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too large to fail

 Essay about too big to fail

Short Paper: Too Big to Fail

Changyu Li

7724294

Course Zero: GMGT4210

Section: A02

Instructor: Dr . Howard Robert Harmatz

Date: March 17th, 2014

After the financial crisis in 2008, there were a large number of famous economists started their particular analysis regarding the causes of this kind of crush. Quite a few published their particular books aimed to discuss the existed challenges in the capitalism system. Following looking through these literature, I found away a book, Too Big to Fail, is definitely written by Andrew Ross Sorkin who is the main correspondent and columnist of New York Instances. This is a fascinating book which in turn also had been adapted for film by Curtis Hanson in 2011. " Mcdougal delivers the first authentic behind-the-scenes, moment-by-moment account showing how the greatest financial crisis since the Great Depression developed into a worldwide tsunami. From inside the corner workplace at Lehman Brothers to secret conferences in Southern Korea, as well as the corridors of Washington,  Too Big to Fail is the definitive account of the most strong men and women in finance and politics grappling with achievement and inability, ego and greed, and, ultimately, the fate with the world's overall economy. ” (Andrew, 2010, p. 4) Based on the point of Andrew, " Too big to fail” means several economical unions are so big that they can could have significant influence on system risk. Because the business owners combine their companies with all the whole capitalism system collectively, taxpayers should give their money to save these companies in order to avoid the collapse from the economy. (Andrew, 2010, l. 8) The book primarily focuses on discussing such situation: Because these large-size firms believe people would cover the substantial risks of massive losses off their derivatives and enormous investment, their very own companies can be willing to take such actions to make wonderful profits. Although the government allow Lehman Friends bankrupt with the initial stage of the economic crisis, finally the us government still utilize money via taxpayers invest in those large-size companies to remain the capitalism system stable. These large-size companies are also existed in China. However are some differences between the capitalism system in United States as well as the socialism system in Cina, these large-size companies, such as China Nationwide Petrolem Company (CNPC) and China Petrolem Chemical Company (CPCC) which have a monopoly over oil, also have severe influences on the whole socialism system in Chinese suppliers. (Lu Zhang and Yue Yang, 2012) If they suffer from a large loss and therefore are on the verge of bankruptcy, China government does not have any choice but to save these businesses. How to deal with this challenge? There are 3 theories go over the feasible methods to solve the " too big to fail”, particularly in the banking industry. The first one, the government should divide the large-size banks in to small ones, is recommended by the ex - U. S finance ressortchef (umgangssprachlich) George Shultz. Based on the argument of Mervyn King who is the governor of the Bank of England, presently there should not are present only 4 banks in the uk and the government need to let the public decrease the concentration of business actions of people. (David Wessel, 2009) Yet , there exists an opposite argument that the size of the company is not important, as Lehman which is a medium-size company also bankrupted throughout the financial crisis in 2008. In addition, if the government divides the large-size companies into little ones, this action would improve the system dangers. The second theory is suggested by Paul Volcker who will be the former chief of the U. S Government Reserve. He considers the us government should area mortgage and deposit activities be separated: The daily procedures of put in banks will be strict closely watched. In other words, the us government would protected their build up and restrict their orders. The government must not secure the transactions involving the large-size banks and corporations. (David Wessel, 2009) This method would have unwanted effects on the income of...

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