Macroeconomics. US markets - Essay Example

Given all of these statistics and the facts that the USA is the land of opportunity, how is it possible to witness in our lifetime, an economic period rarely ever seen before, both in the US and the world All of this has led the big companies of America and of around the world to counter these crises by increasing the shareholder's value and increasing the investor's drive. This will enable these companies to stop the spiral where no investment and severity of the crises are going to lead the world to bigger problems.

By providing incentives to shareholders in terms of shareholder's value and increasing the investor's drive, some money is going to be pumped into the economy that will have the convalescing effect on the injured economy of the world. (Allbusiness, 2010). Shareholder's value is a broad term depicting more than what is being shown in the financial statements of a business. In the earlier years, many people used financial results of a company as a measure of Shareholder's value. However, this approach had plenty of loopholes and due the fact that there was no widely acknowledged definition of shareholder's value.

Many people changed the way they used to measure the shareholder's value. . This crisis continued till 2008, matured and gnawed the world economy. Many arguments were given about how this financial crunch started. Many people argued that it was started by the booming oil prices, whereas other people stated that this crisis is a result of poor economic policies of IMF and World Bank which overheated the global economy and resulted in the financial crunch. Whatever the reason of this crisis, one can almost be sure that this crisis has affected subprime mortgages, declining house prices and caused investor bankruptcy.

Although global financial crisis result in more problem than those stated above. How is this related to shareholder's value and investor's drive First of all investors usually invest in a company where they see they can earn reasonable return on their investments. However, due to reckless lending by banks and other financial institutions (DFIs), many potential investors in the banking sector became worried about their returns. They predicted that these lending by the banks are risky and hence they could lose a big deal of money if they invest in the banking sector.

Hence, they decided not to invest in this sector. Many organizational psychologists predicted that this is a result of value delivery system which was very low in the banking system at that time. In other words, potentials investors could see more harm if they invest than if they do not. The reasons behind this behavior of the investor's were that they see little or no drive to invest. As a result, there was a shortage of investments in the banking sectors. The banking firms who had lent the money found themselves in the liquidity crises and many of these institutions filed bankruptcy.