Essay Example on Is a financial crisis inevitable








Is a financial crisis inevitable An economic recession can be said to be a negative GDP growth experienced in two consecutive quarters characterized by growing unemployment reduced profits and investment declining demand for goods and services Since the time immemorial loss making is not a new phenomenon to firms but in large scale government borrowing and price discounting lead to the collapsing of financial institutions According to Foster Magdoff 2009 there have been frequent economic crises in UK and USA and from an economic perspective the financial crisis is inevitable The banks are becoming enormous gigantic complicated with the borrower creditors and counter agents on the rise With derivatives and securities under regulated and outgunning the government regulators I think that occurring of financial recession is unavoidable However the strict regulations on the activities that are taking place in most of the financial institutions can save the world economy from sabotages Wolf 2014 There are no similarities with the financial instruments that have caused economic recessions and without repetition of the causes it is becoming inescapable We are humans possessing cognitive inabilities to grasp complexities that come with the commercial systems and with banks growing in their intricacy size and activities with interconnections between lenders borrowers and counter agents managing affairs is not a walk in the park Wolf 2014

The innovation and technology with modern systems in the banking sector bring a sense of overoptimism where managers and CEOs make unethical investment decisions It is with the lightly directive of the financial entities that intricate and colossal balance sheets lead to risky debts and assets Foster Magdoff 2009 The sheer sizes dangerous leverage as well as attention on the financial services led to substantial non performing loans that endanger the lifeline of the lender Financial crises are challenging to predict and with the global economy under different managers the inevitability is real It is worth noting that people tend to embrace a sense of security when the business is doing well that is a previous mistake of leaders that fail to deliver The recklessness with banks has cost companies billions of dollars Taylor 2009 For instance JP Morgan lost billions of dollars in the search for big profits The excess risk taking with weakening safeguards is resulting in crises and volatility in the money market

The complacent in the end goes to the investors bankers regulators and policymakers Since regulation is the only thing to the world financial volatility regulating the most influential and flushest global bodies is not an easy thing The resources that most of the government requires monitoring the activities of these groups are lacking letting the world economy at the hands of few individuals who control it The powers of Securities and Exchange Commission as well as those of Commodities Futures Trading Commission have been hampered by the un implemented rules and regulations therefore financial reforms at stake The bubble forming with people following the footsteps of other makes it hard to make independent decisions CEOs and managers are risks averse and fearful when uncertainty sways in their presence The actions increase the teeming of the bubble that eventually leads to the collapse of the economy Since there are no charges and counts that have ever been levered on executive and persons caught at the center of lost wealth and financial abuses the accountability would remain below par for decades which is a cause of failure Foster Magdoff 2009 

The under regulation and tendencies of avoiding the legal charges lead us to the financial weapons of mass destruction as underlined by the world rich personality Warren Buffett The ambiguities with transparent rules and weakens the market and spinoffs and securities regulation is unclear and inconsistent Taylor 2009 I agree that with such weaknesses there is no way that world economy can withstand human errors and interference Though there are indications that financial crises are unavoidable with strict regulations of loans and derivatives the economy can withstand any external and internal pressures Despite inflation high rates of unemployment and domestic borrowing many countries have stabilized their economies Borio 2014 Sealing the loopholes with transparent trading rules is necessary that would be followed by the implementation of the Dodd Frank regulations to monitor and regulates the most powerful entities Empowering agencies like Securities and Exchange Commission as well as Commodities Futures Trading Commission would serve the purpose of monitoring business activities that are sensitive to the global economy The jailing of the high level executives involved in an assortment of wealth lost and financial abuses reduce the cases of future misconduct

 For example in the meltdown of WorldCom and Enron those responsible faced criminal charges The banks and investment financiers should reduce their risky loan and dealings thereby keeping enough capital reserve and reducing situations of over leveraged according to the Volcker Rule Borio 2014 The breaking up of large financial groups and re institution into small entities was a suggestion in the past that worked for Citigroup and can be tried in other banks So peripheral vigilance is the only way to maintaining the price stability In summary the power of external conditions the unpredictability of the financial instrument cause conflicting economic theories makes economic recession inexorable Weak fiscal rules and regulators make the richest and most potent organizations run the world economy that poses a threat to future of trading Nevertheless restriction with loaning risky investments implementation of transparent trading rules and persecuting those responsible for the collapse solve the problem Prevention rests on external vigilance and stabilizing prices

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