In this paper, an analysis of how the failures in financial engineering and Corporate Governance have been closely related with the recent Global Financial Crisis is carried out.
The Real Estate Bubble in 2006 leaded to the Subprime Mortgage Crisis in 2007 which expanded from the United States to the whole world generating the biggest financial crisis since the Great Depression of the 1930s. There are multiple factors that originate a crisis like this, and will be explained and analysed later, but in order to understand the global economic situation it is necessary to understand how the changes in the Corporate Governance have been one of the reasons of this and how this changes have been motivated by the Financial Globalization.
It was not until the 1973 Oil Crisis that the Monetarism became the paradigm for economy given its overall positive effects on the recover, even when the Keynesian approach had been dominant since the Great Depression. That change is generally regarded as the inception of economic Neoliberalism. However, that term had been already used long time before by Charles Gide in 1898.
Both the Neoliberalism and Free-Market are based in principles that can tagged as questionable since can be seen as based in the wrong economic policies from an ethical point of view. The development of both leaded to the Financial Globalization that has been described above as one of the reasons for the changes in the Corporate Governance.
The main reason for this is that the Financial Globalization brought both a reduction in the regulation of the banking system and more liberalization of the economy than the one the system was able to accept in the long-term.
Regarding the reduction in the regulation of the bank...
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...ivities that focuses on adding value and generating tangible products instead that a Financialized economy.
The second one is rebuilding the capitalism based in the principles of sustainability to ensure a right balance between the growth of the economy and its stability.
The third one involves having an increased focus on the ethical implications of the actions of all the stakeholders involved in the financial activities. Understanding the need to improve the society as a whole is a required step to ensure the success of any reform, preferably involving all sectors of the society like local communities worldwide, technological centres, universities, banks, companies and governments.
Whenever those principles are taken into account, even if that meant modifying some axioms of the global economy, a more stable, sustainable and ethical could be constructed.
The economy is substantially bigger than it was in 1980s and the amount of spending increases even though the share remains constant. Kotz showcases his perspective as he points out that the that the US made Neoliberal Capitalism be the new template. The rising rate of profit after neoliberal restructuring encouraged firms to expand. Wages were stagnating while profits were rising rapidly. The financial sector of big business after decades of subordination “under regulated capitalism was able to emerge as the dominant force in the 1970s.” (Kotz) Ongoing accumulation of the capital is known to result in neoliberalism. What makes neoliberalism as economically different from other regimes of accumulation is its solution to the problem of maintaining profits as capital cycles through the realms of production and consumption.Every producer needs to find a consumer willing to buy his or her product. This is a common-sense observation, but it runs into some tricky problems under Neoliberal
Neoliberalism is an economic approach that promotes a laissez-faire model of trade (Edmonds-Poli & Shirk, 253). This economic model, widely supported by many Western economists, is based on three main principles: stabilization, structural adjustment, and trade liberalization. (Edmonds-Poli & Shirk, 254) Neoliberalism is a method to restructure the economy and the first step is to stabilize the fiscal supply. This happens through decreased government spending, leading to an overall decrease in employment, public services, and access to credit, while simultaneously increasing interest rates and the cost of imports (Edmonds-Poli & Shirk, 254). The next element of neoliberalism is structural adjustment which focuses on the shift from the public to the private sector. This shift is meant to minimize government involvement, which in turn stimulates competition in an open market economy to create a more efficient private sector (Edmonds-Poli & Shirk, 254). Finally, trade liberalization works to increase foreign investment and exports by lowering trade restrictions, such as tarif...
After World War II, many nations were left with weak economy and financial instability. Offshore banking became a method to escape national regulation as many national regulators turned a blind eye on deposits in currencies other than their own. The offshore market became popular due to its ability to facilitate new finance innovations and keeping transaction costs low. Eurodollar market for example is a product of this trend. As offshore banking became competitive, the U.S. had to remove limits on national banking and the division between commercial and investment banking. Canada also benefitted from this new trend as it appeared to be very promising for international expansion. However, differing from the United States, Canadian Banking Act was in place to protect domestic banks from new foreign entrants and also effectively manage risk. With the increase of international investment, not only does funding needs were satisfied but new business information systems were also developed due to the increased need for more centralization and a variety of services. New regulations such as The International Banking Act of 1978 was formed to level the playing field between foreign and American banks by requiring mutuality from any country whose banks are seeking permission to enter the United States. The Gramm-Leach-Bliley Act also removed barrier for commercial banks, investment banks,
In an article entitled “Resisting and reshaping destructive development: social movements and globalizing networks”, P. Routledge describes neoliberal development, “Contemporary economic development is guided by the economic principles of neoliberalism and popularly termed ‘globalization’. The fundamental principal of this doctrine is ‘economic liberty’ for the powerful, that is that an economy must be free from the social and political ‘impediments,’ ‘fetters’, and ‘restrictions’ placed upon it by states trying to regulate in the name of the public interest. These ‘impediments’ - which include national economic regulations, social programs, and class compromises (i.e. national bargaining agreements between employers and trade unions, assuming these are allowed) - are considered barriers to the free flow of trade and capital, and the freedom of transnational corporations to exploit labor and the environment in their best interests. Hence, the doctrine argues that national economies should be deregulated (e.g. through the privatization of state enterprises) in order to promote the allocation of resources by “the market” which, in practice, means by the most powerful.” (Routledge)
The turn to neoliberalism began after the Second World War. The restructuring of state forms and of international relations was intended to prevent a return to conditions that occurred in the 1930s. It was supposed to avoid the recurrence of inter-state geopolitical rivalries that triggered the war. After both capitalism and communism failed, the only way to move forward was to create the right mixture of state, market, and democratic institutions to guarantee peace, inclusion, well-being, and stability according...
...issue. In this case, neoliberalism not only helps states to make a more rational decision, but also gives a birth of the institution forming the norms for the states’ solving crisis in the future. To conclude, both of them are important, while they are not contradictory, but complementary.
Neoliberalism, also called free market economy, is a set of economic policies that became widespread in the last 25 years. The concept neoliberalism, have been imposed by financial institutions that fall under the Bretton Woods such as the International Monetary Fund (IMF), World Trade Organization (WTO) and World Bank (Martinez & Garcia, 1996). One of the famous economists published a book called “The Wealth of Nations” in which he said in it that free trade is the best way to develop nations economies (Martinez & Garcia, 1996). He and other economists also encouraged the removal of government intervention in economic matters, no restrictions on manufacturing, removing borders and barriers between nations, and no taxes (Martinez & Garcia, 1996). The main goal of the economic globalization was to reduce poverty and inequality in the poorest regions. However, the effects of the neoliberal policies on people all over the world has been devastating (MIT, 2000).
Neoliberalism is a policy model of social studies and economics that transfers control of economic factors to the private sector from the public sector. ... Neoliberal policies aim for a laissez-faire approach to economic
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
In its essence, neo-liberalism advocates free trade, private enterprise, the free flow of capital across borders and, importantly, restrictions on the power of trade unions. These restrictions are important to study and discuss because the world today is no longer regulated by the orthodox laws of economics where supply equals demand (more or less). Instead, we witness radical inequalities and volatility in market conditions. Unemployment remains frighteningly high in many parts of Europe while many workers in parts of Asia and Africa suffer exploitation and work punishingly long hours in extremely poor conditions for a pittance.
The recent Global Financial Crisis (GFC) initially began with the collapse of credits and financial markets, which caused by the sub-prime mortgage crisis in the US in 2007. The sub-prime mortgages were given to high-risk lenders (with bad credit history) who were in danger of defaulting, which eventually caused a global credit crunch, where the banks were unwilling to lend to each other. In October 2008, the collapse of the major financial institutions and the crash of stock markets marked the peak of this global economic slowdown (Euromonitor International, 2008).
Our lives are greatly affected by our culture, ecological environment, political environment and our economic structure. The overarching method of organizing a complex modern society relies heavily on the founding economic theories regarding method of production, method of organization, and the distribution of wealth among the members of. This paper, specifically deals with the views and theoretical backgrounds of two dominant theories of the past century, Keynesianism and Neo-liberalism. Our social economic order is product of the two theories and has evolved through many stages to come to where it is today. The two ideologies rely on different foundations for their economic outcomes but both encourage capitalism and claim it to be the superior form of economic organization. Within the last quarter of the 20th century, neo-liberalism has become the dominant ideology driving political and economic decisions of most developed nations. This dominant ideology creates disparities in wealth and creates inequality through the promotion of competitive markets free from regulation. Neo-liberal’s ability to reduce national government’s size limits the powers and capabilities of elected representatives and allows corporations to become much larger and exert far greater force on national and provincial governments to act in their favour. Hence, it is extremely important at this time to learn about the underlying power relations in our economy and how the two ideologies compare on important aspects of political economy. In comparing the two theories with respect to managing the level of unemployment, funding the welfare sates, and pursuing national or international objectives, I will argue that Keynesianism provides far greater stability, equ...
Steverman,B. and Bogoslaw, D. (2008) ‘The financial crisis blame game’, Business week, October [Online]. Available at: http://www.businessweek.com/investor/content/oct2008/pi20081017_950382.htm?chan=top+news_top+news+index+-+temp_top+story (Accessed: 1st August 2010).
This essay analyzes the definitions and complex relations among those three concepts; considers both negative and positive effects of economic growth and proposes some solutions for environmental protection.
The first is to encourage economic growth and sustainable development. It emphasizes the need for economic growth, the need to improve the level of contemporary human welfare through economic growth, enhance national strength and social wealth. However, sustainable development should not only pay attention to the amount of economic growth, but also to the pursuit of quality of economic growth. That is economic development, including growth in the number and quality improvement in two parts. Growth in the number is limited, and rely on scientific and technological progress and improving the effectiveness of economic activity and quality, adopt a scientific mode of economic growth is sustainable. Flag of sustainable development is the sustainable use of resources and good ecological environment. Economic and social development can not exceed the carrying capacity of resources and the