Frequency And Severity Of Recent Essay

Length: 4 pages Sources: 3 Subject: Economics Type: Essay Paper: #75866461 Related Topics: Deregulation, Economic Stimulus Act, International Monetary Fund, Financial Crisis
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


"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

Sources Used in Documents:

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.
October 19, 2009.,1518,648833,00.html

Cite this Document:

"Frequency And Severity Of Recent" (2009, October 19) Retrieved December 9, 2021, from

"Frequency And Severity Of Recent" 19 October 2009. Web.9 December. 2021. <>

"Frequency And Severity Of Recent", 19 October 2009, Accessed.9 December. 2021,

Related Documents
Violence in Public Schools the Recent Violence
Words: 4632 Length: 15 Pages Topic: Children Paper #: 87654295

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
Words: 1225 Length: 4 Pages Topic: Business Paper #: 75420838

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

Posttraumatic Stress Disorder PTSD Has
Words: 9747 Length: 35 Pages Topic: Psychology Paper #: 85462278

, 2010). This point is also made by Yehuda, Flory, Pratchett, Buxbaum, Ising and Holsboer (2010), who report that early life stress can also increase the risk of developing PTSD and there may even be a genetic component involved that predisposes some people to developing PTSD. Studies of Vietnam combat veterans have shown that the type of exposure variables that were encountered (i.e., severe personal injury, perceived life threat, longer duration,

Strokes and African Americans
Words: 4072 Length: 15 Pages Topic: Healthcare Paper #: 81628730

Strokes and African-Americans African-Americans are reported to be nearly twice as likely to experience a stroke as their white counterparts however, African-Americans are much less likely to know the risk-factors and symptoms of stroke or to seek early treatment. The purpose of this study is to examine the issue of African-Americans and stroke. The significance of this study is the additional knowledge that will be added to the already existing base

Nursing-Sensitive Indicators Produced by Ndqf
Words: 4493 Length: 15 Pages Topic: Leadership Paper #: 76543671

The prescriptions include wisdom, honesty, and courage, as well as human dignity, integrity, respect, health, and independence. Part 3: Formulate possible evidence-based practices and an action plan that could work towards achieving improvement outcomes. Provide insight into the diagnostic processes (e.g., root cause analysis) used to determine the primary causes of the problem. Consider both qualitative (cause-effect diagram, barrier analysis), and quantitative (theory testing or drill down analysis) methods. Analyze the cost-effectiveness

Teens Locked Up for Life Without a Second Chance
Words: 3510 Length: 10 Pages Topic: Criminal Justice Paper #: 67287646

Criminal Justice Juveniles who are Imprisoned for Life with No Parole We live in a world where human beings of any age commit and are punished for menial to heinous crimes. In other words, humans at every stage of life are committing and being punished for crimes, including children and teenagers, called juveniles under the law until they reach adulthood. The paper will explore and debate the pros and cons of sentencing