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Custom Modern Financial Practices Essay

In the United States economy, many periods have been marked with the intrusion of the state and business community that negatively resulted in the internal operations of the companies and organizations. One of these problems was at the beginning of the twentieth century. This problem was connected to the financial reporting and the passage of securities regulations in the early 1930s. According to Hawkins, financial information reported to stockholders in the early twentieth century was so small in volume that the stockholders could not obtain any picture of what was going on in the company. Moreover, many valuable data and figures were purposely omitted. For this reason, the stage in which the economy faced the passage of securities regulations was not supported by the financial reporting system that existed in many organizations at that period of time.

At the same time, the stock market bubble of the 1920s which was correlated with financial reporting troubles drove many companies towards bankruptcy. As Galbraith believes, it was investment trusts that played a crucial role in the process of the stock market bubble in the late 1920s.  The author explains that the investment trusts were more like institutions without any guidance and that is why they failed to deliver what was expected from them. The reason lies in the enormous amount of corporate securities issued on the market. At the same time, investment trusts had to oversell the securities as they were slow to buy ones and there were not enough on the market.

The problem described by Hawkins was not solely in the volume and subjective manner of presentation, but also in the purpose of this presentation. Companies were eager to misrepresent their figures in order to make stakeholders happy. Such approach, as we know from history, does not help company development and does not foster company growth. The other issue which was pointed out by Galbraith did not improve the situation but created imbalance on the stock market and resulted in a bubble.

Code: Sample20

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