In February and March 2009, the US economy was in the midst of a terrifying financial and economic crisis. Between the beginning of 2008 and early 2009, four of the 25 largest U.S. financial institutions had failed, and nine of these 25 institutions had taken extraordinary steps to avoid failure -either receiving one-off government support, merging with another firm, or submitting to heightened regulation to qualify for future government support. Led by Treasury Secretary Timothy Geithner, the government had to quickly devise policies to stabilize the financial system and the economy. The case explores the details of policies, and the decision making process that led to them, that Geithner and his team devised under immense time pressure to stabilize the system. The case features an extended discussion of Geithner's innovative "stress test", which would reveal the longer-term health of the country's largest banks.
On the afternoon of Monday October 13, 2008, Hank Paulson Jr., the Secretary of the Treasury of the United States, walked into the large conference room across the hall from his office in the Treasury Department. Joining him were Federal Reserve Chairman Ben Bernanke, President of the Federal Reserve Bank of New York Timothy Geithner, Chair of the Federal Deposit Insurance Corporate Sheila Bair, and the Chief Executive Officers of nine of the largest banks in the United States. This distinguished group had been brought together by the most serious financial crisis since the Great Depression of the 1930s. Financial panic was pushing the U.S. and European financial systems to the brink of failure. Paulson hoped his meeting with the bank CEOs would be a turning point. U.S. financial markets were closed for Columbus Day, and Paulson was planning to announce the latest government actions to stabilize the financial system before markets reopened on Tuesday.
How should a retirement fund that must make fixed payments to retirees invest its portfolio? This case introduces students to a variety of concepts in fixed income investing, focusing how on the need to make fixed payments changes portfolio management strategy. Students consider the advantages and disadvantages of asset-liability matching as an investment strategy and learn how to implement such a strategy in practice.
Hideo Seto, the recently appointed chairman of the investment committee of the Enterprise Turnaround Initiative Corporation, must decide whether to push JAL group, Japan's largest airline, into bankruptcy or to act as a sponsor in an out-of-court restructuring. The bankruptcy of JAL would be the largest ever for an industrial firm in Japan's history. The case introduces the mechanics of bankruptcy, the tradeoff between out-of-court restructuring and bankruptcy, and the costs of financial distress. At the level of public policy, the case also serves as a useful backdrop to discuss the role of bankruptcy in the efficient functioning of the economy, and the related comparison between Japan and the U.S. in terms of both the bankruptcy code and the cultural attitudes toward corporate restructuring. This case can fit into an introductory course in a module on capital structure and the tradeoff between the costs and benefits of debt or in an advanced corporate restructuring course in a module on the effect of different legal and cultural environments on bankruptcy proceedings.