Sunday, July 1, 2012

Money and Banking - Day 1

Hi All,

I am currently traveling back from Italy on Monday and will be back in Spokane late in the afternoon. I have not entirely completed the course outline and lecture notes for the first week. I should have everything up and going Monday evening, Tuesday morning. For now I would like everyone to look through the first chapter in Wright (lecture notes are posted, not narrated) and work on the discussion questions I have posted.  In addition to the first chapter please watch the video, "The Warning".

Watch The Warning on PBS. See more from FRONTLINE.

When watching the video I want you to think about the role the financial system should play in society. The ultimate goal of the financial system is to channel from from savers to lenders. From society's point a view the financial system should be to promote growth and regulated in a way that improves societal welfare. At the same time, financial intermediaries have a difficult job and are private firms that are entitled to maximize their profits. At what extent should financial intermediaries be able to pursue maximum profits in terms of risky assets?

You can probably see where I am going with these questions, there are no right answers. The goals of financial firms and society are different, but at the same time we want financial firms to provide us with the greatest returns, which means taking on more risk. Of course, households don't think of this and the costs of a financial crisis. Well they didn't until the last few years. We will get into many more questions, for now I just want you thinking about the role of financial intermediaries in a market economy. 

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