On Nov 14, 2007 10:14 AM, Charles Brown <[EMAIL PROTECTED]> wrote: > What is the role of investment _banks_ that are part of a stock market > system ? Do investment banks guide management and organize ownership in > the US system today ?.
You ask two separate questions. As I understand it the traditional function of investment banks is to intermediate capital investments. For instance they might appraise and underwrite stock and bond issues, and provide advisory services for M&A transactions. These days I believe these activities are mainly considered as 'loss leaders' i.e. the fees they receive for underwriting IPOs may be small compared to the previlege of getting their own stock allocations and also establishing insider relationships with the top executives. And securitization (i.e. creating and selling CLOs and CDSs) seems to be the most profitable part of M&A activity rather than advisory fees. Financial institutions, other than the stock market, and financial > instruments , such as hedge funds, seem very important in the US system > today. They seem to have a lot of power and control that impact management > and ownership in the US system > Legally the holders of financial securities have very little power over productive assets. Hedge funds and private equity firms are allowed to borrow so much money with so little risk to themselves that their influence is magnified. It is fundamentally a failure (or sabotage) of regulation. -raghu.
