1. You will be viewing the movie WALL STREET by renting, buying or borrowing the
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Question
1. You will be viewing the movie WALL STREET by renting, buying or borrowing the film from the library.
2. Your report should be at least three pages long. SUMMARIZE the story of the film.
3. Discuss the economic aspects of the film, refer to your textbook. a) Define the word “capital” as it is used in Economics (see lecture notes for Unit 1 for the definition). What are the examples of “capital” as we define the term in Economics that are mentioned in the film. b) Explain how a business uses financing from an “Initial Public Offering” to expand or to start a new product line when members of the public purchase the company’s stock. c) Describe the characteristics of common and preferred stock that a corporation can issue and explain the differences in each. Include the right to vote.
4. Discuss whether you agree or disagree with the view that Gordon Gecko expresses in the “Greed is Good” speech that he makes at the board meeting.
5. Conclude your report with your opinion about the film and the topic it covers.
Explanation / Answer
On the Wall Street of the 1980s, Bud Fox (Charlie Sheen) is a stockbroker full of ambition, doing whatever he can to make his way to the top. Admiring the power of the unsparing corporate raider Gordon Gekko (Michael Douglas), Fox entices Gekko into mentoring him by providing insider trading. As Fox becomes embroiled in greed and underhanded schemes, his decisions eventually threaten the livelihood of his scrupulous father (Martin Sheen). Faced with this dilemma, Fox questions his loyalties.
Bud Fox is a Wall Street stockbroker in early 1980's New York with a strong desire to get to the top. Working for his firm during the day, he spends his spare time working an on angle with the high-powered, extremely successful (but ruthless and greedy) broker Gordon Gekko. Fox finally meets with Gekko, who takes the youth under his wing and explains his philosophy that "Greed is Good". Taking the advice and working closely with Gekko, Fox soon finds himself swept into a world of "yuppies", shady business deals, the "good life", fast money, and fast women; something which is at odds with his family including his estranged father and the blue-collared way Fox was brought up.
“Capital” can mean many things. Its specific definition depends on the context in which it is used. In general, it refers to financial resources available for use. Companies and societies with more capital are better off than those with less capital. Capital is different from money. Money is used simply to purchase goods and services for consumption. Capital is more durable and is used to generate wealth through investment. Capital itself does not exist until it is produced. Then, to create wealth, capital must be combined with labor, the work of individuals who exchange their time and skills for money. When people invest in capital by foregoing current consumption, they can enjoy greater future prosperity. Capital has value because of property rights. Individuals or companies can claim ownership to their capital and use it as they please. They can also transfer ownership of their capital to another individual or corporation and keep the sale proceeds. Government regulations limit how capital can be used and diminish its value; the tradeoff is supposed to be some benefit to society.
Common Stock
Common stock represents ownership in a company, and each share of common stock holds an equal amount of that ownership. Common stock grants the stockholders certain rights, which typically include the right to sell the stock in the secondary market, either through a public exchange or in a private transaction. Stockholders have the right to participate in the profits of the company through dividend payments, when such dividends are authorized by the company board of directors. They have the right to vote at the annual stockholders' meeting, and they have the right to the company's remaining assets if the company goes out of business.
Common Stock Considerations
When you raise money for your company by issuing common stock, you don't incur any debt. You have no obligation to pay dividends, so your board of directors can decide to plow all of your company's profits back into growing the company. Any time you sell stock in your company, you dilute your ownership position. If you sell more than 50 percent of your company's stock, you risk losing control of your company.
Preferred Stock
Preferred stock has characteristics of both common stock and a bond; it is sometimes referred to as a hybrid security. Like common stock, preferred stock gives the shareholder an ownership position in the company; like bonds, preferred stock usually doesn't have voting rights. Preferred stock is typically issued with a fixed dividend; this is similar to a bond's interest rate, but like common stock, preferred stock dividends are not guaranteed. Preferred stock might include a number of other variables, such as a redemption date, convertible features and call provisions. Preferred stockholders have precedence over common stockholders in the event of a company liquidation.
Preferred Stock Considerations
The board of directors can vote to suspend preferred dividend payments, but all preferred dividends, including any missed dividend payments, must be paid before the company can pay any dividends on its common stock. Preferred stock typically includes a call provision, which allows your company to repurchase the stock on demand for a fixed price. This allows you to take advantage of falling interest rates by calling the preferred stock, then reissuing new preferred shares at a lower fixed dividend rate that corresponds to prevailing interest rates. If prevailing interest rates rise, you have the advantage of being able to continue paying dividends at the lower fixed rate.
I somewhat agree with the view that Greed is Good. Greed is Good as it motivates oneself for reaching out for more. However, there is a limit on the extent of greediness. One should not go beyong the limit and take unnecessary decisions with a lot of risks.
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