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The Fall of the American Banking System

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listen to radio recording in the link provided below & pick 1 of them and explain it to me in your own words 1-2 pages, I am not looking for you to repeat back to me what you heard or read in the recording what I am looking for is the understanding of these very complex issues and for you to explain it to me as if you are my teacher what happened in each of these sectors of the economy. ***Each paper should be written and explained in your own words please.

3. Bad bank


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My understanding of Bad Bank is that there are poor banking practices that led to the fall of the banking system in the US. Bad Bank begins when a bank gives a loan of $100 to a customer who promises him an annual interest of 6%. This interest rate is higher than the market rate but the borrower agrees to the higher rate because he does not have documents to support his claim of income. When the customer is not able to pay either the interest or the principal, the bank wants to sell off the house and ...

Solution Summary

The gaps in the US banking system are explained in a structured manner in this response. The answer includes references used.

See Also This Related BrainMass Solution

6 questions on International Macroeconomics that deal with fixed exchange rate system, foreign exchange reserves, floating currency, exchange rate devaluations, current accounts, BOP crisis, domestic and foreign interest rates, short-run level of output, expansionary fiscal policy.

1. Suppose Mexico fixes its exchange rate against the U.S. dollar. Explain the effect on the foreign reserve holdings of the Mexican central bank if the level at which the exchange rate is pegged turns out to be lower than the one which would be obtained if the exchange rate had been allowed to float freely (in other words, Mexico enters the peg at an overvalued exchange rate). What are the implications for the Mexican money supply? Show the balance sheet of the Mexican central bank.

2. Suppose Argentina unilaterally decides to peg its currency to the U.S. dollar. Now assume that there are only these two countries in the world, and that the United States shows a surplus in its net official settlements balance the following year. Can you make a statement about how the money supply in the U.S. changed in that year?

3. Exchange rate devaluation is often used by countries to improve their current accounts. Since the current account equals national saving less investment, this improvement can occur if investment falls, saving rises, or both. How might a devaluation affect national saving and domestic investment?

4. When a central bank devalues after a BOP crisis, it usually gains foreign reserves. Can you explain this capital flow? What would happen if the market believes another devaluation was to occur in the near future?

5. Suppose that the foreign interest rate falls in a fixed exchange rate regime.
a. Use the international asset/money-market diagram to show the effects of this change on domestic interest rates and the domestic nominal money supply in the short run.
b. Describe any required changes in the balance sheet of the domestic central bank, assuming this bank is committed to the fixed exchange rate.
c. Use the AA-DD diagram to discuss any change in the short-run level of output.

6. Consider the case of Germany after WWII. It is beginning a period of temporary increases in government spending to rebuild its economy. At the same time, it is considering whether to join the Bretton-Woods reserve currency standard.
a. Suppose that Germany undertakes its expansionary fiscal policy while maintaining a flexible exchange rate. Derive the short-run effects on output, the exchange rate, and the current account by using the AA-DD-XX-diagram.
b. Now suppose that Germany joins Bretton-Woods and fixes its exchange rate to the U.S. dollar. Discuss the effects of an expansionary fiscal policy on output, the exchange rate, and the current account. Compare results to your answer in part (a).

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