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Article Summary-The Slumps that Shaped Modern Finance

MODERN FINANCE 4

ArticleSummary-The Slumps that Shaped Modern Finance

ArticleSummary-The Slumps that Shaped Modern Finance

Thearticle focuses on examining the five crises situations in historythat have had an influence on the modern financial regulation. In aword, finance plays the role of an&nbspeconomic time machine, whichhelps savers move modern surplus income into the future. On the otherhand, finance offers borrowers access to future earnings at the time.The two roles allow finance to harmonize sharp ups and downs in lifethus making it possible to anticipate the world and make accuratepredictions of the future. Additionally, finance facilitates growthas the investors look for companies and individuals with the bestideas. However, in occurrence of crises, finance can result todestruction of the future with high unemployment rates and debts.

Therehave been a couple of devastating slumps that started with theinitial crash in 1792, in America. In March 1792, the bank of theUnited States started running low and reduced the amount of creditsextended to the shareholders. It resulted from bankers who tried tocorner the market for their own sake. Right from the start, thegovernments has a tendency of bailing out the banking system as anattempt to achieve financial stability after a crisis. However, thebiggest crash in the world occurred in 1929. The crisis resulted fromthe heavy investments in the European countries. Mining firms anddepositors scrambled for cash from the Bank of England. The Bank’stake in extending loans to these borrowers formed the basis of thecrisis. Notably, in times of financial crises, states take actionsthat are tailored and designed to address the financial panic. Theinterventions that are undertaken begin with blame games and end withaction plans that regulate some aspects of the economy while banningothers. The strategies that are employed to fix financial crisescontinue to influence finance for long as other strategies areemployed in future financial slumps.

Thefundamentals of modern finance owe lots of credit to AlexanderHamilton who was the first US secretary of treasury back in the1790s. Hamilton developed a state-of-the-art financial set-up, whichwas designed to fix the financial issue of the time. After thatperiod, 1825 encountered the initial emerging-market crisis. Thecrisis resulted from the Latin American nations that had just gottentheir independence and they were making the best out of the boomingeconomies. This was soon followed by the 1857 global financial panic.The panic spread from New York to other parts of the world as theregular financial collapses developed to global collapses. The crisisaffected the western country and later spread to the whole world.

Thecrisis was followed by different approaches by America and England tofix the problems. However, emergency finances were utilized toresolve the crisis. In 1907, there were few banks in the world theBank of England was the largest. Due to the civil wars, most banksclosed down since there were inadequate lenders of last resort. Overthe past centuries state governments blame the banks after occurrenceof crisis. They reform the banks or provide support other privateinstitutions in order to achieve financial stabilities. The trend hasshaped the modern finance in that, most financial institutions andgovernments facilitates the growth of economic bubbles, which laterleads to crisis. In the occurrence of crisis, they finance companiesin order to prevent its growth, but, this has been identified as onethe causative factor of global crisis.

References

Ryder,B. (2014). TheSlumps that Shaped Modern Finance.Retrieved fromhttp://www.economist.com/news/essays/21600451-finance-not-merely-prone-crises-it-shaped-them-five-historical-crises-show-how-aspects-today-s-fina