Frequency and Severity of Recent Essay

Download this Essay in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Essay:

Economists call this 'moral hazard,' where individuals have an incentive to behave recklessly because they know they will not be punished for their mistakes" (Interview, Der Spiegel, 2009).

The obvious response to such allegations is that the failure of Lehman Brothers which precipitated the collapse of the world's markets indicates what can transpire when something that people expected to be backed by a government is allowed to flounder. Lehman felt certain that the U.S. government would and could bail it out, just as it had similar companies in the past. Now the government is afraid NOT to extend aid to failing institutions, given what transpired post-Lehman.

So the cycle continues -- assurance of no need to suffer moral hazard results in a collapse of an industry (or government), the institution is shored up because it is too dangerous to let it fail, which results in the revivification of a dangerously reckless organization that goes back to its old ways, once regulatory constraints are removed after its financial recovery. But the IMF defends its policies "From a moral hazard perspective, it may be the right decision to allow a bank to fail. But the systemic consequences have to be taken into account and in this case they have been severe. I think most people today would say that letting Lehman go down was not a good idea," as the damage can be so catastrophic to innocent workers and citizens who had nothing to do with the machinations behind the crisis (Interview, Der Spiegel, 2009).

It is fair to say that even though its current lending program is controversial, the IMF has not only offered loans to failed governments and other institutions -- it has also been heavily critical of low capital requirements that continue in financial sector and called for them to be increased (Interview, Der Spiegel, 2009). Capital requirements act as a kind of insurance, in the wake of a sharp financial downturn. But even urge to increase foreign reserves at the bank is not a deviation in IMF policy, or a unique response to the current crisis: "Emerging market reserves rose steadily over past decade," in many cases with the specific intention of preventing a crisis (Foreign reserves, IMF Survey, 2009). Self-insurance does not seem successful: while the global economy may weathered the current crisis better than in the past, this may have more to do with increased government controls and regulation, in comparison with the 1930s. "There is no apparent relationship between the amount of reserves held before the crisis (scaled by the size of the economy) and output declines during the crisis…. [thus there is] no clear evidence that large reserves have lowered output declines" (Foreign reserves, IMF Survey, 2009). To make one point of comparison: "Brazil has much higher reserves than Mexico, even relative to the size of the economy, there has been very little difference in the performance of credit default swap spreads" (Foreign reserves, IMF Survey, 2009).

The IMF's new lending instruments and demand for nations and institutions to increase reserve accumulation thus remain questionable in their ability to forestall the possibility of such a crisis occurring again. To some extent, the IMF has a limited ability to change the regulatory policies of other nations, although it has criticized U.S. internal policy regarding the regulation of its banking sector. IMF's generosity in extending loans to struggling nations is an illustration, in theory, of the ways moral hazard can be circumvented in cases of risky speculation and deregulation. The IMF is hardly to blame for the crisis, but neither has it pursued an aggressive and innovative role in preventing such a crisis from reoccurring.

Works Cited

"Did foreign reserves help weather the crisis?" IMF Survey Online. October 9, 2009.

October 19, 2009.

"IMF Moves to Boost Resources to Combat Global Crisis." IMF Survey Online.

July 9, 2009. October 19, 2009

"Interview with IMF Head Dominique Strauss-Kahn." Der Spiegel. September 14, 2009.

October 19, 2009.,1518,648833,00.html[continue]

Cite This Essay:

"Frequency And Severity Of Recent" (2009, October 19) Retrieved October 22, 2016, from

"Frequency And Severity Of Recent" 19 October 2009. Web.22 October. 2016. <>

"Frequency And Severity Of Recent", 19 October 2009, Accessed.22 October. 2016,

Other Documents Pertaining To This Topic

  • Violence in Public Schools the Recent Violence

    Violence in Public Schools The recent violence on school grounds (including elementary, middle school and high school violence) has created a climate of fear in American public schools, and the literature presented in this review relates to that fear and to the difficulty schools face in determining what students might be capable of mass killings on campus. Television coverage of school shootings leave the impression that there is more violence on

  • Business RFID Radio Frequency

    Moreover, RFID technology has proven useful in other respects, such as ensuring the proper temperature of frozen and refrigerated goods in transit and even by facilitating the coordination of emergency supplies during disaster responses on the part of the federal government (Gordon, 2006). In fact, the ability of RFID to monitor other variables besides geographical location suggests additional valuable applications such as the incorporation into manufacturing processes. For example, (as

  • How Terrorism Affects the International Tourism Industry

    Terrorism Affects the International Tourism Industry There is an undeniable relationship between terrorism and tourism. This is because of the industry power tourist sites are attractive avenues for terrorists to cause unprecedented magnitudes of economic and social disruption. The 21st century economy is dominated by three sectors namely information technology, tourism, and telecommunications. Tourism generates ten percent of international employment with a surplus of 30% in the Caribbean region. World

  • Emergency and Disaster Management

    Emergency and Disaster Management: Hurricanes Katrina and Ike In the recent decades, the United States of America has increasingly experienced various disasters not only from natural sources but also from industry and technology. The country has even faced deliberate disasters from terrorist sources. Unfortunately, there is no attenuation or lessening that is in sight at the moment. The predictions regarding the weather disturbances are increasing. There has been a continuation in

  • Addiction Requiem for a Dream

    Even though Aronofsky speaks of art and artists relatively more often, I would say, than other young directors, there is a strong idea that nature still grounds art, in contrast to the illusions and hallucinations of artifice. In Selby's novel, Marion is a painter, and her dream is to open a store that sells clothing based on her sketches. Marion is terrifically cultured, and her mind is filled with

  • Improving the Health Outcomes of Children With Asthma

    Improving Health for Children With Asthma Childhood Asthma Improving Health Outcomes for Inner-City Children with Asthma Improving Health Outcomes for Inner-City Children with Asthma Centers for Disease Control and Prevention (CDC) engages in active surveillance of childhood asthma because it is prevalent, contributes significantly to childhood morbidity, and imposes an economic burden on families (CDC, 2012). The main recommendations for diagnosing and managing asthma by the National Heart, Lung, and Blood Institute (NHLBI) and

  • Herpes An Insidious Disease of Modern Times

    Herpes: An Insidious Disease of Modern Times Herpes is considered one of the most insidious and pervasive viral diseases to affect the world population today. Conservative studies suggest that as many as 39% of men and nearly 1/2 of all women are expected to contract herpes in the U.S. alone by the year 2025 (Wetstein, 2002). Already nearly 1 in 5 people will have some form of herpes by the time

Read Full Essay
Copyright 2016 . All Rights Reserved