BUSINESS FINANCIAL ENVIRONMENT

Business Financial Environment

Business & Financial Environment

Question One: If we view the current global crisis through the metaphor of a long winter or a long dark journey we can see no green shoots of spring (recovery) yet and no light at the end of the tunnel.

Comment on the above statement with reference to the following:

1. The domino effect of the crisis on the entire global economy.

2. The implications of the crisis for monetary and fiscal policy in a country of your choice.

3. The impact of the crisis on a business or industry that you are familiar with.

1. Domino Effect

The large and far reaching global financial crisis has naturally given rise to a wide variety of responses and reflections. The causes, consequences and implications have all been extensively debated and many authors have made recommendations as to future policy. The status quo in both the academic and practical approaches to economics and finance is rightly up for debate in a way that has not occurred for many decades. As one would expect, there is not complete consensus on either the diagnosis of the underlying problems or their solution. However, given the magnitude of the crisis a range of views can only be welcomed. Informed commentators have advocated actions ranging across a spectrum from making some modest reforms to the financial regulatory system to fundamentally reassessing our entire approach to politics, economics and ethics.

The recent special issue of this journal dealing with the crisis included articles containing a wide spectrum of opinions and this paper initially seeks to draw out the main themes of the debate and then place them in the context of subsequent events and consider what conclusions can be drawn both for future policy and for the conduct of future academic research related to these issues. In the next section of the article we give some background to the crisis and in the subsequent sections we review some of the different perspectives on the crisis, consider the implications for academic research and finally present conclusions.

The only possible quick way out of such an impasse was the enormous deployment of public funds that took place, mainly in the USA and a number of European countries through government loans, nationalizations and monetary policies based on quantitative easing[4]. One of the novelties of the current crisis compared to previous crises is the policy coordination efforts made by such countries, as witnessed by the setting of the agenda for the G8 2009 in L'Aquila (Italy), the G20 London summit (April 2009) and the extraordinary G20 Pittsburgh summit (September 2009), the latter called for the purpose of tackling the global credit crisis. Such massive government liquidity interventions and bail-outs were determined rather quickly, as noticed by Caprotti (2009) and directed at stabilizing and providing legitimacy to the financial industry organizations before gigantic domino effects contaminated the real economy. In a sense such interventions could be characterised as an emergency and unplanned U-turn from free market to Keynesian-type policies at least partially inspired by memories ...