Financial Crisis Essay

6764 Words Feb 21st, 2012 28 Pages
Introduction
“We are having the single worst recovery the U.S. has had since the Great Depression. I don't care how you measure it. The East Coast knows it. The West Coast knows it. North, South, old, young, everyone knows it's the worst recovery since the Great Depression” (Arthur Laffer)
I felt this was an apt way to begin my report and analysis on the credit crisis and aspects which can help the world to recover. Although the quote discusses the US I feel this can be applied worldwide. I will discuss in detail what I feel should be implemented to fight the extent and period of recession and austerity which we are operating in. The areas which I will focus on for this analysis will be on the regulation of the financial markets and how
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However the securities these companies deal with should be made transparent. I feel the volume they trade in is ok as long as the shareholders money is being invested wisely, that is the part of regulation I feel should be implemented, as regulation may cause harm unless it is in the best interests of the economy in the long term and not just seen as a short term economic policy. Although the naked CDS market accounts for over 80% of the CDS market I feel that hedge funds and money managers may be allowed to invest. If the regulator bodies were merged with bank and government I feel that would allow banks to invest in these securities if the firm were to report to a body on a regular basis. I believe we will also have to look out for the BRIC economies in this market as it is estimated for 2012 they will be importing more than rich countries in 2012.

I feel personally that the market should be downsized to maybe 70-80% of the size that it currently is. The CDS market size $32.4 trillion as of June 2011 of a $707.57 trillion OTC derivatives market. I feel that this protection is needed for certain products as the risk of default on some items doesn’t match the yield which is offered by the relevant authority. I feel that certain CDS markets should not be in operation though. A prime example is the credit default market which was active during the downgrade of the United States in August 2011. The CDS

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