Economics homework help

Economics homework help. Title of the essay :    What are the main causes of the global financial crisis (GFC)?  How far can policy changes limit the risk of another such disruption to economic well being?
 
1500 words with in text citation
 
Introduction (100 words)

• What is the financial crisis?
• Types :One with the bubbles (housing) and one with debt

 

• Main causes:
  • Excessive risk and lending by financiers
  • Central bank and regulatory
  • Macroeconomic backdrop
  • Asia glut
  • European banks

 
What will this essay cover ?
 
 
Body

• Discuss a combination of the conditions before the crisis

–       Great Moderation’,
–       hands-off regulation and
–       Greenspan doctrine
Main causes:

• Excessive risk and lending by financiers
• US housing (Use the 3 equation model to explain the housing crisis (bubble ) add graph
• New financial products
• Moral hazard – participating in risky behaviour knowing that someone else will incur the cost while you are protected from the risk

 
 

• Central bank and regulatory
  • Complacent view to financiers excessive behaviour

 
 

• Macroeconomic backdrop

1985-2007 was relatively calm period for developed economies

• Emerging economies were exposed to economic shocks
  • Example:
  • Asian financial crisis 1997

o   Cavallo 1997 and calvo – Sudden stop, Mexican tequila crisis

• inflow stops
  • Shocks, actions of overseas investors
• outflows of capital
  • Loss savings
  • Actions of domestics investors
• Monetary policy seemed strong and effective

 
 
 
 

• Asia glut
• Oil exporting countries saving
• China and Asian countries had large account surplus

 

• European banks
• Banks borrowed US $
• US dominated assets
  • US Govt bonds
  • Safe parts of CDO
• Irish Banks bankrupting example

 

• Theories & Methodologies
  • Hyman Minksy – FIH – Financial Instability Hypothesis
    • Periods of stability and calm encourage risk taking
    • Equity finance shifts towards debt finance

 

• Policy changes to limit risk
  • Importance of leverage
  • Use Fiscal policy when necessary
  • Less financially developed countries should not liberalise

 

• New financial instruments

–       Mortgage Back Securities (MBS)
–       Collateral Debt Obligations (CDOs)
–       Credit rating agencies (CRAs)
 
 

• Bank concentration and interconnectedness

 
Conclusion
 
 
 

Economics homework help