How Markets Fail : The Logic Of Economic Calamities, By John Cassidy Essay

Beginning in the 1980s, political leaders believed that markets were bad for the economy. Although in the 1990s, there was a faith that presented a need for the markets and that they are the main help for the public. As of now, that faith is being challenged. The financial crisis evoked awareness that markets and morals have separated. It has become our job, as consumers, to find a way to rejoin them without any way of knowing how to.

In Frontline’s The Meltdown, the causes of the stock market crash of 2008 came into discussion. The topics regarding Bear Stearns, the Lehman Brothers’ and their collapse, and the huge bailout made in results to the market crash. There were great points being made on the mistakes Henry Paulson and Ben Bernanke did not view from their perspective, which in turns were the problems that made up the crash.

A Colossal Failure of Common Sense was one of many books to be published in the aftermath of the Financial Crisis of 2007. After seeing the global economy stall in the face of massive losses in word financial markets, many Americans sought to better understand the crisis and its causes. This book, written from the perspective of a financial market insider, provides a glimpse into the world of global finance and also seeks to explain how the players in this world were involved in the crisis. In the words of the author Lawrence McDonald, “My objective in writing A Colossal Failure of Common Sense was twofold. First, to provide … a close-up, inside view of how markets really work…..And, second, to give… as crystal clear an explanation as possible about the real reasons why the legendary Lehman Brothers met with such a swift end”1. By writing about his personal experience at Lehman Brothers and recounting stories from within the famous investment banking firm, Mr. McDonald largely succeeds at his first goal. However, the elements of personal biography and the chronological order of the book make it difficult for the reader to fully appreciate all of the varied causes of the financial crash. I believe that the main value of reading this book is in understanding these causes, with Lehman Brothers acting as a microcosm of the greater financial universe. As such, in this review I have isolated elements from Mr. McDonald’s book which highlight how the crisis

The current issues that have been created by the market have trapped our political system in a never-ending cycle that has no solution but remains salient. There is constant argument as to the right way to handle the market, the appropriate regulatory measures, and what steps should be taken to protect those that fail to be competitive in the market. As the ideological spectrum splits on the issue and refuses to come to a meaningful compromise, it gets trapped in the policy cycle and in turn traps the cycle. Other issues fail to be handled as officials drag the market into every issue area and forum as a tool to direct and control the discussion. Charles Lindblom sees this as an issue that any society that allows the market to control

Free markets have often been idealized in the US, and have become a dominant tool for trade and distribution of goods and services. There have been multiple waves of government regulation and deregulation of the market in US history. Each of these trends have been grappling with the central question of how sufficient markets are at satisfying our goals. In theory, free markets are fair and efficient at distributing goods and services. In reality, however, government must intervene in the marketplace for two overarching reasons. First, because in practice free markets left to themselves are not always fair and efficient. And second, because fairness and efficiency are not our only goals and

The banking crisis of the late 2000s, often called the Great Recession, is labelled by many economists as the worst financial crisis since the Great Depression. Its effect on the markets around the world can still be felt. Many countries suffered a drop in GDP, small or even negative growth, bankrupting businesses and rise in unemployment. The welfare cost that society had to paid lead to an obvious question: ‘Who’s to blame?’ The fingers are pointed to the United States of America, as it is obvious that this is where the crisis began, but who exactly is responsible? Many people believe that the banks are the only ones that are guilty, but this is just not true. The crisis was really a systematic failure, in which many problems in the

Blumberg, Alex, dir. “The Giant Pool of Money – Episode 355.” Dir. Davidson Adam, This American Life. NPR News: WBEZ,

Indeed, the economy had experienced a bubble, especially in the housing department ("Wall Street gamed and inflated the housing bubble"), and the citizens had enjoyed a period of financial stability. With the occurrence of the Wall Street incident, to the contrary, a widespread downward trend had taken place, not gradually, but in one effective spurt. In this sense, Rich's claims are rather indisputable: the facts are not distorted or manipulated, and are highly sensible. In strengthening his first argument, that Wall Street had been the downfall of the modern United States economy, Rich also affirms that "[Wall Street] made out like bandits, and left millions of households in ruin". Here, his presentation of the citizens' experiences with the crisis lends great credibility to the publication as a whole, and itself is a well-supported stance by the actual course of events. Just as it would not be correct or in line with the truth of history to assert that the citizens of the country had remained in the same condition as before, it would be absolutely justified to confirm millions of citizens' losses of their homes and lifestyles. Henceforth, building upon his opening statement, Rich not only recounts the economic crisis and its associated terrors, but puts forth a call to action. Specifically, his column persuades his audience, the American public, to prevent the

In 2008, it was targeted on the executives at big investment banks who created incredible derivatives from worthless mortgages. According to the mentioned above theory, the result of each meltdown should be better than the last time one under continuously severe regulation and policies after punishing these culprits. However, the economic crashes consistently to happen with the increased level of damage and high frequency after punishing these villains. Look back upon these tragedies happened in the economy, Martin pointed out the main reason hidden in the issue and answered this questions in this book. Martin believed that people now failed to catch the real and fundamental reasons caused those economic crashes and bubbles, which is only a matter of time. In the point of Martin’s view, he thought theories about the fundamental goal of corporations and the optimal structure of executive compensation are fatally flawed and have created panic in the stock market. Thus Martin thought that the only way we could avoid increasingly frequent stock market meltdowns with pain, suffering and economic disorder they cause is to explore the better and new theories to strengthen the system of American capitalism (Martin, p.g10).

At the height of the 2008 financial crisis, Mr. Lawrence G. McDonald wrote a book on the fall of Lehman Brothers, entitled "A Colossal Failure of Common Sense." This book is a risk manager 's guide to the right and wrong moves on Wall St., and explains why investors must stay ahead of policies coming out

In the beginning of the financial crisis, most people normally will not realize or predict the disaster that is coming. As John Kenneth Galbraith discussed in “The Great Crash 1929,” “only after the market crash were there plausible grounds to suppose that things might now for a long while get a lot worse” (pg. 90). During the Wall Street Crash of 1929, the most destructive stock market crash happened in the United States’ history. There are numerous causes dedicated to this crash, such as, the inequality and the poor regulations of structures. The causes of this 1929 Great Crash are similar to those of the Financial Crisis in 2008. However, the Wall Street Crash of 1929 led to “a longest and deepest economic downturn in the United States’

Coming from the idea that the market will right itself when free from government overreach, this set of economists would firmly hold to the idea that the market can solve its own issues. Given the issues at hand, these economists might say that if the government had never stepped in in the first place by incentivizing subprime mortgages through removing the tax credit for personal loan interest, the system wouldn’t have collapsed in the same way it did. Lenders may have split their priorities and the popularity of subprime mortgage backed securities and CDOs might not have taken off in nearly the same way. Apart from their policy of lower government intervention is better they might want to prevent the issue from happening again through

The assertion by Lawrence and Weber that government may use regulation to “allocate resources, set prices and constrain socially irresponsible behavior of companies, “..is also a key principle of Keynesian Economic Theory that postulates that, “Optimal economic performance could be achieved -…-by influencing aggregate demand through activist stabilization and economic intervention policies by the government” (Investopedia, 2013). While the merits and benefits of such action have the potential to yield a positive societal result, they have often lead to unintended consequences, some negative and others that failed to yield an expected result. The effects of this phenomenon are clearly illustrated through the events leading up to and during the housing crisis in which government regulation, wall street investors and bankers and citizens converged through a series of bad legislation and regulation, poor investment and lending practices and individual over extension and personal finance management to create the perfect economic storm that lead to the collapse of the housing markets.

The Global Financial Crisis that occurred in 2008 and crippled every major economy was not an accident; it was caused by an unregulated and uncontrolled financial industry.

Ans: An economic term that encompasses a situation where, a common resource in any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. This is a direct result of a lack of certain economically ideal factors, which prevents equilibrium (Market Failure 2013). Market failures have negative effects on the economy because an optimal allocation of resources is not attained. In other words, the social costs of producing the good or service (all of the opportunity costs of the input resources used in its creation) are not minimized, and this results in a waste of some resources. Market work well when prices reflect all values.