Essay about Erin LaPerche Oct 21

Submitted By eklaperche
Words: 961
Pages: 4

Erin LaPerche
21 October 2014
The Banking Crisis From the start of the United States financial system the country has struggled with economic and political conditions that shape the country in several ways. The crisis of 2008 taught the United States many things about bank bailouts and what to do next time, as well as crisis in other countries such as South Korea, Indonesia, and Russia. Conditions are overall different but exhibits the same qualities in an overall financial meltdown. The economic conditions in each crisis are different yet can be the same in many ways. In South Korea the economic power was dominated by one giant chaebol, or family-owned business group. Shareholders in South Korea did nothing to effectively monitor the system and the chaebol was largely in debt, almost twice the United States (pg. 41). South Korea had borrowed risky money and companies were now in danger of failing, especially effecting the U.S. through Kia, the car maker who had invested heavily into the U.S. market. South Korea slowly started to crash and there was a problem with trying to finance foreign debt. If lenders get worried, they will pull their money and having all long term investments, the country will not be able to pay them back. The International Monetary Fund, stepped in to help South Korea. Having consistent views with the U.S. Treasury the IMF said South Korea must tighten monetary policy did not condone an increase in government spending. Second South Korea must recognize their debt and the U.S. worked closely with South Korea to help roll over a lot of their foreign loans. Lastly the IMF said South Korea needed to be more open to foreign capital. Like the U.S. during the financial crisis the IMF did for South Korea what the treasury department did for Wall Street banks. Indonesia had a similar problem where the president allowed elite families to dominate the market and trade political favors. This easy money though fueled risky investments and increased risk taking, and the economic boom soon turned into a crash in 1997 (pg. 46). Russia was a situation that after the collapse of communism, the president allowed powerful business men to take control of the financial market in return for political support, this created the Russian oligarchy. The IMF encouraged Russia to open up the market so foreigners could lend money, but Russia’s economy was fragile fell to the “Asian financial crisis” in 1998 and could not be bailed out. Similar to the United States financial crisis, these countries needed to be bailed out. Ever since Thomas Jefferson, the Republicans have been against big banks and an oligarchy financial system. Ultimately these countries all relate to the United States conditions because when the United States Treasury had to bail out the big banks, it was essentially like an oligarchy of big banks who controlled the financial system that could cause an entire system crash. Systemic risk verse moral hazard was a big reason as to why the bailout look so long to occur according to the video, Inside the Financial Meltdown. Moral hazard only encourages risky lending and risky activities because of the fact that someone will be there to bail the financial institution out. The political conditions within each country have similarities, even though the types of government are very different from each other. Again since Jefferson, the republicans have been against the use of big banks because they feel as it if the banks will us the economy as a tool to get what they want. Asking political favors and keeping a presence in congress at all times so the big banks can get what they want. When big banks do not get