The Negative Impacts Of Financialization

The panic of 1907 and the Great Recession of 2007-2009 has both been major economic events in the United States economic history. This paper compares and contrasts these two major events and enables us to understand importance of certain financial institutions and regulations during troubled times in the financial sector. In this paper, both panics of 1907 and 2007 are historically analyzed and compared.

All in all, I aim to assist in creating an illuminating understanding on American financial system and reforms through this public policy paper.

The American economy is a complex balance of services, financial, manufacturing, agricultural, and banking industries. For this reason, the U.S. is a global economy, relying upon foreign investments and trade to create and retain wealth. Over the years, America has evolved from farming-based, to industrial, to a services-based economy. As a result, the banking system from its inception has weathered the many growing pains associated with a new government and currency, instituting regulations and a centralized bank to examine the economy, and implement policies intended to offset factors negatively affecting the general financial health of the country.

As Stiglitz describes the job of the financial sector is to “manage risk, allocating capital efficiency, intermediating between savers and investors, providing funds for job creation”(Stiglitz108). There are even more aspects to the job of financial sectors that need to be fulfilled, but the point is that these jobs that are supposed to be getting done are so influential to our economy. Job creation for example is extremely important to the growth of our economy. It will only make more money and more opportunities and can only be helpful to our economy and all the other aspects can also help create a better economy. However, the financial sector that is supposed to be making all of this happen is actually not taking on the jobs that are supposed to get done. Stiglitz says that the financial sector failing to do the job just like we have seen it do, it allows the economy to fail in other ways such as “poorer economic performance” and “lower growth and more instability”(Stiglitz 108). There is so much more to the financial sector than just job growth and the other aspects of the job that are supposed to be getting done. The other aspects are also important and there are positive outcomes from a reformed financial sector that will include a much healthier economy. The economy needs to be stable without so much inequality and without so many unequal opportunities including social mobility. That means that there needs to be opportunities for the middle class that can be attainable for everyone. When we have actual equal opportunities that allows the class system to be achievable and that is when the system will be successful. Stiglitz reassures us that he has a plan laid out of what can specifically be done to reform and bring change. He refers to specific changes to the increased financial market transparency, makes a more efficient payment mechanism by

One of the primary factors that can be attributed as to have led the recent financial crisis is the financial deregulation allowing financial institutions a lot of freedom in the way they operated. The manifestation of this was seen in the form of:

All of the financial sectors mentioned above contribute to the stability of the economy, hence a loss in one of them will have a direct impact to the destabilization of the economy.

The majority of America’s banks are small individual institutions that had to rely on their own resources. This resumed as being unbeneficial for people because these banks were not stable, in terms of keeping Americans’ money cycling properly through banking systems. When there was a panic, depositors rushed to take their money out of the banks. The banks sank if they did not have enough money on reserve. This eventually left banks in the dust.

The financial crisis of 2007-2008 had more sounding effects on financial institutions even greater than the crisis brought about by the stocks downfall in the 1990’s. The reason for this is that the financial institutions were at the centre of the whole crisis. And financial institutions being one of the key pillars in a country’s economy, the crisis was bound to have a big effect in US as a whole. So, in order to understand what rely happened, it is wise to go through the paper written by Nicholas Barberis about the whole crisis (Barberis, 2011).

Shrinking banks suck money out of the economy as they try to build their capital and are nervous about loaning. Meanwhile businesses and individuals that rely on credit find it harder to get. A spiral of problems result.

The recent financial crisis that was felt around the globe and most significantly in the USA and Europe has had various detrimental and long lasting effects. Superficially the effects felt by the USA and Europe appear to be the same, but there are important differences in its effect, and the way in which both dealt, and are still

Nobody foresaw what was about to happen to the economy. In the beginning of the 21st Century the economy was at a state of peace and unity. People were taking loans and purchasing houses that they normally couldn’t afford while these houses were increasing in value. The banks were giving out loans to the people to purchase the houses and earning money on the interest of those loans and the commission of the loan. That is when people began to notice the advantages of what could be taken from this economic situation. With a new method of earning money quickly and easily, it is no surprise that everybody began to try

As financial instruments and securities grew in complexity and quantity from the 15th to 19th centuries, so did the markets on which they were traded. Lenders and borrowers became increasingly able to access both domestic and foreign financial markets, and early stages of globalization began to arise through the integration of different financial markets. In this essay, I will define financial market integration, give a brief background as to the context in which it occurred, and describe different methods used to measure the magnitude of integration that took place across financial markets throughout this period. I will conclude that when sufficient information is available, one can find the degree to which markets are integrated by the

As a result, it seems that while financing could make companies more efficient, it also could lead to job loss and wage reduction. In addition, the financial market creates winners and losers, and thus, we could witness an increase in inequality, harm to labor unions, and the creation of laws that harm and restrict labor and workers.

Either way, both the reduction in the regulation of the banking system and the liberalization of the economy leaded to the Financialization of the Economy, understood as the process in which financial markets take a bigger relevance over the primary and secondary sectors of the economy. Once again, this has consequences in the Corporate Governance of the different companies because of three different factors:

In a developing country, such as Egypt, misuse and/or lack of foreign exchange is a main constraint to investment and economic growth, as foreign exchange is necessary to obtain foreign intermediate and capital goods. In addition, lack of foreign exchange results in devaluation of the Egyptian pound, which considered the main cause of inflation in the Egyptian economy.