Financial decisions based on the position

Assignment Help Business Management
Reference no: EM131209818

Class,

"Bursting Bubbles"

One of the most dangerous phenomena (in an economic sense) is an asset price "bubble." Asset prices are bid up to unreasonable levels based largely on an optimistic view that the rise will continue. The world has seen the effects of stock market bubbles, real-estate bubbles, and commodity bubbles. The problem with asset price bubbles is that when they burst it can be devastating for an economy as we are now experiencing.

Consumers and businesses make financial decisions based on the position of their balance sheet (actual or implicit). An over-inflated asset side of the balance sheet can result in the taking on of an excessive level of debt. When the bubble bursts many households and businesses become technically insolvent. Those that do not must cease much purchasing activity until their balance sheets can be repaired. Consequently the effects of a bubble burst are most often devastating to the well-being of an economy. Indeed, the most recent asset bubble devastated the economy from which the recovery has been painful and slow.  I am referring to the burst of the housing market bubble that began here in 2009 and also caused another asset bubble-Stock Markets-to loose large amounts of value.

Carefully reread the first page of Chapter 10. Described is one of the best known bubble bursts in U.S. economic history: the stock market crash of 1929. Several interesting additional bits of trivia are excluded however. The first is that the participation rate in the stock market had peaked prior to the burst. I believe it was Joe Kennedy that removed his family's fortune from the market when he overheard shoe shiners discussing their investments. He believed that such high participation indicated an irrational valuation of the market. History has proven him correct and the Kennedy fortune survived. Another bit of historical trivia is that many analysts of the time were predicting that mass production has changed the fundamentals of the market. The old measures of proper market valuation were obsolete and the market had the potential to climb to even greater heights in this "new economy."

Whereas the current stock market drop is related to global issues, what I want you to consider is whether you believe that the U.S. experienced a stock market bubble that began to deflate in 2008 and how this might be a direct result of the housing bubble that began to burst in the fall of 2007. Certainly participation in the stock market was up and analysts indeed stated that the fundamentals had changed resulting in a new economy. Indeed the similarities to the "roaring 20's" are intriguing. But as with most anything of any consequence the experts are divided.  For example, many economists argue that Greenspan and the Federal Reserve Board should have deflated the stock market bubble that was developing and eventually led up to the 2000-2001 burst, Greenspan in a speech after the fact said, "The notion that a well-timed incremental tightening could have been calibrated to prevent the late 1990s bubble is almost surely an illusion." Dr. Greenspan and the Fed also seem to have missed the significance of the impending housing bubble back in 2005-06 or did not believe it would be as devastating as it became in 2009.

What do you think? Should the Fed and others in government have seen that a bubble was forming in the housing market? Is the Federal Reserve or any other agency of the federal government worried that another stock market or bond market bubble might be forming now?  After the dust settles in the current situation, will we be headed for more prosperous times with steady economic growth?

Reference no: EM131209818

Questions Cloud

How vietnam resolves inflation by adapting correct policy : how Vietnam resolves inflation by adapting the correct policy - ?300 words only. 1-2 sources.
How would use address this troublesome trend : The focus of the research paper is Data Leakage. How does data leakage occur in an organization? What are the common causes of this problem? How would use address this troublesome trend?
Formulate a lp model to help shop maximize profit : The shop must purchase at least this amount but can order more. Each briefcase requires 2 square metres of leather, each luggage requires 8 square meters of leather. From past performance, the shop owners know they cannot make more than 20 briefc..
Explain the key position to lead your team : Explain how you will recruit (both internally and externally) the members of your team. Identify the key position to lead your team. Then, create the job posting for the position including salary range.
Financial decisions based on the position : Consumers and businesses make financial decisions based on the position of their balance sheet (actual or implicit). An over-inflated asset side of the balance sheet can result in the taking on of an excessive level of debt. When the bubble bursts..
Discuss salient manner in which you will leverage lessons : Summarize this course in just one (1) sentence or two (2) so that someone thinking about taking the course in the future would understand what it is all about.
Does this process support operational effectiveness : Choose a health care organization or provider with which you are familiar, and describe its patient information capture process. Does this process support operational effectiveness, satisfy compliance requirements, and promote quality patient care..
What is the maximum amount of work : A heat reservoir at 0°C and a reversible work source are available. What is the maximum amount of work that can be transferred to the reversible work source as the system is cooled from 100°C to the temperature of the reservoir?
What is the purpose of briefing a case : What is the purpose of briefing a case? What are the various components that should be included in the brief? http://www.csus.edu/indiv/c/carperdl/briefing%20cases.htm

Reviews

Write a Review

Business Management Questions & Answers

  Caselet on michael porter’s value chain management

The assignment in management is a two part assignment dealing 1.Theory of function of management. 2. Operations and Controlling.

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. Due to increase in the preference for light beer drinkers, Chris Prangel wants to introduce light beer version in Mountain Man. An analysis into the la..

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. An analysis into the launch of Mountain Man Light over the present Mountain Man Lager.

  Analysis of the case using the doing ethics technique

Analysis of the case using the Doing Ethics Technique (DET). Analysis of the ethical issue(s) from the perspective of an ICT professional, using the ACS Code of  Conduct and properly relating clauses from the ACS Code of Conduct to the ethical issue.

  Affiliations and partnerships

Affiliations and partnerships are frequently used to reach a larger local audience? Which options stand to avail for the Hotel manager and what problems do these pose.

  Innovation-friendly regulations

What influence (if any) can organizations exercise to encourage ‘innovation-friendly' regulations?

  Effect of regional and corporate cultural issues

Present your findings as a group powerpoint with an audio file. In addition individually write up your own conclusions as to the effects of regional cultural issues on the corporate organisational culture of this multinational company as it conducts ..

  Structure of business plan

This assignment shows a structure of business plan. The task is to write a business plane about a Diet Shop.

  Identify the purposes of different types of organisations

Identify the purposes of different types of organisations.

  Entrepreneur case study for analysis

Entrepreneur Case Study for Analysis. Analyze Robin Wolaner's suitability to be an entrepreneur

  Forecasting and business analysis

This problem requires you to apply your cross-sectional analysis skills to a real cross-sectional data set with the goal of answering a specific research question.

  Educational instructional leadership

Prepare a major handout on the key principles of instructional leadership

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd