Cause of the economic downturn of the first decade of the twenty-first century

Given that the economic slump happened following the lowering of state controls in the economic realm, which allowed banks to engage in hedge fund trading using derivatives, one can conclude that deregulation was the sole cause of these crises. Allowing banks to demand more mortgages to support the profitable sale of these derivatives, as well as the Fed’s decision to raise interest rates for subprime borrowers, resulted in liquidity and debt issues, which subsequently triggered economic crises that affected not only the United States, but also other countries. When a bank offers a loan, it creates revenue through the interests charged. If the debtor does not fully settle the debt, the banks experience liquidity issues which in turn affect its operation. This was what happened in this case because after the banks created interest-only loans that were merely affordable to the subprime borrowers, there were more debtors because those who did not have assets which could be used as security took loans which most of them did not pay.

Before the government realized the country was in serious economic crises, the banks had earned a lot of income within a short period and used it to push up mortgages and speculate on financial markets. Based on the fact that any money earned by businesses is fundamental to the economy, the banks made a big mistake of allowing very little of the trillion pounds that they created to go to businesses that were outside the financial sector.

There is a simple solution for this issue because what triggered the problem is known. Because financial institutions were the primary causes of these crises, the concerned agencies should regulate their operations. Since liquidity was the major issue in this case, the government should pump some money into financial institutions and also aid entrepreneurs to boost their businesses. Banks and other concerned agencies should also establish strict regulations on matters concerning interest rates, and the requirements that subprime borrowers should have in order to be given loans.

Proper usage of securitization could also play a significant role in solving the issue. Securitization enhances liquidity in the market and serves as a fundamental tool in assisting banks and other financial institutions to raise funds. In situations where banks issue a lot of loans with little repayment just like in this case, this tactic can come to their rescue.

What can we learn from the responses by the Greek government to the financial downturns in 2012–15?

When the Greece government realized the country was in serious economic crises, it called for investigation and conviction of various people including key individuals in the finance department and also established various measures to aid recovery. Its attempts did not succeed because most of the people who messed the economy were government officials. From this scenario, one can learn that although governments may struggle to take legal actions on those who sabotage the economy, chances of succeeding are always limited especially when senior government officials trigger the problem.

When the government enacted various that it thought would address the issue, protests and riots emerged in the country, meaning consumers expect the government to be in good control of economy. Even with these protests and riots, the Greece government responded with far-reaching economic reforms that to some extent assisted in addressing the issue. From this kind of action, one can learn that governments have a role to play in making a country to maintain favorable economic condition. Although people may interpret the manner in which the government responded to the issue differently, it is worth to mention its response indicate the country learned a lesson from this crises and it is prepared to address such crises when they occur in the future

Although the government’s response to these financial crises may have long-term benefits to the financial institutions and the Greece economy, they are likely to have short-term impacts on consumers and businesses. This is because before the country realizes economic recovery, consumers and companies may pay much taxes to pay the debts.

Do you think that 2018–20 are likely to be years of slow and steady recovery, and what are the likely implications for managers in Australian, New Zealand, and Asian companies?-

2018-20 are likely to be years of slow and steady recovery because some organizations and even individuals are still under debts incurred during the global economic downturn. Although some economists believe these crises ended in 2015, some countries are still experiencing similar issues that were witnessed between 2008 and 2015. This is an indication that some of them may struggle for the next two years or even more to raise realize economic boom.

The other reason why it is right to state that 2018-20 will be of slow and steady recovery is that most of the countries that were significantly affected by the global economic downturn are still trying to find measures that can make them realize economic growth. Because some of them are still trying to pump resources to financial institutions and supporting other economic development activities, it means more time will be required for the affected countries to heal.

The global economic crises has already plunged sales revenues in private organizations into a decline, meaning in the next two or even more years they may be forced to cut back on recruiting new employees, or freeze hiring entirely in order to cut costs and enhance performance. This may affect the recovery speed because household income plays a significant role in advancing economy.

Based on the fact that the global economic downturn was at depression, the process of moving from this state to boom may be slow because various strategies must be implemented. Because most of the debtors were also affected by these crises, they may take longer to pay or fail to settle the dues at all. This will mean the recovery process may take longer because the debtors may take time to find resources that can enable them to pay their creditors

The slow and steady recovery will have various implications for managers in Australia, New Zealand, and Asian companies because they must employ unique strategies to make their businesses perform well. Based on the fact that the global economic crises affected not only banking sector but also other companies, managers must put more efforts to ensure profits generated are more than expenses to keep their businesses moving.

Managing companies in these countries is not simple because most of them are still swimming through the waves of global economic downturns. There are also concerns of whether these crises have ended because some of the firms are still experiencing problems witnessed between 2008 and 2015. Bearing in mind that such crises can as well occur again in the future, managers in these countries must establish proper measures that can prevent their businesses from being affected by such issues.

Managing organizations in this period of slow and steady recovery is challenging because employees in the private sector are still worried about the safety of their jobs. When employees are not sure about the fortunate of their careers, they tend to be unproductive because they feel anytime they can be fired. This means managers in these countries may experience challenges to keep their staff members calm and their psychologies at ease.

How risk averse should the individual manager be

Although managers are not always happy about risks, being a risk taker has various benefits to the growth of business. However, it can make a manager to land on pitfalls which may have significant impacts on the success of his/her business. This means being average in fearing risks may be advisable for individual managers.

Comparing risk averse and managers who are good in taking risks, those who take risks succeed more than those who believe they will always make them fail. Those who fear risks also make decisions that do not bring much benefits in their investments. For example, risk-averse individual managers tend to stay away from increasing high-risk stock or investment in their portfolio and in turn fail to realize higher rates of return. They also dwell on certificates of deposit, government bonds and treasury bills that generally have lower returns.

However, risk-averse managers tend to benefit from dwelling on safer investments especially when operating in markets associated with high chances of realizing real risks. Considering the fact that there are both advantages and disadvantages of taking and fearing risks, the level of risk averseness should be medium.

Based on the fact that a risk is something which is hard to certify whether it will occur or not, it is advisable for risk-averse individual managers to understand when to take risks and when to avoid them. When there are high chances that a risk will not occur, it is advisable to take it, and if there is a high possibility that the uncertainty will happen and there is also a likelihood that it may have a negative impact on business performance, it is good to avoid it. For them to realize the advantages of risk averseness, they should consider the prospect theory that states that losses and gains are valued differently, and thus people make their decisions based on the perceived benefits rather than perceived losses.

One of the factors that influence my answer, in this case, is that there advantages and disadvantage of being risk-averse. The primary advantage, in this case, is that avoiding risks make individuals to avoid pitfalls when risks occur while the disadvantage is that it makes people to avoid decisions that can make them realize a lot of benefits. This means because being either risk averse or risk taker has merits and demerits, the best choice for risk-averse individual managers is it be average.