics and role of investment banking. Investment banks underwrite securities and arrange for the issue of stocks and bonds by corporations. Corporations work with investment banks to navigate the Securities and Exchange Commission requirements for issuing securities. The banks then take on a "bought deal" or "best efforts deal" and help the corporation to find a market for the securities. Investment banking depends on the reputation of its bankers and, as we have seen recently, can be destroyed by rumors about the bank's insolvency.

00:00 - Chapter 1. The Paulson Proposal: Opportunities for Stabilization and Surveillance
13:45 - Chapter 2. The Fed as a Market Stability Regulator and News Media Bias
23:31 - Chapter 3. What Is Investment Banking? A Historical Glimpse
47:47 - Chapter 4. Investment Banks' Underwriting Process and the Importance of Reputation
01:05:40 - Chapter 5. The Investment Banker as the Manager of a Security

Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses

This course was recorded in Spring 2008.