Essays on Financial Engineering Reason for the Financial Crisis Case Study

Download full paperFile format: .doc, available for editing

The paper “ Financial Engineering Reason for the Financial Crisis” is a meaningful   variant of the case study on macro & microeconomics. “ National and international policymakers should try to reduce the frequency of banking and financial crises. Argue for three different policy measures that would be helpful to reduce the frequency of banking and financial crises. In each case indicate whether the measure you propose requires international coordination or could be implemented in individual countries even if other countries declined to implement the same measure. ” IntroductionFinancial crisis is sown when countries liberalize their financial systems, usually several years before the crisis hits (White, 2008).

This theory can be seen unfolding in the US economy which is responsible for the financial crisis that gained global proportions. The government policies as well as the banking sector can be largely held responsible. Paul Krugman, a Nobel Prize-winning economist wrote in the New York Times that after the 1997-98 Asian Financial Crisis, countries in that part of the world started protecting themselves against future currency corruption by creating huge reserves of foreign revenue and assets and by exporting the added capital to the West.

This export of assets was in terms of real estate primarily, thereby driving up the prices of real estate in the West by leaps and bounds (Krugman, 2009). Another event that led up to the financial crisis in the USA also has its origin in Asia. Asian economies generated large current account surpluses that they invested in US dotcom stocks leading to a boom in the NASDAQ. This created a dotcom bubble which burst in 2001. The US Federal Reserve responded by easing monetary policies between 2001 and 2004.

The repercussion of this led to a bubble in the housing sector “ Risk premia hit low levels and leveraged deals became common as investors chased yields in an environment of lax regulatory oversight” (McKibbin & Stoeckel, 2009)The Sub-prime FactorAlan Greenspan, former Chairman of the Fed, described in Congressional testimony as a “ once-in-a-century credit tsunami” .

References

Begley, S (2009) “Why Pundits Get Things Wrong,” Newsweek, February 23, p.45.

Claessens S, Dell’Ariccia G, Igan D, and Laeven L (2009) Lessons and Policy Implications We Have Learnt From the Global Financial Crisis, Economic Policy Fiftieth Panel Meeting Tilburg, 23-24 October 2009 http://www.cepr.org/meets/wkcn/9/977/papers/ClaessensDellAriccaIganLaeven.pdf

Clark, T., (2004). ‘Cycles of Crisis and Regulation: the enduring agency and stewardship problems of corporate governance’. Corporate Governance: An International Review. 12(2). pages 153–161.

Coval, J., Jurek, J., and Stafford, E. (2009). “The Economics of Structured Finance,” Journal of Economic Perspectives. 23(1) pp. 3-25.

Crawford, P., and Young, T., (2008). ‘Sub-Prime Mortgages and the Big Bang’. Journal of Business & Economics Research. 6(10). Pp67-72

Crawford, Peggy J. and Terry Young, (2006). “The Real Estate Market: House of Cards?” The Graziadio Business Report. January

Economist The, (2009) “Greed--and Fear: A Special Report on the Future of Finance,” The Economist, January 24, pp.1-22.

Fitoussi JP (2010) The hard lessons of the global financial crisis. Europe’s World, Summer 2010, retrieved from http://www.europesworld.org/NewEnglish/Home_old/Article/tabid/191/ArticleType/articleview/ArticleID/21674/Default.aspx

Frederic S. Mishkin (2010). The Economics of Money, Banking and Financial Markets, Ninth Edition. Pearson

James, H., (2007). “Payment Woes Worsen On Riskiest Mortgages,” The Wall Street Journal. Published April 4, 2007. ppA-2.

Krugman, Paul (2009). The Return of Depression Economics and the Crisis of 2008. W.W. Norton Company Limited

McKibbin WJ and Stoeckel (2009) A The Global Financial Crisis: Causes and Consequences, Working papers in International Economics November 2009, No 2.09 retrieved from http://www.melbourneinstitute.com/conf2009/Presentations/Session%205/McKibbin_Stoeckel_Session_5.pdf

Mishkin FS (2011) “Monetary Policy Revisited: Lessons from the Crisis, Prepared for the ECB Central Banking Conference Frankfurt, November 18-19, 2010.Working Paper 16755 National Bureau of Economic Research, February 2011, retrieved from http://www.nber.org/papers/w16755

Mishkin F S (2010) The Economics of Money, Banking and Financial Markets, Ninth Edition. Pearson

Stiglitz J (2010) A global crisis requires global solutions. The Guardian, Saturday 11 April 2009 retrieved from

http://www.guardian.co.uk/commentisfree/2009/apr/09/global-economy-development

The Bush Recession. (2003). Democrat Staff, Senate Budget Committee. Retrieved October 12, 2011, retrieved from http://budget.senate.gov/democratic/press/2003/fs_bushrecession073103.pdf

Tindall, K., and Hart, P. (2009). Framing the global economic downturn: crisis rhetoric and the politics. ANU E Press Publishing. p137

White, L. H., (2008). The Subprime Crisis Shows That government Intervenes Too Little in Financial Markets? It Just Ain’t So! Retrieved from http://www.fee.org/pdf/the-freeman/0810FreemanWhite.pdf

Yılmaz, K., 2008, “Global Financial Crisis and the Volatility Spillovers across Stock Markets” Research Note 08-01, Economic Research Forum, Tusiad University.

Zamaan, R., (2009). ‘The Causes and Ramifications of the 2008-2009 Meltdown of the Financial Markets on the Global Economy’. Eurasian Journal of Business and Economics. 2 (4). Pp 63-76.

Download full paperFile format: .doc, available for editing
Contact Us