Lessons will repeat until we learn them – Stilling, FAR 2010 Stilling outlines five lessons to be learned from the SGF. Discuss each one with reference to whether you agree or not. Rank them In of your perceived Importance and discuss how well the lessons have been learnt given the turmoil in financial markets. The thoughtfulness and originality of your answers will be assessed and challenged in class. In brief, the five lessons are deregulation, reasons of market failure, Keynesian policies, the methods to against inflation and risk of innovation.
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The rating and discussion are given below. From personal view, the most Important lesson Is understanding way market often do not work the way they are meant to work. According to the Efficient Market Hypothesis, governments should leave financial markets to work their magic without interference. But it seems not very accurate. This lesson was followed with undiminished faith until the SGF. This is most evident in the attention paid to rating agencies and bond markets, and the speculative bubble they helped to generate, that created the crisis in the first place. The second lesson is deregulatory.
The regulatory framework did not keep going with uncial innovation, such like derivatives and accreditations. Also many laws made bankers more greed and not lead to society’s wellbeing. Thus, adequate regulations should be performed to regulate the market in order to develop peaceful. The third lesson should be financial Innovation. As mentioned above, more financial product are created without strong regulating. Although these products may bring huge benefits to investors, they have great potential risks, such like hedge funds and accreditations. The forth lesson is monetary policy to fighting inflation.
Rapid increases in a number f commodity prices followed the collapse In the housing bubble. Most central bank use monetary policy as a mall method to against Inflation. However, many other functions also have advantage influence to inflation, such like fiscal policy. The last lesson is Keynesian policies, during the time of SGF, Keynesian economics worked again. This included discussions and implementation of economic policies in accordance with the recommendations made by Keynes in response to the great depression (most especially fiscal stimulus and expansionary monetary policy). 1 .
What was the role of Leverage in The SGF? . “The SGF has shown that macroeconomics and central bankers knew less than what they thought they did. Looking forward, macroeconomic policy framework should be redesigned to implement the lessons from the crisis. The discussion on these lessons have been around the level of leverage, the objective of monetary policy, the nexus of monetary and regulatory policy, and fiscal policy. ” Source: MIFF 2010, Refer to article WHIP/44 Tilted: “Lessons and Policy Implications from the Global Financial Crisis” Discuss some of these macroeconomic policy lessons that have been drawn from the SGF?