Causes and Consequences of the Global Credit Crisis Chapter 4 Case

1. Which scenario do you think best explains the global financial crisis? Why? The scenario that best explains the global financial crisis is scenario one: Leaky pipes, because it's where it began. Leaky pipes are not a big deal if fixed. But, if neglected, they will collapse the house. In 2008 as the expanding liquidity freeze owning to rising dread and mistrust, increasingly stopped money moving from institution to institution and from country to country.

2. How does each scenario influence the policies that governments adopt, the strategies that companies pursue, and the choices that consumers make? After the leaky pipes begun the global financial crisis agencies quickly turned to fixing the financial pipes, resetting regulatory standards, applying technical solutions, reevaluating the linkages among economies and capital markets, and patching holes. Then restoring economic vitality and getting countries moving again required refilling the money pipes with, in the words U.S Treasury Secretary Geithner, "capital,capital,capital" summer Of 2011 saw both gloomy and optimistic views. Regarding the gloomy take, looming risks are glaring and global. In the US slowing growth, a fragile recovery, diminishing dollar, waning consumer confidence, rising inflation, successive rounds of quantitive easing, persistent unemployment and escalating government debt suggested tough times ahead.

3. How might various scenarios influence economic freedom? Economic freedom measures the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty. Capitalism, allowed to run free, promotes the psychology that greed is good. Running too free, the global financial crisis suggested has amplified it into destructive psychosis that intensified distortions.

4. The case points out the crises produce winners or losers. Who are the winners and losers for Scenario 1? Scenario 2? Scenario 3? The winners of the first scenario are the middle men between the lenders and debtors and also the investors that sold their bad loans. The losers include everyone from the lenders and debtors to the tax payers and government officials who were responsible for these oversights. The winners of the second scenario are the executives that run the businesses that were too big to fail and also the people that sold their bad loans. The losers would include the employees who are not executives, the employees who have retirement plans, the SEC, and the government officials that were responsible for these oversights. The winners in the third scenario would include all of the banks, creditors, and lenders that are able to lend money to countries in the financial crisis and people who will make money from the crisis whether it is legal or illegal. The losers in this situation are the governments that are involved, the companies who produce things and the consumers that continue to spend money5. Say you were asked which economic indicator would conrm the end of the crisis. Which would you nominate? The only indicator that would mark an end to the crisis would be a large decrease in unemployment; consumers spending is again stimulated, and a much lower debt for the government.6. Interpreting economic environments, estimating scenarios, and positioning the rm to prosper are the jobs of managers worldwide. How would you advise one to do so with respect to the global nancial crisis? A manager would have to be patient and flexible with the route he takes his company with the plethora of policy changes and the way that the manager will use the capitol of the company. A huge factor that the manager must decide is the cause and effects of the way the company handles the policy changes and the scenarios that have happened in the past and how managers handled those situations. The most important factor is the way their company or other companies handled any crisis in the past and all current options a manager has for the current crisis. The manager has to make a decision on where to take the company and find new opportunities to attract investors that show the credibility and growth of the company.