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Greed-and fear A special report on the future of finance Essay Example for Free
covetousness-and misgiving A particular report card on the future of pay EssayThe report discusses the many flaws in organized fiscal grocerys but concludes that these markets should continue to operate on principles of initiative or creativity and with a reasonable amount of government enactment. While greed may be part of the cause of monetary market instability, naivety and delusion contributed as well. Innovation in computer technology coupled with the work of Black and Scholes in options pricing gave rise to the modern derivatives markets.(Greed-and dread A special report on the future of finance) Natural selection happens in financial markets where companies be constantly changing to the latest product, i. e. retail banks began to focus on investment banking, and investment banks moved into the compass of remit funds. The report calls into question the new form of financial market regulation. A major line of business of focus of the report is what factors le ad to the boom and bust market cycles that lead to financial instability.The report describes triplet concepts, globalization, liberalization, and technological innovation as triggers of market booms, busts, and financial instability. (Greed-and fear A special report on the future of finance) This paper responds to each of these ideas as set forth in the report. Globalization According to the report globalization embraced by emerging markets along with low inflation in take aimed markets made course credit grow much quickly and easily.(Greed-and fear A special report on the future of finance) However, as the markets argon today, developed countries such as the U. S. and the U. K. are in near to full blown inflationary economies. Most global markets are exposed to the U. S. subprime crisis. (Caruana) However, many emerging markets can limit their exposure to the crisis by managing their levels of greed and fear. Greed is limited when these emerging markets do not invest in the de rivative securities created by the subprime markets.Fear is managed when countries utilize resources such as the International Monetary Fund, the IMF, for modify facilities that leave behind serve to rim up a countrys credit needs and support the countys banking and financial institutions lending and business investment activities. Liberalization Liberalization in terms of relaxing or reducing banking and financial diligence regulations in countries such as Japan and the U. S. has led to property value booms and bubbles which are followed by a bust cycle and finally financial instability.(Greed-and fear A special report on the future of finance) It can be argued that greed, particularly in the U. S. , led to a relaxation of banking and financial industry regulation in order to quicken greater innovation, liquidity, and credit availability in the financial markets. hold over funds are thought to provide great efficiency, liquidity, and returns in U. S. capital markets. Industry regulation, therefore, should have served to facilitate innovation in the hedge fund industry while protecting it from a financial crisis. (Bartiromo) This, however, was not the case.Widespread fears, both speculative and proven, about decline in assets values caused the federal government to maltreat in with a new level of financial liberalization through bank ownership. Previously regulation was intended to provide a legal framework in which the financial markets could operate. The current level of fear has changed the goal of regulation and extended the methods of regulatory activity to include providing financing and operational assistance or mandate to the financial markets. Innovation New technology industries are thought to create the need for narrow down types of financing.(Greed-and fear A special report on the future of finance) This concept may work in a normally functioning economy. However, one can look at the pick energy market to see that this concept is not worki ng in the current economy. Industries like energy technology are capital intensive. Newer, more capital intensive industries generally depend on financing from private equities and hedge funds. (Alt-Energy Firms Sink With Prices, Credit New fuels) Prior to 2008 fear caused the hedge funds and private equities to invest less(prenominal) in capital intensive industries.More recently as many hedge funds disappeared due(p) to insolvency, this designer type of financing is no longer available to new technology industries. The only actual sources of financing available to energy technology, particularly in the U. S. , is government investment or financing from financial institutions in which the U. S. government has a financing or operational interest. Conclusion the results of Greed and Fear Greed and fear has led to current regulatory practices in which many governments are now owners of many financial institutions as opposed to simple regulatory agencies.The new trend in globalizati on will be that central banks in both developing and emerging market countries will manage their countries financial markets and systems in a way that will limit exposure to booms and busts in international markets. Once more governments develop controlling interests in banking and other financial institutions the original liberalization referred to in the report should return and these institutions will be able to re-create innovative financing. Governments will regulate these institutions on two fronts as shareholders and as policymakers.As owners of banks and financial institutions, governments will also become investors in new technologies such as the notice fault energy industry. Where hedge funds and private equity firms no longer exist at forward levels, new technology firms will look to government equity as a viable alternative form of financing. Works Cited Alt-Energy Firms Sink With Prices, Credit New fuels, technology less competitive now, financing more scarce. (FRON T PAGE NEWS). Investors Business Daily (Dec 2, 2008) A01. General OneFile. Gale. 19 Apr. 2009. Caruana, Jaime.Viewpoint A Significant Test Of emerging Markets Taking A Global Perspective Is Vital To Learn Lessons From Financial Market Turbulence And find The Right Approach To Move Forward In The Future, Says Jaime Caruana. (Viewpoint essay). The Banker (Nov 1, 2007) NA. General OneFile. Gale. 19 Apr. 2009. Greed-and fear A special report on the future of finance. The Economist 24 January 2009 1-15. Bartiromo, Maria. Straight Talk from the Fed New York federal Reserve President Tim Geithner on housing prices, regulation, and the post-Greenspan era. Business Week Online (May 4, 2006) NA. General OneFile. Gale. 19 Apr. 2009.