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Financial crisis Events Causes Government actions Future
Why the home prices collapsed so much? Source: Robert Schiller
Financial assets have grown sharply which boosted high levels of borrowing.
The money comes from less regulated markets, riskier equity funds, and swaps.
The ethical considerations • The financial assets have grown way above the real economy, has become more speculative and risk taker • Can the economic and financial systems succeed or survive without values? • What is the best way to enact our values?
Enacting values. Drug trafficking supply. Price of drugs sold 1. Supply falls as some drug cartels disappear Supply of drugs 2. Price increases as a result of lower supply Demand for drugs Volume of drugs sold Source: Gregory Mankiw, Harvard University. Economics.
Enacting values. Drug traficking’s demand Price of drugs sold 1. Demand falls as people consume less drugs Supply of drugs 2. Price decreases as a result of lower demand Demand for drugs Volume of drugs sold Source: Gregory Mankiw, Harvard University. Economics.
Financial crisis. Acting on the supply side. Deregulation The Glass-Steagall Act (1933), the Banking Act of 1933, introduced the separation of bank types according to their business. It was repealed by: the Depository Institutions Deregulation and Monetary Control Act of 1980, the Garn-St. Germain Depository Institutions Act of 1982, and the Gramm-Leach-Bliley Act of 1999: investment and corporate banks are not separated anymore Ideology: naïve view about self regulation of the markets Financial institutions did not manage risks: mathematical models (when to “sell”, it does not work if all do it at the same time) Need to create stock value Culture valuing speculative mentality over production Lack of personal integrity: they knew what they were doing Source: Financial Times (UK). Stiglitz, Fink, Phelps, Wolf