Financial Crisis Impacts on Progress of Employees Essay

Financial Crisis Impacts on Progress of Employees - Essay Example There have been a lot of studies conducted by various scholars since the great depression in 1930’s up to today. Literature obtained from this series of academic studies conducted by the various scholars is still relevant up to today in offering explanations on how and what were the main contributors of the various crisis. This literature has been relied upon by many academicians as well as policy makers in order to make sure that such events do occur again. Theoretical Literature There are two theories, which seem, to be more developed and various scholars have borrowed much from them. These theories are the Minsky’s crisis theory and Marxist crisis theory. Minsky’s crisis theory is named after the Hyman Minky a renowned economic professor who developed this theory. Hyman initial objective was to elucidate the domestic economy crisis. This has since changed as this theory is adopted by various expert and scholars in delineating global financial crisis. The under lying concept in his theory was the fragility observed in the financial system. He elucidates the behavior of both the financial sector and non-financial sector to engage in liabilities with a high level of risk as businesses enlarge was the major contributor to the crisis. From an international front, he argues that the interdependency of economies fundamentally leads to instability of the global financial system. He attributes the instability experienced in the global financial system to lending activities that lend debt accumulation (Davies 2010). The main theme of theories was the concern expanding economy and the emergence of â€Å"a speculative investment bubble†. Hyman argued that as the economy expanded, that is, as the economy experienced tremendous growth, thus resulting to low level of unemployment as the level of investment in the economy increases. Optimism increases and trade between debt and risk changes. As a result of the increases in optimism, there is an in crease in the level of asset prices as well as increase, in speculation. The increase in asset prices in return allowed ponzi borrowers to thrive in an economy (Davies 2010). This also leads changes the attitudes that investors have toward risk thus resulting in, changes in liability portfolio. As a result of changes in risk and liability structure, the financial structure becomes fragile thus resulting into a financial crisis (Davies 2010). In doing this Hyman linked, the fragility experienced in a normal economy to the speculative investment bubble which emerges in the financial market. Minky argued that, when the corporate sector and the economy as a whole are experiencing growth, that is when the cash inflows exceeds the amount need to phase off debts there is a tendency to develop speculation (Davies 2010). When the grows up to appoint where the present assets cannot support the economy when borrowers cannot repay their loans since the cash-inflows are not enough to finance con sumption and to honor debts, this degenerate into a financial crisis. When this occurs, the lenders adopt stringent credit issuance policy; such that even companies with the capability of obtaining loans are not spared; thus, this leads to the contraction of the economy. The movement of a