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Financial Crisis: Monetary Institutions and Entities Assets Decline in Value - Essay Example

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Financial Crisis: Monetary Institutions and Entities Assets Decline in Value

Critics and exponents of the laissez-faire have castigated the efforts of the authorities as being counterproductive and detrimental to capitalist ideals. Proponents’ have however argued that without government intervention, the consequences will be far much catastrophic to the economic system being protected. According to Keen (2009), the scale of the current financial crisis is deeper due to the latent exposure to all sectors of the economy, unlike previous financial crisis that mostly affected banks and their borrowers as in the great depression 1930s. A financial crisis occurs when monetary institutions and other entities assets decline in value. These include banking crisis, foreign exchange crisis, sovereign debt non-payments and the bursting of other monetary bubbles. The banking crisis is often typified by ‘bank run’ whereby depositors all at once rush to retrieve their savings. Brunnermeir (2008) has described a bubble as the situation whereby the cost of an item surpasses the current worth of the potential earnings receivable on maturity as exemplified in the dot-com burst in 2000-2001. Currency crisis, however, occurs when nations are forced to devalue their fixed exchange rates due to speculative attacks resultant in a balance of payment crisis. Laeven and Valencia (2008, pg.6 describe a ‘currency crisis’ as an ostensible decrease of the currency by a minimum of 30 percent with additional appreciation by ten percent rate in depreciation. Sovereign debt crisis occurs when nations default in the payment of their debts. In Russia, the devaluation of the ruble and government default on bond payments resulted in an exchange crisis whereas similar scenarios were enacted in Asia in 1997-98 financial crises. ...Show more

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An essay "Financial Crisis: Monetary Institutions and Entities Assets Decline in Value" claims that governments have across the world being forced to enact new regulations, bail out the large organizations often regarded as ‘too big to fail’ due to the repercussions on other sectors…
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