Assignment

Assignment: 6 Pages, Deadline: 10 days

I think you have done a great job addressing the requirements for this assignment; however, I have a few comments. First, I believe the main cause of financial crisis in the US was the sub-prime mortgages and mortgage backed securities that created the housing market crisis, which transmitted to the financial system. Second, based on the syllabus you were also supposed to discuss the roots of financial crisis in other countries like Mexico and Russia, though you touched the topic on page 6 but you didn’t discuss the roots. For example, the Russian crisis as Jeffry Sachs and many others have argued was due to the fact that the devaluation of Ruble caused many foreign investors to leave the country and the capital outflow led to the financial crisis. One of the most important issues that you have not touched in your text and has an important role in creating financial crisis is the role of fixed exchange rate regime. Many of the countries that experienced financial crisis like Mexico and Russia had a pegged exchange rate regime that contributed to their financial crisis; indeed, a fixed exchange rate regime avoids the automatic stabilization of trade deficit. Third, in many cases like on page 7 you mentioned low inflation and low interest rate as causes of global financial crisis; but you didn’t discuss how low inflation or interest rate leads t a financial crisis? Finally, what are the lessons we learned from the 2007 financial crisis and how we may avoid future possible crisis?
I also provide you with additional resources by Jeffrey Frankel and Frederic Mishkin that are excellent sources on the roots of financial crisis. Onward!
http://www.hks.harvard.edu/fs/jfrankel/tenlessonslearnedfromasiancrisisworldbank.pdf
http://www.bates.edu/PREBUILT/10LatinA-Mishkin.pdf
http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/1998/1/cj17n3-7a.pdf
http://pdf.usaid.gov/pdf_docs/PNACF234.pdf