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In addition, these large financial firms control the backbone of the economy. Their failure would lead to a financial crisis that would affect members of the American society (Hughes and Mester 12).
The concept of “Too Big to Fail” has two phases. The first phase is the positive effect that these large firms have on the economy. A large firm is very complex and organized, and as such, provides numerous economic opportunities to both the country and its citizens, such as employment, economies of scale, and better service delivery. On the other hand, it has a negative phase whereby their failure would bring down the economy to a standstill. For instance, all the small firms that depend on these big firms will also collapse, and their employees will be jobless. There would be no money flowing through the economy considering the economic crisis caused by the failure of these big firms. As such, the government takes necessary steps to eradicate these risks by supporting these big firms with a bailout whenever they are in crisis. However, they use taxpayers’ money, which is another burden to the country (Feldman and Stern 13).
The Freeman newspaper article discussed the concept at one point in time whereby analysts argued over the inclusion of the concept in the banking sector. The introduction of the concept in 1984 to the economy of the United States and especially to the banking sector in the country emerged after the failure of the Continental Illinois. This failure led to a massive economic crunch in the country, and as such, the government took proactive steps to bail out the bank. By introducing the concept, the US government overlooked the reasons why the bank failed in the first place. As such, the concept only worsened the banking condition in the country, instead of the remedy it was to provide, as practitioners in the banking
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An analysis of the crisis faced by Greece, Ireland and Portugal would have helped in explaining the similar situation that Italy currently faces. A closed scrutiny and vigilance in the fiscal analysis of budgeting would have helped countries such as Greece, Ireland and Portugal from facing such severe economic threats.
Apart from that, the investment banks that took the initial mortgage backed securities ended up creating highly collateralized debt obligations and generated huge profits from fees (Morgan). The second major driving force behind the crisis was the US interest rate policy, which kept interest rates very low for a very long period (Evans 15); the sudden forceful growth of mortgage lending can be attributed to the low interest rates.
The view of competition fragility makes the argument on a negative relationship between financial stability and bank competition while the view of competition stability makes a positive relationship argument (Boyd et al., 2009: 4). Many studies have tested the relationship in different regions and nations and have come up with contrasting results.
This paper demonstrates the result of deregulatory measures initiated by the authorities of the United States. The supporters of the deregulations believed that modern day clients preferred to do all of their business ranging from life insurance to commercial lending under one roof. And only a deregulated market could allow this to happen.
As far as the savings of people are concerned, they play an important part in the economic growth of any country. The financial institutions should design and come up with policies that encourage the depositors to deposit their savings, so that more money is available with the financial institutions to lend for to businesses and people for investment purposes.
Many powerful people in the America take advantage of the poor in various ways in order to benefit themselves. The powerful Americans overwork the poor and give them peanuts as salary. The hard work of the poor is offered little guarantee of
Though most of the common people impacted by this meltdown do carry an outside view of the economic dynamics that caused it, the film Too Big to Fail does provide a firsthand insight into the human dynamics