After the financial crisis in 2008, there were various famous economists started their particular analysis about the causes of this kind of crush. Some of them published their particular books aimed to discuss the existed complications in the capitalism system. Following looking through these catalogs, I found away a book, Too large to Fail, is usually written by Claire Ross Sorkin who is the chief correspondent and columnist of recent York Occasions. This is a unique book which will also had been adapted to get film simply by Curtis Hanson in 2011.
“The author provides the initial true behind-the-scenes, moment-by-moment account of how the very best financial crisis considering that the Great Depression progressed into a global tsunami. From inside the part office in Lehman Brothers to top secret meetings in South Korea, and the détroit of Buenos aires, Too Big to get corrupted is the definitive story of the very powerful males and females in financial and politics grappling with success and failure, ego and greed, and, finally, the fortune of the world’s economy.
(Andrew, 2010, p. 4) Based on the purpose of Toby, “Too big to fail means several financial assemblage are so big that they could have serious affect on program risk.
Since the executives incorporate their businesses with the complete capitalism program together, people needs to give their money in order to save these companies to be able to prevent the failure of the economic climate. (Andrew, 2010, p. 8) The book mainly focuses on discussing this sort of dilemma: Because these large-size companies believe taxpayers might cover the high risks of big loss from their derivatives and large expenditure, their corporations would be happy to take these kinds of actions to make great income. Although the government let Lehman Brothers broke at the initial stage with the financial crisis, finally the government even now use the money from taxpayers invest in all those large-size corporations in order to keep thecapitalism system stable. These large-size companies are as well existed in China. However are some variations between the capitalism system in United States as well as the socialism program in China and tiawan, these large-size companies, including China Nationwide Petrolem Organization (CNPC) and China Petrolem Chemical Corporation (CPCC) that have a monopoly over oil, also have severe influences generally socialism program in Chinese suppliers. (Lu Zhang and Yue Yang, 2012)
If they suffer from a large loss and are also on the brink of personal bankruptcy, Chinese govt has no decision but to conserve these companies. How to approach this problem? You will find three hypotheses discuss the possible ways to solve the “too big to fail, especially in the bank industry. The first one, the government will need to divide the large-size banks into tiny ones, can be proposed by the former U. S financial minister George Shultz. Based on the debate of Mervyn King who is the chief excutive of the Bank of Great britain, there must not exist only four banks in England as well as the government ought to let the general public reduce the concentration of business activities of citizens. (David Wessel, 2009) However , there is an opposing argument the size of the corporation does not matter, while Lehman a medium-size company also bankrupted during the economic crisis in 08. Moreover, if the government splits the large-size companies in small types, this action might increase the system risks. The other theory is definitely proposed by simply Paul Volcker who is the former chairman from the U. T Federal Hold.
He thinks the government will need to let the mortgage and put in activities always be separated: The daily businesses of first deposit banks will be strict closely watched. In other words, the government would secure their deposit and restrict their orders. The government probably should not secure the transactions involving the large-size banking companies and businesses. (David Wessel, 2009) This method would have unwanted side effects on the profits of large-size banks and a difficult to distinguish different kinds of deals. Because of this, it could be hard to implement. Another one is suggested by Bill Bernanke, Timothy Geithner and Bayney Honest who are the temporary chief of the U. S Federal government Reserve, Finance minister plus the former leader of the House Financial Services Committee. They considers the large-size banks should be needed more capital funds than before, and they need to hold a better percentage of capital cash than those small or medium-size banks. (David Wessel, 2009) Based on this theory, thesecompanies could have enough money to safeguard the whole capitalism system when on the edge of personal bankruptcy. If subsequent financial crisis happens in the future, the federal government could decline the economic aids to these banks and collect taxes from their subsequent losses.
This theory would be fit intended for current circumstance and solve the “too big to fail a few level. Apart from these 3 concepts, there exists another option to resolve this problem. China government attempts to let these businesses be privatized so that they could join in your competitors. When these firms have tournaments with other businesses, they would become efficient preventing some high risky projects. (Xianfeng Yu, 2007) However , because these businesses are in resource and banking sector, these large-size companies could hardly compete with other companies like additional industries, including the food sector. The government needs to have a rigid control of these areas to be able to ensure the safety of resources and economic climate. This is a significant factor triggers the “too big to fail. In the traditional capitalism system, the federal government should allow the market operate the whole capitalism system. Nevertheless , during the financial meltdown in 08, the government pressured large-size companies which are even now competitive to merge to companies that happen to be on the brink of personal bankruptcy. (Andrew, 2010, p. 44) Based on the argument by Andrew, this kind of phenomenon presents that governmental policies and economy combine with each other in the capitalism system. (Andrew, 2010, g. 67)
The high level professionals from the govt directly affect the decisions of large-size corporations, because they should be responsible for the key benefits of taxpayers as well as the future of economic system. The deficit of the capitalism system could be solved by simply politic concours. However , the capitalism program would become similar to socialism system. There is no doubt that the period let the industry control every thing has gone. Depending on the idea of Blue jean Tirole, who will be the champion of the 2014 Nobel Reward in economics, we should create strict guidance laws and regulations to prevent banks from using money from taxpayers to learn gambling. “If they want to always be saved, they need to be monitored strictly. (Xue Jiao, 2014) He holds the concept of that government should take rigid supervisions of large banking institutions, and these banks ought to be treated little banks that do not effectively have liberties of “too big to fail. Nevertheless , the guidance does not aim at take the features of large-size companies and banks like socialism. In opposite, the supervisions from thegovernment is usually to build up the game roles.
Subsequent these functions, the companies could prevent their particular error actions and let the whole capitalism marketplace have a health development. Except talking about the “too big to fail trouble, Andrew as well discuss what type of factors might have influences on the market condition. Initially, he considers that the confidence of the investment banks on Stock market is an important element which affect the market condition. (Andrew, 2010, p. 56) Because the monetary enterprises would not like manufacturing companies which develop physical items, their organization patterns are mostly based on the predictions. Due to this reason, in case the expectations regarding the future marketplace conditions from your financial companies on Stock market are depressed, the market would be just fall apart to dust particles. On the other hand, info also would be an important factor that has a big influence on the market condition. In the economic market, right now there always are present rumors which usually affect the decisions of shareholders. Because it is really hard for investors to tell perhaps the information holds true or certainly not, many speculators use this to make money. For instance , there been around a media for the former general supervisor assistant of Yili Dairy used insider information to create money by speculating stocks and shares of the firm in 2011.
Although the authenticity of the new has not been identified, Yili Milk stock had been dropping in lock step. (Zhikui Ou, 2011)This case represents how chisme destroy the stock market. Another example is usually Muddy Oceans which is a exploration and hedge fund company. This company is famous of the research statement about list companies in U. S i9000. capitalism market. Before the business discloses the legal behaviors from these listed firms, Muddy Marine environments shorts stocks and shares from these firms in order to gain huge income. (Junheng Li, 2012) The function of stock market is always to help these companies which have good project but don’t have enough cash, not to allow speculators make money by arbitrage or other choices. If there exists the company produce revenues via buzzing gossip and shorting stocks, the whole capitalism program would be destroyed in a short time. In order to prevent the fall of the capitalism system, the us government should eliminate the legal behaviors of shown companies, standardize stock market information regulations, give serious punishments to those make money using buzzing gossip and try their best to decrease arbitrages.
Besides the supervision from government agencies, investors also should find out theuseful information and try to dig out the truth from them. Andrew has described a example in his book: When Lehman announced the excellent performance report and recover plan, Michael Mayonaise who is the famous analyst in Germany can find out that Lehman is actually optimistic to evaluate its own resources. Its overall performance report and recover strategy simply will not hold water from actuality. (Andrew, 2010, p. 99) However , this needs professional knowledge of financial and accounting. Most of typical investors might not have such understanding to filtering information and dig out the fact. In China and tiawan, almost all of my personal close friends who join in stock exchange do not have enough knowledge of financing and accounting, they simply listen to the advises of economic analysts in financial programs and follow the “hot issues to hype. That they consider hyping stocks is actually a way to make money in a brief term because gambling, quite a bit less the long term purchase. In a way, the greed from those people cause bubbles been with us in the currency markets and huge failures in the end. (Andrew, 2010, s. 170)
There are numerous interesting things mentioned through this book. First of all, under the critical situation due to the financial crisis, these big men likewise used classic methods to solve problems, including the example New york city Federal compelled the biggest seven banks in order to save the Richmond Federal. The executives of nine banking companies were divided into three groups to target at one concern to solve and reported the end result a few hours afterwards. This presents the methods we all used to resolve the common problems which give to us good weapons to deal with severe problems beneath the high pressure scenarios. Secondly, the writer delicately explained a person in his publication. For example , Toby described the CEO of Lehman, Richard S. Fuld, in detail. (Andrew, 2010) Through the description of Richard available, we could find out that his experience of saving the company in many serious situations led to his swagger, and lastly caused the bankruptcy of Lehman. Yet , different from other folks just consider their own pursuits, the behaviors of Rich was not just driven by greed, although also the love for his company, Lehman. Another model is the past U. S i9000 Finance Minister, Henry Paulson.
Although this individual did a lot and avoided the outcome become more serious than expectation, this individual still be blamed because the public considered this individual should take the responsibility of the going on of the financial meltdown in 2008. In this book, Paulson was just a typical people who resided with his partner in a small apartment. He would end up being driven to be mad by the toughsituations and tired of coping with difficult complications in a short time. (Andrew, 2010) Although Too Big to get corrupted is included in the department of Economic Circumstances or banking from publication dealers, this book is more like a fiction. Various activities and people mentioned in this book happen to be rhetorical, for example , the former president of United states of america, George Master Bush, though Paulson tried his far better to explain the terms we used in Stock market, Bush would not understand at all. (Andrew, 2010, p. 133) Bush was like a ridiculous politician who had been completely unaware about simple knowledge of financial, which is incredible.
Warren Edward Buffett, who was the most famous investor in the world, supported his grand son to the delicacy shop following hanging up the call by Goldman Sachs in a hurry. (Andrew, 2010, g. 140) Undoubtedly that these reports increase the entertaining of examining, but the genuineness of these reports is lowered in the meantime. To summarize, although the government and the public continue to work hard for correcting the problems appears in the financial crisis in 2008, there are still a lot of inherent challenges existed inside the capitalism program, such as the “Too big to fail and the greed of men and women which cause the bubbles are present in the wall street game. Under the existing economic and social expansion situation, we need to accept these phenomena and possess a continuous progress the capitalism system later on.
Reference:
Andrew Ross Sorkin (2010). Too Big to get corrupted. Penguin Ebooks.
Lu Zhang and Yue Yang (2012, Dec 17). The monopoly of China Nationwide Petrolem Firm and China and tiawan Petrolem Chemical Corporation. Finance Magazine. Gathered from http://business.sohu.com/20121217/n360638179.shtml David Wessel (2009, March 28). Three Theories upon Solving the ‘Too Big to Fail’ Problem. The Wall Street Journal. Gathered from http://online.wsj.com/articles/SB125668497563411667 Xianfeng Yu (2007, Augest 27). The privatization of China National Petrolem Organization and Cina Petrolem Substance Corporation. Shanghai in china Stock Magazine. Retrieved coming from http://www.cnstock.com/newcjzh/06cjdt/2007-08/27/content_2477411.htm Xue Jiao (2014, October 15). Jean Tirole: The Financial institutions should not Too Big to Fail. 1st Financial Daily. Retrieved via http://stock.sohu.com/20141015/n405120867.shtml Zhikui Ou (2011, June 14).
The Yili Milk stock had been falling in lock step. Nanfang Daily. Retrieved via http://epaper.southcn.com/nfdaily/html/2011-06/14/content_6973033.htm Junheng Li (2012, August 17). Is Dull Waters Taking advantage of Research Or perhaps Rumor-Mongering? Forbes. Retrieved via http://www.forbes.com/sites/china/2012/08/17/is-muddy-waters-profiting-from-research-or-rumor-mongering/
1
