Safe Investment Practices for School Districts
By Charles K. Trainor
It’s sadly a well-known story to us all: The collapse of the housing market in 2007 sparked a crisis in the mortgage-backed securities market. In response, central banks around the world provided cash and loans -- giving banks and brokers a financial lifeline. Along with domestic policy measures such as low interest rates and government bailouts for auto manufacturers, this action prevented a complete collapse of global financial markets. Unfortunately, even these extraordinary measures could not prevent hundreds of bank failures, massive lay-offs, corporate bankruptcies, and continuing home foreclosures.
In the aftermath of the economic crisis, Congress enacted new laws and regulations to prevent a recurrence of the disaster. Many believed these measures would change the way Wall Street conducts business. However, in 2011, MF Global, a financial derivatives broker, sought bankruptcy protection. MF Global broke the rules by not keeping customer accounts separate from the company’s trading accounts. This was the eighth-largest bankruptcy in U.S. history. It shocked the markets and shattered the belief that Wall Street had mended its ways.
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