Article Analysis

In this paper, we will analyze the article presented by Garal Perovitz, who have presented a new strategy for reform that will help economies and countries to solve structural problems, which give rise to problems like financial crisis. Financial Crisis was mainly caused due to lack of proper risk management measures. Financial Derivatives led to severe crisis. Credit was given to individuals without proper credit assessment leading to problems. The author has assessed the factors leading to the crisis and how it should be eradicated through risk management. The main aim of researchers is to introduce reforms in the economy for the solution of such problems.

The financial crisis should lead to fundamental reforms in supervision. This gets a new focus and design. These new rules will be the foundation for a strong financial sector. The condition is that the regulation and supervision are tailored, which will ensure that such instances do not take place again. Key elements are that the supervision must be more forward looking, with more attention to market developments, especially in the real estate sector and that the supervisor will have faster and stronger government, which are able to intervene when necessary (Kidder, pp. 120-145).

The global financial crisis is one of the biggest issues that concern humanity since last few years. This disaster has touched virtually every country. Reduced profits, loss of jobs, rising prices, delayed wages, stipends, pensions and unemployment. People is just in a panic. The word "crisis" sounds throughout the newspapers. The newspapers comprise of shocking notes that some businessman committed suicide because he could not feed his family. Unfortunately, such cases are rare.

The Economic Crisis was mainly fueled by the use of Derivatives including options, futures, and warrants). They are a mirror reflection of the underlying assets like main stocks and bonds. People started selling securities and derivatives regularly, which triggered panic and crisis situation. Everyone followed the path and sold securities in pursuit of speculation and prices eventually fell down.

The situation was developed as a result of the Economic Boom, which countries witnessed in the previous years. Companies started buying goods and services resulting in increased demand and thus higher prices. Of special interest are construction companies, which started many construction projects by taking a lot of investment credits. And all this has happened largely without any insurance coverage. The principle was simple: why stop a construction project and finance it from own pocket, when you can easily get the credit. This created huge issues for the American Economy.

Investment funds created aggressive investment portfolios, thus engaging their money in securities and other funds, which further exaggerated the bubble. The citizens of United States began to live beyond their means. Mortgage was often granted without checking the creditworthiness of the applicant. The situation kept on going worst, which eventually led to serious economic crisis.

The crisis led to mortgage loans granted by banks at high risk of repayment, often those with marginal financial opportunities. These in turn were mass marketed in the form ...