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Home » Uncategorized » ARE SLUMPS HISTORICAL FACTS, POLICY MISTAKES OR SELF-FULFILLING PROFECIES?

ARE SLUMPS HISTORICAL FACTS, POLICY MISTAKES OR SELF-FULFILLING PROFECIES?

Economic Theory 1

Finance is definitely the subject in Economics that creates more mixed feelings on common people. If we ought to ask what is mankind´s greatest invention surely the financial contract would not be the first in line, but albeit widely disliked it has been indispensable in human development for at least 500 years. Although not outspokenly loved truth is that when the economy blows warm and tender winds a well-tuned financial system is what smooth’s away life’s up and downs providing borrowers credit, acting as a safety net by insuring against floods/fires or transporting through time savings to be consumed when more suitable, making an uncertain world more predictable. But if finance may be a magic balloon that makes fulfill all our material dreams and cope with all our fears, the problem is when the balloon becomes a bubble and explodes BANG! In 2008 the bubble burst again, markets crashed and plans into the future got destroyed. While we suffer the pain of large financial crisis it is easy to forget that this is usually the most efficient if not divine way to change status quo. When all are winning it is simply bad timing to ask for example Goldman Sacks how come they are winning 53 million USD on bonus commissioned on exotic funds. But when we have a crash it is automatically gathered an anonymous crowd willing to understand what went wrong and what was the poison that contaminated all the system? In slumps blame is usually the best pain coping device so the first response is always to identify the villains. Obsessed by the guilty agent critics normally rush in identifying the type of bank, of investor or asset that caused the horror to ban or regulate. But the answer may well be in the foundations of modern financing itself.

Please see the rest of this article on the Research Essays page.

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