Criticisms Of Advertising

Advertising is widely criticized not only for the role in selling products but also for its influence on our society. Some critics charge that at its worst advertising is downright untruthful, and, at best, it presents only positive information about products. Others complain that advertising psychologically manipulates people to buy things they can’t afford. There are many discussion questions on the topic.

Does advertising debase our language? The defenders of traditional English usage don’t like advertising. They feel advertising copy is too breezy, too informal, too casual, and therefore improper. Advertising, the believe, has destroyed the dignity of the language. The fact is that advertising must speak to people, must be understandable and readable. Some critics don’t acknowledge that ads are designed for specific audiences and therefore should reflect different language usage. Advertising research shows that people respond better to a conversational tone than to a more formal tone.

Does advertising make us too materialistic? Some critics claim advertising adversely affects our value system by suggesting that the means to a happier life is the acquisition of more material things instead of spiritual or intellectual enlightenment. Advertising, they say, encourages people to buy more things than they need - all with the promise of greater status, greater social acceptance. But These critics fail to realize that they often tend to force their own values on others. Some people prefer a simple life, others enjoy the material pleasures of a modern, technological society. Proponents of advertising also point out that, through its support of the media, advertising has brought literature, opera, drama to millions who otherwise might never have experienced them.

Does advertising manipulate us into buying thing we don’t need? An oft-heard criticism is that advertising forces people to buy thing they don’t need by playing on their emotions. Some critics believe advertising’s persuasive techniques are so powerful that consumers are helpless to defend themselves. Some specialists point out that the persuasive power of advertising has been exaggerated. Advertising powerful ideas doesn’t guarantee a sale if people aren’t interested.

Is advertising excessive? One of the most common complaints about advertising is simply that there is too much of it. Experts say the average American is exposed to over 500 commercial messages a day. We are constantly bombarded at hone with ads on radio and television, in newspapers, and through the mail. Advertisements also reach us in our cars and in elevators, parking lots, hotel lobbies, movie theatres, and subways.

Is advertising offensive or in bad taste? Many people find advertising offensive to their religious convictions, morality, or political perspectives. Others find advertising techniques that emphasize violence or body functions in bad taste. Taste is highly subjective. What is good for some is bad taste to others. And tastes change. What is considered offensive today may not be offensive in the future. Often the products themselves are not offensive, but the way they are advertised may be open to criticism.

Is advertising deceptive? Perhaps the greatest criticism of advertising is that it attempts to deceive the public. Critics define deceptiveness not only as false and misleading but also as any false impression conveyed, whether intentional or unintentional. Consumers must have confidence in advertising if it is to be effective.

Unit4. Banking

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The Business of Banking

When asked why he had robbed a bank, Willie Sutton, a 19th-century American outlaw, replied: «Because that»s where the money is». His reasoning is hard to fault: since modern banking emerged in 12th-century Genoa, banks and money have gone hand in hand.

Banks are still pre-eminent in the financial system, although other financial intermediaries are growing in impor­tance. First, they are vital to economic activity, because they reallocate money, or credit, from savers, who have a temporary surplus of it, to borrowers, who can make better use of it.

Second, banks are at the heart of the clearing system. By collaborating to clear payments, they help individuals and firms fulfil transactions. Payments can take the form of money orders, cheques or regular transfers, such as standing orders and direct-debit mandates.

Banks take in money as deposits, on which they sometimes pay interest, and then lend it to borrowers, who use it to finance investment or consumption. They also borrow money in other ways, generally from other banks in what is called the interbank market. They make profits on the difference, called the margin or the spread, between interest paid and received. As this spread has been driven down by better information and the increasing sophistication of capital markets, banks have tried to boost their profits with fee businesses, such as selling mutual funds. Such income now accounts for 40 % of bank profits in America.

Deposits are banks' liabilities. They come in two forms: current accounts (in America, checking accounts), on which cheques can be drawn and on which funds are payable " immediately on demand; and deposit or savings accounts. Some deposit accounts have notice periods before money can be withdrawn: these are known as time deposits or notice accounts. The interest rate paid on such accounts is generally higher than on demand deposits, from which money can be immediately withdrawn.

Banks' assets also range between short-term credit, such as overdrafts or credit lines, which can be called in by the bank at little notice, and longer-term loans, for example to buy a
house, or capital equipment, which may be repaid over tens of years. Most of a bank's liabilities have a shorter maturity than its assets.

There is, therefore, a mismatch between the two. This leads to problems if depositors become so worried about the quality of a bank's lending book that they demand their savings back. Although some overdrafts or credit lines can easily be called in, longer-term loans are much less liquid. This «maturity transformation» can cause a bank to fail.

A more common danger is credit risk: the possibility that borrowers will be unable to repay their loans. This risk tends to mount in periods of prosperity, when banks relax their lending criteria, only to become apparent when recession strikes. In the late 1980s, for example, Japanese banks, seduced by the country's apparent economic invincibility, lent masses of money to high-risk firms, many of which later went bust. Some banks followed them into bankruptcy; the rest are still hobbled.

A third threat to banks is interest-rate risk. This is the possibility that a bank will pay more interest on deposits than it is able to charge for loans. It exists because interest on loans is often set at a fixed rate, whereas rates on deposits are generally variable. This disparity destroyed much of Ame­rica's savings-and-loan (thrifts) industry. When interest rates rose sharply in 1979 the S&LS found themselves paying depo­sitors more than they were earning on their loans. The government eventually had to bail out or close much of the industry.

One way around this is to lend at variable or floating rates, so as to match floating-rate deposits. However, borrowers often prefer fixed-rate debt, as it makes their own interest payments predictable. More recently, banks and borrowers have been able to «swap» fixed-rate assets for floating ones in the interest-rate swap market.

Another way in which regulators have tried to keep banks' heads above water is to force them to match a proportion of their risky assets (i. e., loans) with capital, in the form of equity or retained earnings. In 1988 bank regulators from the richest countries agreed that the capital of internationally active banks should, with a few variations, amount to at least 8 % of the value of their risky assets. This agreement, called the Basle
Accord, is being revised, largely because the original makes only crude distinctions between loans' different levels of risk.

It is not just the failure of individual banks that gives regulators sleepless nights. The collapse of one bank can spread trouble throughout the financial system as depositors from other, healthy, banks suddenly fear for their money. Regulators step in because they want to prevent a collapse of the entire system. Governments try to minimise the risk of such failure in several ways. One is to impose harsher regulation on banks than on other sorts of companies; often, the regulator is the central bank. Another tack is to try to prevent runs on banks in the first place. Following the collapse of a third of all American banks in 1930-33, the government set up an insurance scheme under which it guaranteed to repay depo­sitors, up to a certain limit, in the event of bank failure.

Following America's lead, other countries have also introduced deposit-guarantee schemes. Even where they have not, depositors often assume that there is an implicit guarantee, because the government will step in rather than risk a collapse of the whole system. In this decade, the Japanese government went to the extreme of guaranteeing all lenders (not just depositors) to the country's biggest banks until the end of the century.

Some argue that these guarantees make bank failures more likely, because they encourage depositors to be indifferent to the riskness of banks' lending. Moreover, as banks get bigger, they are also likely to conclude that they are «too big to fail», which is an incentive to take more risk. Both are a form of moral hazard.

To combat moral hazard, regulators try to be ambiguous about how big is too big, and to restrict the amount of insurance they provide. In recent years, none of these measures has prevented ill-advised lending by banks around the world. Failures include the excessive loans of American banks to Latin America in the 1980s; and banking crises in Japan, Scandinavia and East Asia.

In many countries, governments have responded to emergencies by nationalizing the worst banks, often pledging to inject capital, take on their dud loans, and re-privatize them. This is fine in theory, but in practice it often distorts the market for the remaining privately owned banks by keeping too many banks in business and by allowing nationalized banks with the benefit of a government guarantee to borrow more cheaply.

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Types of Bank

Commercial or retail banks are businesses that trade in money. They receive and hold deposits, pay money according to customers' instructions, lend money, offer investment advice, exchange foreign currencies, and so on. They make a profit from the differences (known as a spread or a margin) between the interest rates they pay to lenders or depositors and those they charge to borrowers. Banks also creates credit, because the money they lend, from their deposits, is generally spent (either on goods or services, to settle debts), and in this way transferred to another bank account - often by way a bank transfer or a cheque (check) rather than the use of notes or coins – from where it can be lent to another borrower, and so on. When lending money, bankers have to' find a balance between yield and risk, and between liquidity and different maturities.

Merchant banks in Britain raise funds for industry on the various financial markets, finance international trade, issue and underwrite securities, deal with takeovers and mergers, and issue government bonds. They also generally offer stockbroking and portfolio management services to rich corporate and individual clients. Investment banks in the USA are similar, but they can only act as intermediaries offering advisory services, and do not offer loans themselves. Investment banks make their profits from the fees and commissions they charge for their services.

In the USA, the Glass-Steagall Act of 1934 enforced a strict separation between commercial banks and investment banks or stockbroking firms. Yet the distinction between commercial and investment banking has become less с ear in recent years. Deregulation in the USA and Britain is leading to the creation of 'financial supermarkets': conglomerates combining the services previously offered by banks, stockbrokers, insurance companies, and so on. In some European countries (notably Germany, Austria and Switzerland) there have always been universal banks combining deposit and loan banking with share and bond dealing and investment services.

A country's minimum interest rate is usually fixed by the central bank. This is the discount rate, at which the central bank makes secured loans to commercial banks. Banks lend to blue chip borrowers (very safe large companies) at the base rate or the prime rate; all other borrowers pay more, depending on their credit standing (or credit rating, or creditworthiness): the lender's estimation of their present and future solvenсу. Borrowers can usually get a lower interest rate if the loan is secured or guaranteed by some kind of asset, known as collateral.

In most financial centers, there are also branches of lots of foreign banks, largely doing Eurocurrency business. A Eurocurrency is any currency held outside its country of origin. The first significant Eurocurrency market was for US dollars in Europe, but the name is now used for foreign currencies held anywhere in the world (e.g. yen in the US, DM in Japan). Since the US$ is the world's most important trading currency - and because the US has for many years had a huge trade deficit - there is a market of many billions of Eurodollars, including the oil-exporting countries' 'petrodollars', Although a central bank can determine the minimum lending rate for its national currency it has no control over foreign currencies. Furthermore, banks are not obliged to deposit any of their Eurocurrency assets at 0% interest with the central bank, which means that they can usually offer better rates to borrowers and depositors than in the home country.

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