FINANCIAL CRISES

Financial Crises

Table of Contents

Answer 1a3

1a.1 Introduction3

1a.2 Discussion3

1a.3 Conclusion5

Answer # 1 b6

1b.1 Introduction6

1b.2 Discussion6

1b.3 Conclusion9

Answer # 2 a9

2a.1 Introduction9

2a.2 Discussion10

2a.3 Conclusion12

Answer # 2 b13

2b.1 Introduction13

2b.2 Discussion13

2b.2.1 Factors Affecting Borrowing14

2b.3 Conclusion16

References17

Financial Crises

Answer 1a

1a.1 Introduction

This assessment will exam the market failure aspects in UK business environment. The conventional wisdom is that the current financial crisis marks the failure of markets, possibly the end of capitalism. It would be interesting to know if our fresh and dewy-eyed Labour government in the UK, casting admiring glances at the Clinton phenomenon, made any similar moves at that time. The Bank of England was uncertain how EU rules, on transparency and state aid, applied.

1a.2 Discussion

Free market thinking has not had a good crisis. Profit seems once again to be a dirty word, while many have come to believe the turmoil of the past five years is a direct consequence of decades-long Reaganomics and Thatcherite liberalisation. A violent backlash is in progress which goes way beyond the search for culprits and explanations (Obasi, 2009, pp. 29). Does this 21st-century crisis of capitalism presage a return to the stagnation economics, big government and state interventionism of the past? Or, with ambitious developing nations breathing down our necks, is it the wake-up call needed for an economy grown lazy on high-on-the-hog living and an all-pervasive sense of entitlement?

For Britain and many other Western economies, it could still go either way. The election of a socialist president in France demonstrates that there is still plenty of appetite for the failed solutions of the past, however unaffordable and delusional.

To see how the British economy might be fixed, it is necessary to explore the underlying causes of the present mess. Contrary to the prevailing narrative, the credit crunch was not the result of market failure, but a confluence of extraordinary events whose root causes lie in ruinous public policy, inadequate supervision and absent political leadership (Philip, 2007, pp. 31).

To believe that finance operates best when it is unsupervised is seriously to misunderstand the nature of free market economics, as daft as thinking you can have law and order without police. Virtually all of capitalism's major calamities down the centuries have been caused by unchecked excess in banking. As the good times roll, finance progressively loses its aversion to risk, and in a process Wall Street veterans sometimes refer to as “reaching for yield”, eventually throws caution to the wind and goes for broke. In behaving in this reckless manner, banking was greatly comforted by the assumption correct, as it turned out that if things went wrong, the state could be relied on to pick up the tab. New schools of pseudo “free market” thinking were invented to justify the march of finance and convince the world it was safe (Obasi, 2009, pp. 70).

But it wasn't for lack of regulation that banking came apart. Quite the reverse. Under Gordon Brown, a veritable army of box-ticking, officious regulators was created, ineffectually looking in the wrong direction while the peril grew, unobserved, beneath their ...