Role of Asset Securitization in Present Financial Crisis

Role of Asset Securitization in Present Financial Crisis Abstract Banks, to get rid of illiquid assets they posses and to attain financial freedom in lending, searched for new innovative techniques. This innovative method of converting these illiquid assets in to liquid assets technique is called asset securitization. Banks pool up these illiquid assets like mortgage loans and sell it to agencies called as special purpose vehicle (SPV). These special purpose vehicles convert these loans in to securities and sold to investors. Before agencies sold these securities they got it rated from rating agencies. Asset securitization as a process reduced information asymmetries; increased financial slack; served as a lower cost of financing source; reduced regulatory capital; and reduced bank risk. The process of asset securitization as a whole has many advantages but by the end of year 2007 it started to crack with financial crisis. It is therefore necessary to study what went wrong in the process of asset securitization that lead to financial crisis. The study analyzes the role of asset securitization in financial crisis by analyzing the economics of asset securitization process as whole. Then in depth analysis of credit rating agencies methodologies and economics of how they rate these securities is studied. As it is difficult to analyze the rating processes and methodologies of all rating companies in this thesis I have decided to analyze Moodys investor service. Moodys has been selected because its name is synonym with quality in the market. The growth and fall of mortgage industry performance of mortgage industry have been analyzed. The factors that led to financial crisis have been analyzed. The study analyze the moodys rating methodologies and rating models and updates to rating models. The short comes in rating methodologies and rating process has been discussed. The rating models updates effect on default rate of rating has been analyzed. Finally the effect of these default rates on financial crisis has been studied and analysis of role of asset securitization in financial crisis is studied. Chapter 1 Introduction The process of asset securitization started in the year 1870 when Government National Mortgage Association (GINNIE MAC) purchased pools of loans and converted in to securities and sold these securities to investors. In the year 1970 special innovative technique called tranching were used to distribute losses involved in these pools of loans backed by mortgages and sold to investors. Kaptan and Telang (2002) Asset securitization is the process of converting illiquid assets in to cash flows. Both financial intermediates such as banks and investors benefited from this process. Banks benefited with extra liquidity to lend more loans to able borrowers where as investors got opportunity to invest in capital market for more returns. In the process of asset securitization, rating agencies rating securities is crucial because rating influence the marketability of the securities. There are many rating agencies which rate Residential Mortgage Backed Securities, of these three largest credit rating agencies with overseas market that are based in United States are Moodys, Standard and Poor (â€Å"SP†) and Fitch. These rating agencies use statistical models to analyze risk involved. Rating agencies constantly review performance of these securities and according to performance they upgrade or downgrade rating. To lessen the effects of a mild recession in 2000, the Federal Reserve cut interest rates. This interest rate cut along with increasing housing price made people to invest in housing this helped to drive growing demand for nontraditional mortgages products. Banks have extra liquidity to lend more loans to borrowers and started to lend more and more loans to non prime borrowers, which led to poor performance of loans and in turn effected whole asset securitization. This report will explore what is the role of asset securitization in financial crisis. In order to research what is the role of asset securitization in financial crisis the following have done 1. Analysis of asset securitization process 2. Analysis of Evolution of financial crisis 3. Analysis of Rating agencies methodologies and procedures in rating process. The details of analysis techniques are explained in methodology chapter. And extensive literature review is done to get hold of the subject. Finally in depth analysis has been done to reach the goal of the report. CHAPTER-2 Professional And Academic Context 2.1 Asset Securitization Kaptan and Telang (2002) defined Asset securitization as an innovative process which channelizes flow of funds from investors to issuers in efficient manner. In simple words, the process of asset securitization starts with financial institutions like banks which pools up individual loans and create securities against them. These securities are rated and sold to investors. In words of these authors, asset securitization is the process of converting assets in to securities and in turn in to liquid cash. Origins of securitizations can be traced back to 1870`s where Government National Mortgage Association (GINNIE MAC) started selling securities that are backed by pool of mortgage loans. These securities were named as mortgage pass through securities. This process of securitization has changed in 1970 where new innovative concept of tranching was introduced in issuing the securities (tranched securities). These tranched securities are sold to investors. Kaptan and Telang (2002) (Uzun and Web, 2007) makes understanding of asset securitization more simple through an illustration of the process of asset securitization, banks which are financial intermediaries in capital market has various types of assets such as mortgage loans, car loans, leasing contracts etc on their balance sheets. These assets are not marketable so these are illiquid assets. Banks, to get rid of these illiquid assets and to attain financial freedom in lending search for new techniques. This innovative method of converting these illiquid assets in to liquid assets technique is called asset securitization. So asset securitization plays a major role in converting these illiquid assets in to cash flows (liquid assets). Uzun and Web, also provide information on what kind of assets the banks securitize. These authors explain this as, the process of asset securitization starts with banks deciding which assets they want to securitize for example mortgage loans. Then bank pools these mortgage loans and sell it to trustee or separate entity which is called special purpose vehicle. (Uzun and Web, 2007) Role of Special purpose vehicle (SPV) is explained by the Securities and Exchange Staff (2008) as, SPVs either government backed agencies or private agencies such as Fannie Mac, Friede Mac, Ginnie Mac buys these loan pools and are entitled to interest and principal of underlying loans in the pools. Then SPV issues different classes of securities known as tranched securities backed by pool of loans. The role of SPV is to separate risk of newly created securities from the origin bank loans. If these SPV are not there it is very difficult to assess the risk involved with those securities underlying the loans. It is difficult to access risk because risk involved is closely related to origination bank practices. Information of origination bank practices such as how they lend loans what documentation they check before issuing loans and credit quality of loans. Securities and Exchange Staff (2008) conclude that these securities issued from this SPV isolates the risk involved from origination bank. Investors invest on these securities and investment risk is directly interrelated to credit quality of loan borrowers whose loans are offered as collateral for the securities. To boost the demand for these securities the SPV enhances credit quality by process called over collateralization and subordination. Over collateralization, is the process in which credit quality is improved by giving payment guarantee by insurer. So if there is any principal or interest default it is insured there by making investors clear in mind that there is no risk involved in investing in these securities. Over collateralization is one way of credit enhancement but the principle way of credit enhancement is done by subordination. In subordination process SPV issues different layers of tranches (securities) such as junior, mezzanine, senior tranches. If the trust experience any loss in interest or principal payment, lower most tranches, junior tranche absorb all the losses and then mezzanine tranche absorbs any more remaining losses that are left over by junior tranche leaving top most tranches, senior tranche safe from any kind of losses. So senior tranche is safe from all interest and principal default. So by process of tranching top most tranches (securities) get more demand from investors and demand reduces when it goes down the ladder up to junior tranches. Junior tranches are backed by over collateralization for its marketability in capital market. The process of tranching differentiates structured finance from normal securitization process. In normal securitization process assets are converted into securities and sold. In structured finance these securities are tranched so that at least one class of securities gets better rating when compared to average rating of all securities. The asset securitization makes calculation of risk more complex using technique called tranching. The calculation of risk is more complex because the risks involved in these pools are distributed.( Securities and Exchange Staff) (2008) Asset securitization is the process of converting illiquid assets in to cash flows (liquid assets). Both financial intermediates such as banks and investors benefited from this process. Banks benefited with extra liquidity to lend more loans to able borrowers where as investors got opportunity to invest in capital market for more returns. Kaptan and Telang (2002) In brief benefits of asset securitization are reducing information asymmetries; increasing financial slack; serving as a lower cost of financing source; reducing regulatory capital; and reducing bank risk (Greenbaum and Thakor, 1987) (Kaptan, Telang (2002), (Uzun and Web, 2007) conclude that asset securitization is the process in which illiquid assets of banks are converted into cash flows or liquid assets. (Greenbaum and Thakor, 1987) conclude these techniques of asset securitization as benefits for banks as well as for investors in capital market. Securities and exchange staff concludes the process of credit enhancement using process called subordination distributed risk of loss in the whole tranche. And the process of over collateralization increased demand for these securities in capital market. Securities and Exchange Staff (2008) concluded that the process of tranching evenly distributed risk and assessing this risk is a complicated process. 2.2 Rating Agencies The main role of rating agencies in capital market is to rate the bonds and securities in specific scale. Rating agencies use qualitative and quantitative methods to access cash flows of these bonds or tranched securities. These ratings are used by investors in capital market as bench mark in investing. Thus rating agencies helped the investors in making decision to invest in capital markets by reducing information asymmetries between issuers and investors. (Committee on the Global Financial System), (2005). 2.2.1 Evolution And Role Of Rating Process According to Ruth Rudden, the evolution of rating industry started when there was a big demand for the corporate bonds in USA. The investors interested to invest in these corporate bonds were very skeptical about risk involved as they were not provided with companys credit information that issued these bonds. So there was a pressing need for an independent and third party institution to analyze credit risk of these bonds which helped the investors in making decision to invest according to their criteria. Thus credit rating agencies came into existence. (Ruth Rudden, 2007), John moody was the first to introduce credit ratings in 1909. He used rating scale to rate the bonds. These ratings were useful for investors to understand credit risks. Credit rating agencies (CRAs) stressed more on expected cash flow generated by the issuer (special purpose vehicle) ongoing business in determining the rating. In general CRAs revenues were generated from subscribes who subscribed to receive rating on debt securities. Rating agencies from the start has been rating bonds on specific scale. Mason and Rosner, concluded that the rating doesnt give information on whether particular bonds must be bought or sold. They give their opinion on relative safety of the bonds. (Mason and Rosner, 2007) The main importance for the credit ratings rose in the capital market because of US treasury department. US treasury department said the quality of the bonds rated by rating agencies is appropriate. Ruth Rudden, concluded that the importance of credit rating agencies in the capital market became prominent and the investors relayed on these ratings to invest on the bonds. (Ruth Rudden, 2007) Then with the introduction of new structure finance products, rating agencies started to rate these products as well. In one of the reports by the Committee on the Global Financial System, (2005), wrote about the Rating agencies, rated the structured finance products like asset backed securities, CDOs, RMSBs etc, same as the traditional bonds. Rating agencies performed the same function as with traditional bonds that was reducing information asymmetries between issuers and investors. Committee on the Global Financial System, (2005) Issuers of structured finance products wanted these securities to be rated on the same scale as traditional bonds so that investors think structured finance has same kind of risk that of bonds. (Mason and Rosner, 2007) spoke about the structured finance as, for past few years with the introduction of newly formed structure finance products; these CRAs are chasing the agencies that issue these structured finance products instead of subscribers for revenue. This lead to three fold increase in the revenues by CRAs and effected the integrity and base source of the aim on which rating industries are build. To meet the demand of these newly introduced structured finance products; CRAs have introduced many new models and approaches to access these products for ratings. (Mason and Rosner, 2007) The three largest credit rating agencies with overseas market that are based in United States are Moodys, Standard and Poor (â€Å"SP†) and Fitch. 2.2.2 Rating methodologies of RMBS According to (Rousseau Stephane, 2009), all the rating agencies methodologies are almost same for rating RMBS products. First issuer of these securities approach rating agencies to rate their securities so that they can sell it in capital market. And issuer provide all the data information of the assets underlying the securities like loan data, proposed capital structure of SPV, proposed credit enhancement for each tranche of the securities. Rating agency will assign an analyst to analyze the tranches for rating it. First probable looses incurred on all tranches are calculated. Rating agencies used complex statistical models for analyzing loss. The loss analysis gives rough idea of how much credit enhancement is required for each tranche to give particular rating. Then analyst analyzes proposed capital structure of SPV to check whether it meets particular rating. Then finally analyst analysis the cash flow which gives information of interest and principal paid out of SPV and analyzes whether particular asset which is under tranche meets payment obligation. Analyst then rates each tranche and submits his rating to committee where they vote on the analyst view. Once rating is confirmed they send the rating to issues rather than publishing it. If the issuer is satisfied with the rating he makes it public. If issuer makes rating public, rating Agencies get paid if not they get breakup fee. (Rousseau Stephane, 2009). 2.2.3 Concerns on models used in RMBS According to (Danà ­elsson J, 2002), Rating traditional bonds is much easier because of availability of historical data where as rating structural products like RMBS you need much more complex models than that of normal models. As the financial system become more complex, the need for complicated statistical models becomes greater. More the complexity, lesser the reliability on these models, so does these models tends to be less reliable. It is clear from the credit crisis of 2007 that the rating agencies used over optimistic input data, inappropriate modeling and insufficient checking of data quality and permitting gaming of models. Despite of advanced models, stress tests, and all the numbers, risk models do have important role to play in modeling risk as long as its limitations are known. Risk models are good at managing particularly trading desk but when asked to model whole institution it fails. So relying on such folly statistical models to model risk is foolishness. And the numbers that these models give are inappropriate. Financial models are not simple and do not have basic or fundamental thermos to build on. These models can easily make you believe the results are accurate, the reason for these are; 1. Endogenous risk: In finance we can only model aggregate behavior. Financial modeling changes the statistical laws governing the financial system in real-time, leaving the modelers to play catch-up. This becomes especially pronounced as the financial system gets into a crisis. This is a phenomenon is called endogenous risk. 2. Quality of assumptions: we cant take it to consideration all parameters in to model so it is important to take it to consideration the main parameters that affect the outcome of the model. For example if we consider present situation of financial crisis the main parameter is liquidity which has been be ignored by modelers while modeling risk. 3. Data quality: data quality is the most and foremost important thing in statistics because the accuracy of these models depends up on quality of data. (Danà ­elsson J, 2002) To prove what Danà ­elsson J, said Vanessa G. Perry proved, there is always dearth of data on subprime market. The data that is available is proprietary lender data. And this data had drawbacks on analysis of market trends. To analyze data properly we need property records which contain information on mortgagee and mortgager, transaction price, property location, credit score, foreclosure rate of neighborhood state. This data was necessary for the rating agencies to analyze the market condition properly. Roughly to analyze loan performance, three sets of data was taken into consideration, that is the Borrower data, loan data, property data. Borrower data should contain income, FICO score, and demographics. The loan data should contain loan amount, LTV, loan type, interest rate/fee, terms such as FRM/ARM, payment history. Property data should contain location, prices, sales, foreclosure, and employment rate. One can predict the probability of default if and only if these data of loan is available. (Vanessa G. Perry, 2008). 2.2.4 Concerns on rating in RMBS According to (Committee on the Global Financial System, 2005), and (Mason and Rosner, 2007) there are many concerns on rating agencies which rated the RMBS, they are; 1. Transparency- Given the role that is played by rating agencies in removing Asymmetries, it is important that they be transparent on what they do. Rating agencies never disclosed completely their methodologies they use to rate RMBS and key assumptions and rating criteria. Credit rating agencies never accepted that the data provided by issuer of securities are not sufficient to rate. And rating agencies never provided historical performance data about their ratings. 2. Quality of rating process- there is a huge growth in RMBS market because of ease in lending loans. And at the same time these RMBS products started to get more complex. The rating agencies did not have enough staff to tackle increasingly complex products and huge volume of these products. Because of shortage of work force these rating agencies were not able to catch up with rating upgrades or downgrades accordingly with change in circumstances like issuers principal or interest short fall. 3. Conflict of interest- the rating agencies main role is to act as an intermediate between investors and issuers. This trust of being intermediate has been broken by rating agencies by charging issuers for rating products instead of getting paid by subscribers who subscribe for these ratings to invest in these products. Because of shift in the axis of being intermediate, these rating agencies got paid from issuer who in turn profited rating agencies by gaining millions of dollars. This process of issuer paying for his rating created conflict of interest. So considering profits they incur from this new role, rating agencies tend to rate products issued by these issuers a higher rating than they actually are. The issuer has ability to adjust deal structure to get desired rating. And issuer has influence on rating process. (Committee on the Global Financial System, 2005), (Mason and Rosner, 2007). 2.2.5 The role of rating agencies in the crisis According Tom Bulford (2008), (Ruth Rudden, 2007) â€Å"The credit rating agencies like Moodys, Standard and Poors and Fitch played a central role in growing the residential mortgage-backed securities, these credit rating agencies were titled to rate these securities on behalf of the huge investment banks to sell to the investors. The ratings of these securities were to identify the risk involved in the securities, they followed a particular three main flow in calculating the risk rating for the investors, the first as to interest the investors on the securities, they provided portfolios of RMBS which highlighted a certain level of risk involved in it, this was done through tranches which means, the different level of risks involved securities were put into different groups called tranches. This helped the investors in deciding whether to stay first in line during the event of default or down the queue. This was one point where the investors relayed on the ratings to invest on the securities. The other two things which they followed to rate the securities, one was data which was used in the financial models of the rating agencies to rate these securities, the data contained here are the information about the mortgage loans that are parceled by the investment banks. These mortgages came from the originators who provided all the information about the mortgagees like their credit history, income, etc. hence these originators provided information was historical. The information given source was not sure about as they stood by the words of the originators. Using this information on the models they used in the rating would off course end up being inaccurate. This made the investors relaying on the high rating given by these rating agencies and hence invested confidently. The rating agencies assured that the portfolios of mortgage backed securities were â€Å"stress tested† by ‘Monte Carlo simulation of macroeconomics variables to create a loss distribution. The assumptions were not wide enough because the rating agencies relied upon historical data, and till now MBS were concerned ‘the performance history that did exist occurred under very benign economic conditions. The reasons just dont stand on rating agencies following the historical data for the calculations but also the workload and the conflicts when the interest rates rose which laid the investment bank concentrate on getting the best ratings on the securities that is laid for sale. This increased the competition between the agencies; they did not want to lose deals and hence gave ratings as necessary with one initiative that was not to lose deals. One of the illustration proves the above comment, one of the member in an rating agency who did not want to lose a deal wrote a mail which said â€Å"I had a discussion with the team leaders here and we think that the only way to compete is to have a paradigm shift in thinking, especially with the interest rate risk†. Another said â€Å"We are meeting this week to discuss adjusting criteria for rating CDOs of real estate assets because of the ongoing threat of losing deals†. Tom Bulford (2008), Tom Bulford (2008) concluded that the roles of these rating agencies in financial crisis are to be studied thoroughly. Rating agencies main duty is reducing information asymmetries between issuers and investors but with the introduction of structured finance products rating agencies deviated from their main role of reducing information asymmetries. In fact they started to favour security issuer as they are paid for rating. Committee on the Global Financial System, (2005) concluded that role of rating agencies in capital market is to rate bonds or securities on specific scale. (Ruth Rudden, 2007), (Mason and Rosner, 2007) concluded that the importance of credit rating agencies in the capital market became prominent and the investors relayed on these ratings to invest on the bonds and the rating doesnt give information on whether particular bonds must be bought or sold. They give their opinion on relative safety of the bonds. The rating agencies got paid by issuer of securities for rating structured finance products on same scale as normal bonds. Tom Bulford (2008) concluded that change of role by rating agencies as information intermediation between issuer and investor got strained with the introduction of structured finance products. (Danà ­elsson J, 2002) concluded that to rate structured finance products rating agencies need more complex models. (Vanessa G. Perry, 2008) concluded that there is no enough historical data on subprime market and in turn this dearth of data affects accuracy of the rating process. Committee on the Global Financial System, (2005) concluded that there are some concerns relating rating process of RMBS. Tom Bulford (2008) concluded rating agencies had played their role in financial crisis and need to be blamed for their irresponsible behavior. 1.3 Subprime Crisis The roots of financial crisis are complex and obscure. The main culprits are mortgage banks brokers, rating agencies, to some extent federal reserve and government. Financial crisis started with Federal Reserve slashing interest rates to encourage spending and reduced 30-year bond issues to increase the prices. This along with American dream of home ownership triggered housing boom. This housing boom has been used by many mortgage lending banks. The introduction of FICO scores instead of traditional point based system and the off-balance sheet vehicle made lending loans easy. Loans were given to people with low credit history (sub-prime loans) Souphala, C and Anthony, P.C, (2006) 1.3.1 Evolution of the crisis According to Souphala, C and Anthony, P.C , (2006), the introduction of FICO scores instead of more traditional â€Å"point based system† credit scoring. And the off balance sheet vehicle (OBSV) made banks to lend loans to people with low credit score. This type of lending is called subprime where these borrowers are who fail credit history requirements in the standard (prime) mortgage market. The subprime lending is known as high cost lending and primarily driven by credit history and down payment where as prime lending is driven by down payment only. People thought prime lending is complicated but have great promise and great peril. The subprime lending provided opportunity for homeownership to those who havent passed credit history in the past. Lower credit history of subprime lending which could have resulted in more delinquent payments and defaulted loans. US mortgage market, which for decades was dominated by fixed rate mortgages, included nontraditional mortgages, simultaneous second-lien mortgage, and no documentation or low documentation loans. Nontraditional mortgages allow borrowers to defer payment of principal and sometimes interest and include interest only mortgages (IOs) and adjustable rate mortgages (ARMs) with flexibility payment options. Interest rates are much higher than that of prime loans, is the main reason of risk for borrowers. Strong home price appreciation and declining affordability have helped drive growing demand for nontraditional mortgage products that can be used to stretch home buying power. Souphala, C and Anthony, P.C , (2006). 1.3.2 Role of US federal government National partners in home ownership in the largest private public partnership program whose solo aim is increasing home ownership rate to all time high by the end of decade by increasing creative financing methods for mortgage loans. In this program, retailer, home builders, Fannie Mac, Freddie Mac, mortgage bankers are the partners who came up with innovative ideas such as using FICO score instead of point based system is introduced to ease the requirements to lend loans to people whose credit history is not good to get mortgage loan. Another innovation is off balance sheet vehicle which made lending loans easy. (Mason and Rosner, 2007) According to Souphala, C and Anthony, P.C , (2006),The government and the quasi-government agencies were main reason who influenced the US mortgage credit cycle by their legislative reforms and the mandates, the alternative mortgage transaction parity act in 1982 eliminated regulatory disparities between state and federal chartered mortgage by granting state chartered institutions the authority to issue alternative mortgage(sub-prime), including the use of variable interest rates and balloon payments, regardless of state mortgage lending law. The tax reform act 1986. Then stimulated demand for mortgage debt by retaining the deduction for home mortgage interest. To lessen the effects of a mild recession in 2000, the Federal Reserve cut interest rates. Although the Fed has raised interest rates past year, mortgage rates have largely been unaffected. This interest rate cut along with increasing housing price made people to invest in housing. Home ownership is best way of making wealth in fact most households find it difficult to invest in anything but their homes. These factors helped to drive growing demand for nontraditional mortgages products that can be used to stretch buying power. Souphala, C and Anthony, P.C , (2006). 1.3.3 Financial Market Turmoil Due to poor standard of lending there has been raise in subprime loans, the delinquency rate increased in the year 2006-2007 because of subprime loans issued in previous years. The overall rise in delinquency rate is sudden and overwhelming. The market started to response to these high delinquency rates in the second half of 2006 and first half of 2007. In spite of high delinquency rate, market had confidence on highly rated tranches of subprime RMBS (senior tranches). In the second half of 2007 this confidence came to its low when credit rating agencies lowered their rating on highly rated tranches. These downgrades created uncertainty and doubt on quality of rating these rating agencies assigned. With more exposure to risk related to subprime debts, restricted liquidity of banks, the inter market for term loans was effected so there was a sharp increase in risk premium. These authors concluded that banks lost confidence and have less liquidity. This resulted in present financial cr isis. The result of this is freezing all structured finance products and cut down in non confirming mortgages. This is because of those agencies giving non confirming mortgages had lots of loans and RMBS which were

Explain the significance of Marco Essay

In the play, Marco is very important. After all, he was the one person who killed Eddie Carbone which is the main event in the play. When Marco comes into the play for the first time, he is proven to be the most mature brother who has a quality life worth living. â€Å"What can I do? The older one is sick in chest. My wife – she feeds them from her own mouth. I tell you the truth; if I stay there they will never grow up. They eat the sunshine.† Having children, Marco might feel they are a motivation to earn money to keep them alive as well as himself. The reason Marco came to Brooklyn, America to help and pay for food for his family as he would send money back to his wife in Italy to care for them. â€Å"My wife – I want to send right away maybe twenty dollars †¦ because I could send them a little more if I stay.† Marco knows he has an obligation to Eddie and is trying to be good so he can stay in America in the house to earn money for his family. So to make sure he can stay, he is trying not to let Rodolph ruin his chances either by doing ridiculous tasks like singing which Marco thinks is inappropriate at the time so tells him, â€Å"No – no! †¦ You’ll be quiet †¦ You’ll be quiet. He also thinks Rodolph should tame himself down. ‘’They paid for your courage. The English like courage. But once is enough.’’ He is loyal and strong. He thinks before he acts which gives the impression that he is focused. He only punished Eddie by killing him as he felt threatened which is not a selfish action. He is the antagonist in the play and the Sicilian avenging angel that Alfieri hints at his comment to the audience. â€Å"A man works, raises his family, goes bowling, eats, gets old and then dies. Now, as the weeks passed there was a future, there was a trouble that would not go away.† Marco is also very important to the play as he is very respectful towards Eddie to begin with. Marco is willing to do any work to support his family as he is very proud of his wife and he is grateful to Eddie for his help and for giving him the opportunity to live in his home and work down the docks. Marco is realistic and tries to control Rodolpho’s exaggerations to keep them out of trouble. Even though during the play, Marco is furious and vengeful to some of the things Eddie does like snitching on them to the immigration officers; He is responsible, respectful, strong but silent towards his family, Eddie, Beatrice and even Catherine. Marco tries to bridge the increasing gap between Rodolpho and Eddie however as soon as Marco feels offended by Eddie he feels he needs to prove his strength and authority to him by lifting a chair up by one leg by one arm which is he successful in whereas Eddie cannot lift the chair. Marco if a family man because even though Marco cannot understand American justice when Alfieri tried to explain it and promised Eddie he will not betray or harm him if he promised the same, he did not apologise to Eddie as his honour means everything to him. As Marco will probably get deported back to Italy for immigration and killing Eddie, he is happy that Rodolpho has a chance of a green card a family with Catherine.

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I could also pursue a job in investment banking or commercial banking. The size of the firm won’t matter to me, but the culture and structure of the firm will. For the purpose of this paper I am going to focus on financial planning. Financial planning includes but not limited to financial management, financial reporting

Definition of the Elsewhere Principle in Linguistics

In linguistics, the Elsewhere Principle is the proposition that the application of a specific rule or operation overrides the application of a more general rule. Also known as the Subset Principle, the Elsewhere Condition, and the Paninian Principle. American linguist Stephen R. Anderson points out that the Elsewhere Principle is invoked by [Stephen R.] Anderson (1969), [Paul] Kiparsky (1973), [Mark] Aronoff (1976), Anderson (1986), [Arnold M.] Zwicky (1986), etc., with antecedents going back to [the fourth century BC Sanskrit grammarian] PÄ Ã¡ ¹â€¡ini, [19th-century German linguist] Hermann Paul, and probably others (A-Morphous Morphology, 1992). Examples and Observations [T]he basic case of competition in morphology can be characterized by the Elsewhere Principle: a more specific form is preferred over a more general one where both are in principle grammatical. By definition, competitors are those forms that can be used to express the same concepts. It is possible, therefore, that competing structures are generated in different components, in particular, morphology and syntax. A well-known example involves the English comparative affix -er, which must attach to short (maximally bisyllabic) adjectives . . .. This morpheme is in competition with the syntactic modifier more, which can in principle attach to both short and long adjectives, and is therefore the more general form. In the context of short adjectives, the Elsewhere Principle dictates that -er blocks more . . .. (We add (19e) to show that in circumstances where the Elsewhere Principle does not apply more can indeed modify short adjectives.) (19a) Bigger(19b) *Intelligenter(19c) *More big(19d) More intelligent(19e) Bigger means more big This classical application of the Elsewhere Principle demonstrates that a morphological complex can be in competition with a syntactic phrase. . . .It does not seem too much to say that one of the core phenomena of morphology, and perhaps of grammar in general, is that one form can compete with, and hence block, others. The classical cases of such competition involve inflectional morphology as regulated by the Elsewhere Principle. . . . [W]e have argued that there are many more examples of competition, which differ from the classical case in terms of the nature of the candidates and the selecting restraints. (Peter Ackema and Ad Neeleman, Word-Formation in Optimality Theory. Handbook of Word-Formation, ed. by Pavol Ã…  tekauer and Rochelle Lieber. Springer, 2005 Mapping Rules An idiosyncratic mapping rule need not mention a single morpho-syntactic terminal; it can also apply to combinations of (morpho-)syntactic material. For example, next to the mapping rules that associate TOOTH with /tooth/ and PLURAL with /z/, there is a mapping rule which relates [TOOTH PLURAL] to [/teeth/]. This rule can be formulated as follows, where P(X) stands for the phonological realization of a syntactic entity X: If PLURAL selects (a category headed by) TOOTH,then P(TOOTH, PLURAL) /teeth/ Since this mapping rule is more specific than the one that only mentions PLURAL, the elsewhere principle states that the latter is blocked where the former can apply, ruling out *[/tooth/ /z/]. Note that this does not mean that the lexicon contains multiple morpho-syntactic morphemes that represent plurality (there is only one plural affix). (Peter Ackema and Ad Neeleman, Morphological Selection and Representational Modularity. Yearbook of Morphology 2001, ed. by Geert Booij and Jaap van Marle. Kluwer, 2002) Illustration and Qualification Two elements are important in the Elsewhere Principle. First, it inactivates rules in particular cases as a property of the rule system as a whole. Second, it does so in virtue of a logical relationship between rules: entailment between application conditions. The rule that is inactivated by a second rule applying to the same case applies to all cases to which the second rule applies.The English plural is formed by adding a morpheme -s to the end of a stem. A number of words have special plurals, such as goose, which has the plural geese. The existence of the nonregular plural (a remainder of an older plural; formation by means of vowel shift) rules out the regular form *gooses.The rule that assigns geese has the application condition stem goose, which is more specific than the application condition stem X4 for the regular plural formation. It follows by the Elsewhere Principle that the regular rule for plural formation does not apply to goose.There is an important caveat with the Elsewhere Principle: It does not always lead to the right conclusion. It is sometimes possible for the irregular form to coexist with the regular form, and sometimes there is neither an irregular nor a regular form. In these cases, the Elsewhere Principle would predict the absence of a regular form or the presence of a regular form, respectively, predictions that are not borne out by the facts. It follows that in these cases another explanation needs to be sought. (Henk Zeevat, Idiomatic Blocking and the Elsewhere Principle. Idioms: Structural and Psychological Perspectives, ed. by Martin Everaert et al. Lawrence Erlbaum, 1995) Further Reading GrammarMorphologyPhonologyRules of EnglishSyntax

The Conservative Approach to State Intervention after 1979...

The conservative approach to state intervention post 1979 has been on the whole to go for the minimum as is illustrated in their economic policy and this was included in their critique of government economic policy at that time. On the whole the government felt that levels of state intervention were far too high in regards to the economy which led to various negative consequences such as making industry uncompetitive and laid back since the government would bail them out at the first sign of smoke as Labour always did. They also felt it destroyed the incentives for individual entrepreneurship leading people into not achieving their full potential as it was not worth there while, this led to lack of money within the economy as well as top†¦show more content†¦It had two main aspects to it, the most effective way to control the economy is to ensure that the money supply does not rise faster then the growth in economic activity. This is designed to ensure that high inflation is avoided and that industry can operate within a stable economic environment. It also implies that governments should not interfere with the rest of the economy, it is fairly liberal since it promotes minimum state intervention. There were 3 main ways in fulfilling the theory of monetarism, the first was control of the money supply. This was done by initially calculating the money supply. This would help in setting annual targets over growth rate which could be published with the budget as part of a medium term financial strategy. Any deficits could be reduced via 3 ways, high interest rates to lower demand, financing the public sector borrowing requirement without printing money and allowing exchange rate to float as well as stop buying and selling foreign currency to effect the money supply. 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Copyright Law Case Study Free Essays

string(29) " his music to sell products\." Music Business Music Technology Production Year 3 K00121700 Case Study Ronan Mitchell Abstract Copyright Law is an important entity within the music industry. It protects the owner of authorship from infringement. Infringement arises when the copyright owner’s work is used without their consent. We will write a custom essay sample on Copyright Law Case Study or any similar topic only for you Order Now Although sounds cannot be copyrighted, some cases have shown that the argument of copyrighting one’s voice can sometimes hold weight in a court of law. Singer Tom Waits sued snack manufacturer Frito Lay for hiring a singer to impersonate him in an advert. Mr. Waits felt that his artistic copyright had been infringed upon. Frito Lay’s defense argued that a voice cannot be protected by copyright law as it is a sound and not a musical piece of work. They referred to a similar case involving Bette Midler in which she sued Ford motors for using an impersonator in a commercial to imitate her voice. Although Midler lost the case, it created ambiguity over the issue of an artist’s right their voice, if they believe it to be distinctive. Tom Waits, unlike Bette Midler, won the lawsuit and earned him $2. 6 million. This case served to highlight the complexities involved with advertising agencies using, not only an artist’s work, but also their identity. Introduction The music industry is notoriously rife with legal disputes. Many of these are due to infringement of copyright. A grey area arises, however, when it comes to advertising. In a lot of cases, an artist will gladly accept royalties and/or remuneration to have their song featured in an advertisement. But in certain instances, artists will have strong opinions about having their music feature in an advertisement. When this happens, advertising companies who use this artist’s work can find themselves in the middle of an ugly legal dispute. This case study endeavors to discuss some of the legal complexities involved when advertising companies use an artist’s musical work. Several cases exist in the United States where advertising agencies ran into legal disputes over music featured in an ad, even when not infringing upon standard copyright laws. I have chosen two cases to cross examine to highlight certain legal problems that certain advertising companies face. The first case examined for this study is Tom Waits Vs Frito-Lay, Inc. In this case Tom Waits sued the Frito-Lay snack manufacturer and their advertising agency for voice misappropriation and false endorsement. Despite not infringing on any copyright laws, Waits won the case and was awarded $2. 6 million in compensatory damages, punitive damages and attorney’s fees. (Roesler, 1992). The second case examined in this study will look at is Bette Midler Vs Ford Motor Co. This case, which preceded Waits lawsuit, is almost identical in that Ford’s advertising agency, Young Rubicam, Inc. hired an unknown singer to impersonate Midler on a version of her track â€Å"Do You Want To Dance†. (Lurie, 1994) Midler took legal action and sued Ford for $10 million, also citing voice misappropriation. Unlike Tom Waits case, US District Judge A. Wallace Tashima ruled against Midler, stating that the evidence presented wasn’t sufficient and that a voice is not a copyrightabl e entity (Los Angeles Times, 1989) Study To better understand the legalities that face companies in these instances, we must first develop a better understanding of what copyright law entails. In short, Copyright is a property right. It is a set of laws and regulations set in place to protect to form of expression of ideas. The ideas themselves cannot be protected by such laws. The idea must take on some tangible form, such as a recorded piece of music, a produced film, piece of art, etc. The owners of these rights are protected by copyright law from anyone who would copy their work and reproduce it for their own monetary gain without the owner’s express permission. It is the owner of the copyright who may authorize the use of their work by another party, but only they only reserve the right to do this at their discretion. Neff, 2012) Naturally, as there are many different mediums for expressing ideas, copyright law is divided into many different subsections. This is to cover all vessels for creative expression. On a simple scale, copyright subsists in four sections; Music, Film and Broadcast, Literary Publication and Original Databases. The music subset consists of Musical, Literary, Dramatic or Artistic Works. The musical copyright covers works of music that do not contain words. How notes are arranged to form melodies, song structures and chord progressions are protected by this copyright. Certain musical elements are not protected by this. If a guitarist has particularly unique guitar tone, he cannot have this protect by a copyright. A specific tone is not a tangible musical work and therefore cannot be protected. However, if the same guitarist recorded an original piece of music with that guitar tone, this recording is now a tangible body of work and can be protected by musical copyright. It is the music itself that is protected. Not the sound. (Neff, 2012) This is a particularly interesting element of Tom Waits lawsuit against Frito-Lay. The defendants argued that the â€Å"voice misappropriation† case was invalid as one cannot own the rights to certain style of singing. (UMKC School of Law, n. d. ) Tom Waits is an American singer, songwriter, composer and actor. Almost as much for his music, he is renowned for his unique gravelly, guttural singing voice. His voice has been described as sounding like â€Å"like it was soaked in a vat of bourbon, left hanging in the smokehouse for a few months, and then taken outside and run over with a car. † (Graff, G Durchholz, D 1998). Tracy-Locke, Frito Lay’s advertising agent, approached Tom Waits about using is his song â€Å"Step Right Up† in an advert for RioSalsa Doritos. They put together a version of the song which featured new lyrics relevant to the product and played this for Waits. Tom Waits refused outright as he is vehemently opposed using his music to sell products. You read "Copyright Law Case Study" in category "Free Case study samples" It was interesting that they chose that particular song, as the lyrics are a satirical indictment of advertising. The song features advertising slogans used sarcastically to describe a product that supposedly does everything from â€Å"shine your car† to â€Å"make you six foot five, blonde and beautiful†. Jacobs, 2000) When he refused, the Tracy-Locke company then hired a singer to impersonate Tom Waits style of sing over a song that bared a lot of similarities the Waits â€Å"Step Right Up†. Tom Waits took legal action and sued fo r voice misappropriation and false endorsement. (Roesler, 1992) As the lyrics for the song were altered to suit the ad, Waits literary copyright was unaffected. The literary copyright pertains to a work of words which are written, spoken or sung. This work does not specifically need to be written down for the copyright to apply. A recording of such work holds he same right as literary work that is written or printed. Written musical notation also falls under this subsection regardless if it is written down, printed or recorded. (Neff, 2012) As for the musical rights to the song, it transpired that Tom Waits, despite having written the piece, did not have authorship of the copyright for â€Å"Step Right Up†. In normal circumstances, authorship of the copyright to a sound recording is held by the produce of said recording. In this case, the authorship fell to Fifth Floor Music run by Herb, Martin and Evan Cohen. Frito Lay had in fact obtained the synchronisation license from Fifth Floor Music. This licence enabled them to reproduce a new song extremely similar, albeit not identical, to â€Å"Step Right Up† to which the new jingle lyrics were added. Tom Waits was unaware of this so was unable to step in and terminate the dealings. Although, having no authorship of the copyright, it is questionable as to whether or not this would have had any sway in the proceedings at all. (Jacobs, 2000) Similarly, in Bette Midler’s case, like Waits, Midler was not the owner of the copyright. She did not write the song nor did she pen the lyrics. Ford Co. bought the rights the song â€Å"Do You Want To Dance† from the publishing company that had ownership over the copyright. This meant that Ford had no obligation to contact Bette Midler with regards to their intentions to use the song for their commercial. (Lurie, 1994) Since Midler had no ownership rights, the defense argued that her â€Å"voice misappropriation† was preempted by the copyright act. However, this was rejected as they found that copyright cannot be preempted if the subject matter â€Å"does not come within the subject matter of copyright†¦.. ncluding works or authorship not fixed in any tangible medium of expression. † (UMKC School of Law, n. d. ) It was decided that, since it was not possible to copyright a particular sound (like that of the guitar tone), the voice was not suitable copyright subject matter. Thus, copyright preemption did not apply. (UMKC School of Law, n. d. ) Al though the court ruled in favor of the defendant, Midler’s case of â€Å"voice misappropriation† raised the question of a celebrity’s right to control over their identity, with respect to commercial use. This ambiguity was vital to the outcome of Waits lawsuit only three years later. Lurie, 1994) The copyright preemption issue in Midler’s case was referred to in Waits Vs Frito Lay. The defense requested that, since Tom Waits was not the lawful owner of the music copyright, the preemption of copyright law did not apply in this instance as it had with Midler. Waits case was not for infringement of a tangible copyrightable piece of work, but for infringement of voice. Again, voices are merely sounds; and sounds are not protected by copyright law. (UMKC School of Law, n. d. ) Despite this, the defense argued that, even though they had copied Waits musical style, they did not imitate his voice. This was found to be untrue, however. It transpired that Tracy-Locke’s executive producer was quite concerned with the legal implications of their singer’s striking similarity to Waits’ voice. He requested that they record another version of the jingle asking the singer to sing less like Waits. Unhappy with the result, Frito Lay insisted they use first version. (UMKC School of Law, n. d. ) On the day that the commercial was due to air, Tracy Locke’s managing vice president spoke with their attorney regarding what legal issues they might encounter. He was advised that there was a strong possibility of legal ramification due to recent case law that recognized a distinctive voice as protectable. However, as style was not protectable, their attorney informed them that the case might hold no merit. (UMKC School of Law, n. d. ) Despite the warning, Frito Lay chose the version that imitated Tom Waits’ distinctive voice. It was proposed that the jury be given a proposed instruction on the distinction between voice and style which read, â€Å"In contemporary music, there are a great many styles or â€Å"sounds,†Ã¢â‚¬ ¦Ã¢â‚¬ ¦ Style is not subject to ownership. No singer can appropriate for himself any style and exclude others from performing in the same style. Any singer is free to sing in the same style. † (UMKC School of Law, n. d. ) This instruction was rejected by the district court. Given that there were a lot of similarities between this case and Midler’s â€Å"voice-misappropriation† case, the jury was asked to decide whether or not they found Waits’ style to be distinctive. The defense argued that the omitted instruction was an error in judgment as this then left the jury unclear as to what the distinction was between voice and style. (UMKC School of Law, n. d. Waits argued that although no copyright infringement had occurred, he felt his artistic integrity had been compromised. It was put forth that anyone had heard the advertisement would automatically assume that it was Waits singing. Waits has strongly spoken out about artists taking money to allow their music to be used to sell product. He felt that, as the Doritos advertisement jingle sounded identical to his voice and musical style, that his fans would assume he participated in the advertisement and had willing endorsed the product. This, he asserted, was damaging to his reputation and his career as an artist. UMKC School of Law, n. d. ) The jury then listened to several of Tom Waits songs to determine both his musical and vocal style. The court then played them the Doritos advertisement in question for comparison. To convince them further, Waits attorneys had them hear testimonies from people who had in fact thought that it was Waits in the advertisement. (Roesler, 1992) This argument was persuasive enough to sway the jury. They were convinced when they heard to advertisement and the testimonies that, despite the fact that no copyrightable material had been infringed upon, Waits’ artistic integrity had been compromised. The jury found that the defendants had â€Å"acted with oppression, fraud or malice† (Roesler, 1992, p. 15). Tom Waits was awarded 2. 6 million dollars in compensatory damages and attorney’s fees. Conclusion In conclusion, we can see from the above cases that copyright is a bastion for musical artists. They help to protect an artist’s right to their work and a right to their form of expression from being exploited by large companies and advertising agencies who can sometimes try to profit from their work. Although, as they are vital to protecting an artist’s creative work, we can also seen from the cases studied that they can protect much more than that. Technically, in the eyes of the law, only a tangible body of work can by protected by these rights. However, as this study has shown, in certain rare cases, these rights can be manipulated to encompass, not only an artist’s work, but their identity, persona and artistic integrity when exploited. As made evident by the unusual Tom Waits lawsuit, it seems that advertising companies in particular must wade carefully when wishing to use unlicensed music for commercials. As their sole intention is for making money, they can be looked at very callously by court jury. Thus, certain unscrupulous can land in a lot of trouble despite not infringing on a copyrighted piece of work. Although situations such as this are quite unusual, they highlight the importance of copyright law within the music industry. References Graff, G Durchholz, D 1998, Musichound Rock: The Essential Album Guide. Visible Ink, Detroit * Jacobs, J. A 2000, â€Å"Copyright: Tom waits Vs Frito Lay†, viewed 04 January 2013, www. tomwaitsfan. com/tom%20waits%20library/www. tomwaitslibrary. com/copyright-fritolay. html * Los Angeles Times (1989), Bette Midler Loses Ford Sound-Alike Lawsuit : Celebrity: $10-million suit over TV car commercial is dismissed but action against the ad agency is allowed to stand, vie wed 06 January 2013, http://articles. atimes. com/1989-10-27/business/fi-901_1_bette-midler * Lurie, K. (1994) Waits v. Frito-Lay: The Song Remains the Same.. Cardozo Arts Ent. LJ, 13, 187. , Available at: http://heinonline. org/HOL/LandingPage? collection=journalshandle=hein. journals/caelj13div=26id=page= [Accessed: 6th January 2013]. * Neff, F. 2012, â€Å"Copyright and Related Rights Act 2000; Introduction to Copyright Overview And Originality in Copyright†, * Neff, F. 012, â€Å"Authorship and Ownership of Copyright; Copyright and Related Acts 2000 Sections 21 to 23†, * Roesler, M. (1992) Waits v. Frito Lay,. 978 F. 2d 1093 (9th Cir. 1992), Available at: http://www. markroesler. com/pdf/caselaw/Waits%20v. %20Frito-Lay%20Inc. %20_1992_. pdf [Accessed: 6th January 2013] * University of Missouri Kanas City School of Law (1992) Waits v. Frito Lay, Inc. United States Court Of Appeals For The Ninth Circuit, Available at: http://law2. umkc. edu/faculty/projects/ftrials/ communications/waits. html [Accessed: 4th January 2013]. How to cite Copyright Law Case Study, Free Case study samples

Low Risk Aversion Encourages the Choice for Entrepreneurship

Question: Describe about the Low Risk Aversion Encourages the Choice for Entrepreneurship: an Empirical Test of a Truism? Answer: Introduction Cultural factors and determinants impact the business execution quality. Different cultural factors are important to be analysed, as it helps in analysing the challenges associated with handling people at the workplace. There are different types of cultural factors and behavioural pattern that determines task execution. The behaviour aspect of the employees is determined by the cultural practices followed by the company (Eckel et al., 2005). Discussion The determinant factors are associated with analysing the differences individuals and companies face at the time of evaluating the risks. The risk factors impact the business performance and the performance of the employees and individuals. Behavioural aspects of the individuals depend upon various factors which needs to be analysed and corrective measures has to be introduced for implementing the changes. The cultural behaviour of the individuals is associated with cultural practices introduced in the company. The challenges and limitations associated with the process have to be analysed, as this will help in implementing the changes that re necessary for increasing the business performance (Loewenstein et al., 2001). Different factors that affect the business cultural practices are Attitude The attitude of the individuals towards others are some of the important factors that helps in determining the behaviour. This is one of the important tasks that need to be undertaken by the management of the company. The factors affecting the cultural views of an individual are the cultural practices, values, and practices followed. The views of an individual about the cultural practices followed by another individual are an important factor, which needs to evaluate (Guiso et al., 2002) Culture values The practices and the values, an individual believes in is associated with the cultural values. Through this process, the factors affecting the behaviour and attitude of an individual are evaluated. This would assist in evaluating the challenges that can impact the business performance and communication process adopted by the management. Barriers Communication process has to be simple and effective. This would reduce the barriers that might exist at the workplace. The challenges have to be undertaken and analysed in the corrective manner. The management of the company has to reduce the barriers that occur due to communication limitations (Schupp and Wagner, 2002). Ethnicity The values associated with cultural practices and ethnicity is evaluated. This helps in determining the factors that could affect the business execution process. Workplace culture Developing and implementing corrective measures for increasing the workplace culture is an important factor. This would help in providing fair opportunities to the members working with the company. Changes can be adopted and introduced by the management in an effective manner, as this will help in increasing the business performance (Cramer et al., 2002). Factors that affect the cultural behaviour of an individual are- Behavior The behaviour of the individuals depends upon the process followed for discussing different factors related to business Practices This includes analysing the expectations of the people and introduces an effective interaction process. Values The cultural factors are related to identifying the values followed by the people and the process followed for respecting others. Barriers It includes unwillingness of the people to interact with others and adopt the right process for communication Communication The process followed for interacting with people and method adopted for communicating with people for solving the cultural factors. Conclusion By analysing the cultural values and differences it is possible for the company and the individual to introduce an effective system for handing the differences. The challenges faced by the members can be effectively handled by introducing the right process for increasing the performance of the staffs. For this, the factors associated with the cultural differences can be handled and overpowered in the right manner. The process followed has to be analysed, as it will help in implementing the changes that are necessary for improving the performance. References Cramer, J. S., Joop Hartog and Nicole Jonker and C. 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