ECONOMICS

Economics



Economics

In the light, of the current global economic turmoil broad perspectives are required in order to enable a comprehension of the present and past events, whilst also providing possibilities to anticipate and hopefully prevent the formation of new vulnerabilities. The following paper deals with the role of multiple economic initiatives in the emergence and the presence of economic crises. Unfortunately, the importance of this macroeconomic variable has long been neglected. In order to emphasize the significance of current account mismatches, this work mainly treats imbalances on a global stage.

The United States are confronted with the aftershocks of the banking crisis, and Monetary Union struggles with main problems among several member states. Hoarding of international reserves reflects the experiences of the economy made during the economic crisis enable to keep external exchange rates undervalued. Confronted with the terrible consequences of the Great Depression in the 1930's it was clear to U.S. government to enact extensive reformations, above all to the banking sector (Feenstra & Taylor, 2008). Another economic crisis with such far reaching suffering at the expense of the dissolute behavior of the financial sector should never happen again. At that time, speculation on continuing rising stock prices led to a massive credit bubble. On the Black Thursday of 1929 the bubble burst, leading to panic selling and margin calls. As the stock market collapsed, assets lost value; therefore, investors lost their capital employed (Darcy, 2009). Until the beginning, of the 1980's, the financial industry was a humdrum and manageable field of work. That valuation changed dramatically after Wall Street banks gained power by entering several important positions in the U.S. government. Deregulation of the financial service industry was the height of fashion, as economists believed in the functioning of absolute markets were everything had its suitable and reasonable price. The U.S. financial sector inevitably experienced a tremendous boom that resulted among other things on the development of new financial products that paid throughout larger profits (Roubini & Mihm, 2010).

As part of the financial crisis, billions of Dollars were wiped out; countless banks and investors were plunged into ruin. Its largest and most leading banks were highly affected as they speculated, invested, and juggled with extremely dangerous and unsafe derivatives and similar products. Securitization is only an extension of this principle, whereby contractual debt is seen as an asset; therefore, pooled together. These assets could be in the form of mortgages, auto loans, or credit card debt, all of them bearing principal and interest payments (Roubini & Mihm, 2010). One might ask why this seemingly complex machine of asset-backed securities might be beneficial and profitable, not only to investors, but also to financial intermediaries and mortgagors. However, along with very attractive yields for investors, security assets offer the availability of flexibility because various payment streams can be structured to meet the investors' unique requirements.

This effectively means that structured finance products are rated and thus categorized. Borrowers undoubtedly benefit from an increasing supply of credit, which originators probably could not have ...