The Current Financial Crisis Essay - 869 Words

Frederic Mishkin makes the point in the text, The Economics of Money Banking, and Financial Markets (2010) that â€Å"Banks and other financial institutions are what make financial markets work. Without them, financial markets would not be able to move funds from people who save to people who have productive investment opportunities.† (p.7). The movement of funds between savers and those with productive investment opportunities is the means of creating growth. When people lose confidence in the economy this activity freezes or weakens, consequently, asset prices decline, unemployment rises and companies default as was the case of Lehman Brothers in 2008. The freezing of the flow of money is a financial crisis. Today, the global flow of†¦show more content†¦Europe and China are major economies that impact the world. Europes challenges with the Euro are complicated. The United States congress had trouble agreeing to enact legislature to raise its debt ceiling in order to meet its obligations and maintain its credit ratings. In Europe, separate countries need to agree to come together with a combined political will to stabilize countries and banks in financial trouble. Without the power to print money individually, each country under the single currency must come together under combined policies. Today, Europe seems willing to reach combined policy decisions to avoid an economic disaster. Ultimately, if this happens, the Euro will have a stronger future just as the United States gained a stronger political and financial system from policies created as a result of the Great Depression. If Europe fails to come to agreement on combined policies to solve the European Debt Crisis the world will realize the financial risks. Direct exposure is already being seen in the financial institutions. MF Glob al recently filed for bankruptcy. Exposure to European bonds brought down a $41B firm just 3 weeks after a European bank failure. Repo-to-maturity contacts. Falling bond values created the need for more collateral in this type of financial instrument. Firms with similar investments could see greater risk if interest rates rise and bond values fall. Company earnings have been the bright lightShow MoreRelatedAnalysis Of The Current Financial Crisis3196 Words   |  13 Pages Analysis Of The Current Financial Crisis YourFirstName YourLastName University title Student’s name Professor Subject Date Financial crisis is a situation where the financial value of assets or an economy drops by a significant margin that can cripple the normal functioning of an economy of the affected country. Different economists came forward to explain theories that lead to the different financial crisis especially in the history. 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