Essay on "Frequency and Severity of Recent Financial Crises"

Essay 4 pages (1424 words) Sources: 3 Style: Harvard

[EXCERPT] . . . .

frequency and severity of recent financial crises raise doubts about the effectiveness of the IMF's supervision and crisis management policies. Discuss with reference to emerging market crises or the sub-prime crisis of 2008-2009.

The International Monetary Fund (IMF) and the global credit crisis of 2008-2009

The International Monetary Fund (IMF) has three different roles, all of which serve the purpose of fostering financial stability in the world. The first "is to try to provide early warnings of impending crises," a duty which the IMF failed prior to the credit crisis of 2008-2009 ("Interview," Der Spiegel, 2009). According to the admission of the IMF managing director Dominique Strauss-Kahn, "we were not as good as we should have been on that score. We were not vocal enough," before the crisis happened ("Interview," Der Spiegel, 2009). However, he adds that to be fair to the IMF, the organization "was the first institution among all the central banks and think tanks worldwide to warn that this crisis would be very wide-ranging and very severe," and the IMF was, at the time, criticized for its pessimism and contributing to the magnitude of the crisis ("Interview," Der Spiegel, 2009).

The second job of the IMF is its advisory capacity. It has tried to fulfill this duty by advocating greater oversight and restructuring of the banking and financial sector since the crisis. In some countries it has advocated nationalizing the banks and government-sponsored economic stimulation. These stimulus packages "were very controversial because they were costly" although the IMF believes that its support of these market interventions was correct, and the wisdom of its actions is manifest in the improvement of the world economy and particularly in the revitalization of financial markets after the collapse ("Interview," Der Spiegel, 2009).

The third role of the IMF is its most important one, to "provide resources to countries in financial crisis" ("Interview," Der Spiegel, 2009). The IMF has become intimately involved in crisis management because, although the world financial crisis of 2008 began in America, the entire world was affected. Indeed, the developing world, as it had less of a cushion of prosperity than the developed world, suffered the most financial fall-out. It was the old example of the world catching a financial cold, when America sneezed. The IMF, in response to the crisis, has been trying to extend aid to nations suffering the effects of the financial downturn. It has introduced new or expanded bilateral borrowing arrangements with nations such as Norway and Japan, and will soon begin issuing its first interest-bearing promissory notes to supplement its available funds. "Under the framework, member countries with strong external positions, and central banks of such members, may sign agreements to purchase these notes up to individually agreed maximum levels. The actual notes would be issued when needed by the Fund to finance loan disbursements to another member" ("IMF moves to boost resources," IMF Survey Online, 2009). The IMF has also increased its concessional loans and will begin using funds from the sale of gold reserves to extend aid to poorer nations.

In assessing the damage done to the credit markets, the director of the IMF has been heavily critical of American lending policies, particularly the use of the phrase 'perfect storm' to describe the crisis: "Human society is not a force of nature. The financial crisis was a catastrophic event, but one created by human hand[s]. The lesson we all need to learn is that even a free market economy needs some regulation, otherwise it cannot function. All these ideas about deregulation -- that more deregulation is always better and that the market can solve every problem -- are fine on paper but they do not work in reality"(Interview, Der Spiegel, 2009). Economics have criticized the own IMF's expansion of its lending as 'more of the same' as well -- that is, more of the same ineffectual policies pursued by the IMF (as well as many world governments, such as America) that lead to crisis and failure in the lending industry.

Criticism of the IMF centers upon the issue of moral hazard. Lending to failed governments and financial institutions simply because they are too big to fail simply encourages a repeat of the same bad behaviors, including deregulation and risky lending. How can the… READ MORE

How to Reference "Frequency and Severity of Recent Financial Crises" Essay in a Bibliography

Related Essays:

Argentina Country Case Report Research Proposal

Argantina Country Case Report

Argentina Country Case Report

Argentina was once one of the most prosperous economies in the world. Yet, the twentieth century presented it with an impressive challenge,… read more

Research Proposal 4 pages (1083 words) Sources: 3 Style: MLA Topic: Economics / Finance / Banking

---

Elder Abuse Phenomenon Correlating Relationship to Elder Mortality Term Paper

Elder Abuse Phenomenon Correlating Relationship to Elder Mortality

Elder abuse has received increased scrutiny from the law enforcement and healthcare community in recent years. This increased attention is due in… read more

Term Paper 58 pages (15855 words) Sources: 25 Style: APA Topic: Family / Dating / Marriage

---

Treatment of Women Diagnosed With Dysthymia Term Paper

Treatment of Women Diagnosed With Dysthymia

This proposal for a clinical case study of the treatment of a woman diagnosed with dysthymia employs a cognitive behavioral approach to identifying effective… read more

Term Paper 48 pages (13264 words) Sources: 1+ Topic: Psychology / Behavior / Psychiatry

---

Retirement Portability Term Paper

Retirement portability is a hot topic globally; as the economy forces job-hopping work life habits on more and more workers, it is necessary to be able to accrue funds for… read more

Term Paper 76 pages (20119 words) Sources: 0 Topic: Economics / Finance / Banking

---

Risk Minimization and Loss Prevention in Small Term Paper

Risk Minimization and Loss Prevention in Small Business in the Post-9/11 ERA

Chapter 1, Introduction,

Chapter 2, Literature Review,

Chapter 3, Methodology,

Chapter 4, Data Analysis,

Chapter 5, Summary, Recommendations… read more

Term Paper 59 pages (16256 words) Sources: 1+ Topic: Business / Corporations / E-commerce

---

View 100+ more related papers  >>