Bubbles_Notes - The adoption and implementation of...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
The adoption and implementation of commercial practices which lead to economic situations which become subject to rapid correction or reversal are often referred to as “bubbles”. They are different from the larger economic cycles of GDP expansion, stagnation or contraction which affect most economies, yet may play roles in the initiation of broader economic surges (when bubbles are forming) and downturns (after bubbles burst). Bubbles are usually industry or sector specific. A few examples over the past 25 years include: o “The S&L Crisis” o “The Tech Bubble” o “The Telecom Bubble” o “The SubPrime Debt Crisis” Any bubbles which also happen to directly and sharply impact upon the housing market precipitate what becomes known as the latest “Real Estate Bubble”. Circumstances giving rise to the extraordinary rise of certain commercial practices or market prices, to be followed by sharp reversals of the perception of market prices and risks have always existed. This not something new to our century, unique to our economy, or new in America. In addressing the questions of why bubbles form and later burst , you have to begin with the context of the environment in which they occur. If we take the modern day US economy as an example, that context would include: o Relatively free and open markets operating on a global scale o Modest regulation, most of which was formed in reaction to economic and market issues recognized as a result of past problems or crisis (e.g. little regulation is proactive or forward-looking). o The root causes: Insufficiently regulated Fear and Greed . Fear and greed make capitalism work (or not work, depending upon your perspective). They
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
are highly interconnected and extremely powerful. Market participants are fearful of losing what wealth they have, and are fearful of not participating in the gains others may be enjoying. Greed is the basis for capitalism, and the less citizens can rely upon the economic support of their fellow citizens or government, the more they must rely upon the successful deployment of their own greed to meet their needs. The fundamental connection of greed to capitalism was perhaps most sharply enshrined in the modern American culture by the character Gordon Gekko in the 1987 film “Wall Street”, when he proclaimed “Greed is good….greed works”.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern