Causes and Consequences of the Global Credit Crisis Chapter 4 Case

1. Which scenario do you think best explains the global financial crisis? Why? The scenario that
best explains the global financial crisis is scenario one: Leaky pipes, because it's where it began.
Leaky pipes are not a big deal if fixed. But, if neglected, they will collapse the house. In 2008 as the
expanding liquidity freeze owning to rising dread and mistrust, increasingly stopped money
moving from institution to institution and from country to country.

2. How does each scenario influence the policies that governments adopt, the strategies that
companies pursue, and the choices that consumers make? After the leaky pipes begun the global
financial crisis agencies quickly turned to fixing the financial pipes, resetting regulatory standards,
applying technical solutions, reevaluating the linkages among economies and capital markets, and
patching holes. Then restoring economic vitality and getting countries moving again required
refilling the money pipes with, in the words U.S Treasury Secretary Geithner,
"capital,capital,capital" summer Of 2011 saw both gloomy and optimistic views. Regarding the
gloomy take, looming risks are glaring and global. In the US slowing growth, a fragile recovery,
diminishing dollar, waning consumer confidence, rising inflation, successive rounds of quantitive
easing, persistent unemployment and escalating government debt suggested tough times ahead.

3. How might various scenarios influence economic freedom? Economic freedom measures the
absence of government coercion or constraint on the production, distribution, or consumption of
goods and services beyond the extent necessary for citizens to protect and maintain liberty.
Capitalism, allowed to run free, promotes the psychology that greed is good. Running too free, the
global financial crisis suggested has amplified it into destructive psychosis that intensified
distortions.

4. The case points out the crises produce winners or losers. Who are the winners and losers for
Scenario 1? Scenario 2? Scenario 3?

The winners of the first scenario are the middle men between the lenders and debtors and
also the investors that sold their bad loans. The losers include everyone from the lenders
and debtors to the tax payers and government officials who were responsible for these
oversights.
The winners of the second scenario are the executives that run the businesses that were
too big to fail and also the people that sold their bad loans. The losers would include the
employees who are not executives, the employees who have retirement plans, the SEC,
and the government officials that were responsible for these oversights.

The winners in the third scenario would include all of the banks, creditors, and lenders
that are able to lend money to countries in the financial crisis and people who will make
money from the crisis whether it is legal or illegal. The losers in this situation are the
governments that are involved, the companies who produce things and the consumers
that continue to spend money

5. Say you were asked which economic indicator would conrm the end of the crisis. Which
would you nominate? The only indicator that would mark an end to the crisis would be a large
decrease in unemployment; consumers spending is again stimulated, and a much lower debt for
the government.
6. Interpreting economic environments, estimating scenarios, and positioning the rm to
prosper are the jobs of managers worldwide. How would you advise one to do so with respect
to the global nancial crisis? A manager would have to be patient and flexible with the route he
takes his company with the plethora of policy changes and the way that the manager will use the
capitol of the company. A huge factor that the manager must decide is the cause and effects of the
way the company handles the policy changes and the scenarios that have happened in the past
and how managers handled those situations. The most important factor is the way their company
or other companies handled any crisis in the past and all current options a manager has for the
current crisis. The manager has to make a decision on where to take the company and find new
opportunities to attract investors that show the credibility and growth of the company.