The United States 's Financial System

1700 WordsMay 1, 20177 Pages
In the most basic definitions of economics, the United States’s Financial system is broken down into approximately five groups: the households, the firms, the market for factors of production, the market of goods and services, and the government. Within these groups, there is a constant flow that progresses in a circle through all of these groups in order to keep the economy running smoothly. This system is based on the notion that both consumers and producers need to come together to transact. However, buyers don’t always have the money they need to buy supplies, and sellers don’t always have the money to produce products or provide services. When this occurs, it is important for both investors and banks to offer aid in order to prevent…show more content…
Banks would also help investors buy into companies, including letting people buy ownership in the banks. The whole idea was to allow money to flow through the economy based on economic principles of supply and demand. If there is a demand for cars, for example, let’s help auto companies create a proper supply and help car buyers purchase the cars. The Banks would always take a percent of the transaction as their fee, and this is how the banks made their money. In the US, the role of the government was simply to make sure nobody was cheating, so that prices and transactions would be based on supply-and-demand, not tricks. · Over time, banks began to shake their role of “middle-men” for transactions. Instead, they began packaging and selling an array of new Financial Assets that were considerably intricate. Straying from their traditional role of simply providing loans, they began selling their loans to other banks and financial institutions. Investments banks would also allow people to “make bets” on the future and buy such bets if there was someone else who would bet on the other side. Along with all these new-found policies, they began to combine investment packages in an attempt to lower the risks of borrowers not paying back what they were lent. In the past, the Government was very strict on which
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