In the fall of 2008, the world entered a global recession, largely as a result of a financial crisis stemming party from and Europe. edit Reckless behavior had, for some time, profited many high profile banks in the European financial system. This behavior came from many of the aspects of the market, including mortgage lending, high frequency trading and a series of schemes and backroom deals designed for short term high returns with a devastating collapse in the long run. When the economy could no longer bear the brunt of the current financial regime, it essentially collapsed in on itself. Stock markets, including the London Stock Exchange and the Paris Bourse, tumbled and savings and pension funds dried up as thousands of people defaulted on mortgages and their corresponding securities, which were originally viewed as a safe and profitable investment, became nearly worthless. While the recession may have begun in securities markets, the end effect was to throw whole economies into disarray caused by
This first part does not work. The topic is micro. The stock market activity is not counted in GDP because it is financial. A bourse of any kind could onyl be used as a confidence indicator in a macro commentary.
negative externalities,This is a micro concept only if you discuss it on a micro level--firms and consumers. If you discuss aggregates--such as mortgage backed securities--you are in macro. Plus it is too focused on the US. an occurrence when the cost to society for the purchase of a good is greater than the cost of purchasing the good. In this case, the burden on society from mortgage back securities and similar products was more than their initial cost to investors. First the homeowner paid a certain price for his mortgage, a private cost. Then the bank, whether it be Barclays or another European bank, then turned the mortgage into an investment macro. and sold it to an investor at a certain price, another private cost. Yet when people began to default on their mortgages in droves, investors who were relying on these prized assets watched their funds dry up along with overall economic growth. Thus, in the long run, the cost to society of these securities was far greater than the initial cost paid by investors. As is shown in the graph of a negative externality, the marginal social cost is greater than the marginal private cost, with the gap in between representing the dead weight loss from this externality. To fix this, it is necessary to bridge this gap by making the marginal private cost equal to the marginal social cost and thus doing away with any externalities.
The European Union is attempting to rectify these negative externalities by starting new agencies macro.to identify and stop the sale of toxic mortgage backed securities in the market. By way of the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, the EU is attempting to regulate the sale of assets that could have a harmful effect on the economy. This is a very effective method, as government regulation is often the only way to fix a negative externality. If left to the open market, this externality would merely continue and possibly get worse. Under the new system there is great incentive for banks to make credible loans to new homeowners and in turn to make them into safer investments as they know they are under scrutiny from the government. This will have the effect of bringing the marginal social cost of mortgage backed securities down so that it is equal or at least as close to equal as possible to the marginal private cost. The end result is to have the sale of these securities cause no greater burden to those not involved with the transaction, then it did to those who were involved. This diminishes the deadweight loss and allows markets to operate at a level of efficiency previously unseen.
To summarize, the financial crisis of 2008, caused in part by toxic mortgage backed securities represented a negative externality in which the marginal social cost far outweighed the marginal private cost, creating a deadweight loss. The European government, recognizing the value of these securities as effective investment tools, but also seeing the need for regulation, decided to more closely monitor the market rather than placing a tax on trading of such products to discourage their sale. This had the effect of creating an equilibrium where social cost is equal to private cost while still allowing the mortgage backed securities trade to operate efficiently.
George, This rewrite is far below the rubric criteria. Do you really have an article? You did not revise to meet my recommendations. You have one more chance to follow the rubric, then I will assess a grade. Look at the rubric--you have met so little of the criteria--that grade will be very low.
Criterion B: Requires the commentary be clearly written--REORGANIZE. the diagrams (graphs) are varied, properly labeled and effectively integrated in text--You have ONE no title and not explained in the text. The first part is blather and confusing--it does not cite an article--Is there an article? Throw out everything above negative externality. You have not included textual evidence from the extract ( article) to support your analysis. Read the Internal Assessment directions and note that the commentary must cite the extract with proper internal citations and a works cited.
Criterion C: Please check the text for accurate definitions. You must rewrite the analysis--do Criterion D first, then replace or fix these terms.
Criterion D: You need to start by analyzing the source of the current problem. Remember this is a micro commentary. The problem is that the method of financing mortgages had a negative externality. Set the problem up clearly and integrate your graph in the text, eg. refer to figure1: Title, etc. Focus on the economic actors--mortagage broker, household, financial institutions, etc and their incentives. You must use information from the article, establish credibility of the source, cite all your information on this topic. Perhaps a better article would help you focus on micro-issues. You also need to review the theory of market failures. Start with the S/D analysis and explain why the market fails. Identify the negative externality, and in criterion E introduce the need for the public good--regulation of mortgage market.
Criterion E can include the regulation piece. This is the part where you can speculate using the economic theory on the long run.
HL2 Internal Assessment--list of students
Post Commentary One--Microeconomics
Ok, I'll return on Sunday.
In the fall of 2008, the world entered a global recession, largely as a result of a financial crisis stemming party from and Europe. edit Reckless behavior had, for some time, profited many high profile banks in the European financial system. This behavior came from many of the aspects of the market, including mortgage lending, high frequency trading and a series of schemes and backroom deals designed for short term high returns with a devastating collapse in the long run. When the economy could no longer bear the brunt of the current financial regime, it essentially collapsed in on itself. Stock markets, including the London Stock Exchange and the Paris Bourse, tumbled and savings and pension funds dried up as thousands of people defaulted on mortgages and their corresponding securities, which were originally viewed as a safe and profitable investment, became nearly worthless. While the recession may have begun in securities markets, the end effect was to throw whole economies into disarray caused by
This first part does not work. The topic is micro. The stock market activity is not counted in GDP because it is financial. A bourse of any kind could onyl be used as a confidence indicator in a macro commentary.
negative externalities,This is a micro concept only if you discuss it on a micro level--firms and consumers. If you discuss aggregates--such as mortgage backed securities--you are in macro. Plus it is too focused on the US. an occurrence when the cost to society for the purchase of a good is greater than the cost of purchasing the good. In this case, the burden on society from mortgage back securities and similar products was more than their initial cost to investors. First the homeowner paid a certain price for his mortgage, a private cost. Then the bank, whether it be Barclays or another European bank, then turned the mortgage into an investment macro. and sold it to an investor at a certain price, another private cost. Yet when people began to default on their mortgages in droves, investors who were relying on these prized assets watched their funds dry up along with overall economic growth. Thus, in the long run, the cost to society of these securities was far greater than the initial cost paid by investors. As is shown in the graph of a negative externality, the marginal social cost is greater than the marginal private cost, with the gap in between representing the dead weight loss from this externality. To fix this, it is necessary to bridge this gap by making the marginal private cost equal to the marginal social cost and thus doing away with any externalities.
The European Union is attempting to rectify these negative externalities by starting new agencies macro.to identify and stop the sale of toxic mortgage backed securities in the market. By way of the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, the EU is attempting to regulate the sale of assets that could have a harmful effect on the economy. This is a very effective method, as government regulation is often the only way to fix a negative externality. If left to the open market, this externality would merely continue and possibly get worse. Under the new system there is great incentive for banks to make credible loans to new homeowners and in turn to make them into safer investments as they know they are under scrutiny from the government. This will have the effect of bringing the marginal social cost of mortgage backed securities down so that it is equal or at least as close to equal as possible to the marginal private cost. The end result is to have the sale of these securities cause no greater burden to those not involved with the transaction, then it did to those who were involved. This diminishes the deadweight loss and allows markets to operate at a level of efficiency previously unseen.
To summarize, the financial crisis of 2008, caused in part by toxic mortgage backed securities represented a negative externality in which the marginal social cost far outweighed the marginal private cost, creating a deadweight loss. The European government, recognizing the value of these securities as effective investment tools, but also seeing the need for regulation, decided to more closely monitor the market rather than placing a tax on trading of such products to discourage their sale. This had the effect of creating an equilibrium where social cost is equal to private cost while still allowing the mortgage backed securities trade to operate efficiently.
http://infoweb.newsbank.com/iw-search/we/InfoWeb?p_product=AWNB&p_theme=aggregated5&p_action=doc&p_docid=1326CB15C05BB490&p_docnum=5&p_queryname=12
George,
This rewrite is far below the rubric criteria. Do you really have an article? You did not revise to meet my recommendations. You have one more chance to follow the rubric, then I will assess a grade. Look at the rubric--you have met so little of the criteria--that grade will be very low.
Criterion B: Requires the commentary be clearly written--REORGANIZE. the diagrams (graphs) are varied, properly labeled and effectively integrated in text--You have ONE no title and not explained in the text. The first part is blather and confusing--it does not cite an article--Is there an article? Throw out everything above negative externality. You have not included textual evidence from the extract ( article) to support your analysis. Read the Internal Assessment directions and note that the commentary must cite the extract with proper internal citations and a works cited.
Criterion C: Please check the text for accurate definitions. You must rewrite the analysis--do Criterion D first, then replace or fix these terms.
Criterion D:
You need to start by analyzing the source of the current problem. Remember this is a micro commentary. The problem is that the method of financing mortgages had a negative externality. Set the problem up clearly and integrate your graph in the text, eg. refer to figure1: Title, etc. Focus on the economic actors--mortagage broker, household, financial institutions, etc and their incentives. You must use information from the article, establish credibility of the source, cite all your information on this topic. Perhaps a better article would help you focus on micro-issues. You also need to review the theory of market failures. Start with the S/D analysis and explain why the market fails. Identify the negative externality, and in criterion E introduce the need for the public good--regulation of mortgage market.
Criterion E can include the regulation piece. This is the part where you can speculate using the economic theory on the long run.