Thomas Shelton Blog Post 4

Thomas Shelton

GVPT200

Mark Shirk

November 13, 2013

While the creation of CDOs brought on one of the worst economic crashes in American and world history was it a necessary evil? Before the economic crash many companies were willing to do anything regardless of the consequence in order to get a quick pay off. It was only a matter of time until this mindset solely based on profits would back fire. Many of these companies were unaware or choose to ignore the fact that CDOs were a ticking time bomb because, they decided to focus on short term profits. Even when one of the most prestigious investors of the modern world, Warren buffet, claimed that CDOs were, “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”(Buffet). Still companies refused to acknowledge the effect their actions would have on the entire world.

CDOs were created in order to let investors remove the loan from their books and place the risk on another company. The main reason that CDOs had become a trillion dollar market is because the returns on these sales were often greater than those of corporate bonds who shared an equal credit rating. By passing off the loans and all their risks, companies were able to free up more of their money which they could use to create even more loans and continue the cycle. Many foreign investors saw this a huge opportunity as well because they could acquire these collections of loans tax free from American companies. The trade of CDOs was a win win situation for both the buyer and the seller until the loans the CDO were built off of fail.  Companies saw this as a quick way to make massive profits but failed to realize the consequences of the CDOs failing along with the company that purchased the CDOs.

The consequence that these investors failed to realize was that their actions would cause the worst economic crash since the great depression. Because these investors chose to ignore Berkshire Hathaway CEO, Warren Buffet’s, and the IMF chief economist, Raghurman Rajan’s, complaints that CDOs would destroy the world economy these companies sealed their own and our fates. Even before the CDOs lost their credit and crashed, the housing market had skyrocketed because mortgage loans made up many of the CDOs. The increased housing prices combined with the fact that banks would give a loan to almost anyone who wanted one created a recipe for disaster for both the person who took out the loan and whomever purchased the CDO that the loan was included in. The inability for the customer to pay back the loan they could never afford in the first place and that the loan rates could not be re-negotiated forced hundreds of thousands into debt which in many cases turned into bankruptcy. Once the CDOs had lost all credibility many huge investment companies and banks suffered the same fate as their customers. Companies like Citigroup had suffered enormous losses because of the failure of CDOs, Citigroup’s market value alone had lost over $220 billion over the course of two years. The failure of these companies who were seen as to big to fail had to be bailed out by the government in order to further protect the U.S citizens. In addition to the FDIC covering 90% of Citigroup’s $312 billion dollar portfolio, Citigroup was also forced to cut their 350,000 person workforce by over 30%. Now this was only one company’s losses, there were hundreds of other companies who suffered the same fate many of which were not lucky enough to be bailed out.

Now after it is all over and the damages have been accessed what have the American government, citizens and companies learned? After many companies nearly as well as became bankrupt it forced every single company and investor that the long term consequences of their actions need come before profits. Many companies also learned that no matter how large they may be they can still fail if they are not lucky enough to be saved by a government bailout. This economic crisis made companies realize the affect they had on the world economy and their actions alone were enough to bring the entire thing crumbling down around them. The American people were forced to improve their knowledge of their finical situation as well as being able to manage their finances because hundreds of thousands of people lost everything they owned because they bought a home they could not afford. This crash also forced many citizens to create a backup plan if they lose their job so they would not end up like those who were cut from these investment companies. The American government also learned that they must keep a watchful eye on the trading and investments of multibillion dollar companies in order to avoid another economic crash because they can and will fail. Then when they do fail the U.S government must be capable of bailing them out if the American people cannot afford to have this company fail. While it is a very drastic and horrible way to learn these lessons how else would we learn and better prepare for it if it never happens? These companies would continue to only focus on their profits unless they suffered an enormous loss because of their actions. The American people would never be as finically knowledgeable and responsible as they are now because of the crash. Likewise the government learned that they have to regulate these markets as well as be prepared to bail out billion dollar losses. The economic crash of the 2000’s was only a matter of time and now we are more prepared than ever to prevent the next one.

Warren Buffet on Derivatives." Fintools.com. Berkshire Hathaway, 2002. Web. 13 Nov. 2013. <http://www.fintools.com/docs/Warren%20Buffet%20on%20Derivatives.pdf>.

Daniella Portal Blog Post #4

Daniella Portal

GVPT200

Mark Shirk

11/12/13

The Financial Crisis of 2008 and International Relations

            When the Financial Crisis of 2008 hit, many critics were shocked as to why regulators, markets, and financial exports failed to see it coming.  The fall should be been obviously foreseen, as using the previous US economic crises as support that rising economies must see their fall. Now that it has been a few years after the major damage done in 2008, it is time to address the increasing concern whether the US is loosing is dominant economic position throughout the world, and if China is the emerging superpower. I do not believe that this is the case, and that the United States still has a strong hold on their economic position.

The US currently remained that largest national economy in the world, with an estimated GDP of more than $15.8 trillion, just $2 trillion behind the European Union. Yes, that is a significant difference, but remember that the European Union is a combination of many countries, where the GDP of the US reflects just one country. According to IMF, China’s GDP is expected to exceed that of the US in the next few years and so is the GDPs of small countries like Norway, Finland, and Qatar. However, these smaller developed countries are in no way to compete with the US, showing the GDP alone cannot determine the fate of the global economy.

Another way to assess this issue would be to analyze the rankings of such countries based on the Human Development Index, which assess the national income per capita, life expectancy, education, and other indicators of development. As of 2011, these rating put the US tied at third place with the Netherlands, following Norway and Australia as the top 2. Among global competitors, Japan was the only country who made the top 20. Ironically enough, China was ranked 101, showing the China as a whole is in no way ready to become a global superpower.

Additionally, the US occupies the leading position in the division of labor and production of technology, other indicators of developmental success. Though there is a significant sector of high-tech industries in China, the US is still 20% ahead of them. Also, China lacks the knowledge required for the high-tech manufacturing industry, which puts them at a disadvantage.

The advantage that China has over the US is in regards to the traditional manufacture of intensive labor products, which will eventually put China at the center of this economic sector, however it will be a while until such profit will outweigh the high-tech industry of the US.

There are many more indicators that assess from different angles a country’s position in the world economy. From the brief synapsis above, it is evident that the Financial Crisis did not affect US hegemony. At the time of the crisis, the US was seen as the superpower of the world, and its position has been questionable throughout the past few years. Though the crisis did shake different parts of the financial system, which decreased the productivity in some aspects of the economy, the US currently retains its position as the leader of the global economy.

Works Cited

Supyan, V. "The US in World Ranking: Economic Indicators." International Affairs 59.5

(2013): 130-41. Print.

Griffin Smith

Blog Post #4

                             

                         THE DARK SIDE OF EMBEDDED LIBERALISM

     Using Ruggie’s article on embedded liberalism as a jumping-off point, I would like to tack in the opposite direction of some of my previous posts and instead paint the picture that perhaps liberalism isn’t the saving new world order that many understand it to be and that it is perhaps simply a new rendition of an age-old monster.  This monster is the tedious game of international relations among states motivated by power and, perhaps more relevant in today’s context, the almighty dollar.

     Ruggie points out very early on that since World War II, world politics have been centered on efforts of cooperation through international organizations, specifically the United Nations.  We describe these institutions as bastions of fairness and cooperation, often subconsciously asserting the commendability of their actions and projects with descriptions such as “open” and “liberal”. But is this truly the case?  As Ruggie accurately points out, through these multinational endeavors not only does a global power hegemon emerge, but also an economic hegemon.  With the rise of globalization, national economies are now playing by the rules of a worldwide market where everything is defined by the measuring stick of the economic hegemon, which is often the seat of global power as well.  In turn, the system that is supposed to be promoting fairness and global development may in fact be keeping developing countries down.  This viewpoint is often overlooked, probably because it is easy to perceive something as fair when you essentially own the game.  Living in the United States, the virtual head of the world order and economy, I think we can sometimes be tricked into thinking the world is far simpler, and fairer, than it truly is.  However, I do not believe this situation to be directly the fault of countries like the United States or organizations like the U.N.  It is instead the result of factors in the current world economy that these powers fail to control.

    The first of these problems is one extremely common in third world or developing nations, which I will refer to as colonial mindset.  Colonial mindset is damage left over from colonial powers reorganizing and controlling these nations, and from the colonizers planting the idea in the heads of the indigenous population that their nation/race/system is inferior.  The result is visible today.  If you visit many third world nations (I visited the Solomon Islands), you’ll see that much of the indigenous population is complacent.  People often squat on sidewalks and street corners, doing next to no work and simply watching the day go by.  I believe this to be caused by one of two possible scenarios: (1) The people are so used to having themselves and their country exploited by higher powers that they believe work to be futile and of no benefit to themselves (they think their labor will be without reward) or (2) that they are conscious of foreign investment and infrastructure in their nation because of lucrative resources, and therefore know that the higher powers will always do just enough to keep the country from slipping over the brink into destruction.  In many remote parts of the world, it is common to be driving through the jungle only to come to a new bridge with an inscription of something similar to “a gift from the People’s Republic of China”.  As long as this exacerbated foreign involvement, whether good or bad, persists and countries are not allowed, or forced, to stand on their own, these “developing nations” will not develop.

     The second and perhaps most dangerous new factor of today’s world is the rise of the market state as the new medium of the nation-state.  With globalization, giant corporations now hold a huge share of power.  I have often heard said that the world of the future will not be dominated by an entity like the U.N., but rather by corporations.  This poses some serious risks and problems, especially for developing countries, because these corporations do not follow the same rules as states, nor are they constrained within national boundaries.  If the disproportionate power of these mega-corporations is not effectively reigned in, it could lead to havoc in the world economy.

Global Recession and The Lost Generation

Devin Savaskan                                                                                                                                               

11/11/13             

 

                In 2008, the world watched in horror as Lehman Brothers, one of the largest most important lending institutions in the modern era, filed for bankruptcy and shut its doors. Five years later, the globe is slowly beginning to pull itself out of a rut. However, the social impacts of the global recession maybe the most long lasting impact. The destruction of opportunity in the past couple years has already greatly affected the youth of many regions. It has left them incapable of facing the challenges of the modern economy and frustrated in their inability to do so. The global recession has led to a lost generation that can greatly lead to the polarization of future politics.

            Economic policies to combat recession in Europe have truly reflected the mindset of 1980s conservative re-birth. The global recession has turned Europe into a powder keg of youth unemployment. Greece and Spain alone see youth unemployment above fifty percent, with the whole continent reaching levels just below twenty-five. Europe, stuck in the German dominated union that it is in, must decide between government programs and austerity. Austerity is the policy of cutting government finances in hopes of balancing a budget. While in the long run it could lead to true growth, in the short term it can only prolong pain within an economy. The economy of France, Spain, Greece and many other struggling nations continues to shrink. Welfare programs are continuously depleted, and industries continue to cut workers as a means of improving profits in hard times. This along with previously mentioned youth complacency, are the building blocks of radicalism. Greece and Spain have been ground zero, for the rebirth of European fascism. The Golden Dawn party, a recently instituted government party in the Greek Parliament has been increasingly reported of having extremely racist, and revolutionary members. On the other hand, France has seen a resurgence of socialism even electing a socialist leaning prime minister. These extremes were created by the hopelessness surrounding the youth in hard times.  For Europe, the policies of austerity, while potentially beneficial in the long run, have the short run possibility of pushing a whole generation into extremism and unemployment.

            The global recession has also hit a more troubled region of the globe, the Middle East. Countries such as Tunisia, Egypt, and Syria, have for years been run by tyrannical secular dictators with no regard for the people they govern. However, most of those dictators for years have gotten by with atrocious policies with little angst from their civilians. That all changed in late 2009 with the emergence of the Arab Spring. The revolutionary movements which have taken hold of the Middle East stem from the unrest caused by the global recession. Much like in Europe, the youth of Arab countries have lost their way. As job prospects shriveled up so did the patience of the people of these countries. And what began as mass protests turned into rallies and army’s. Also much like Europe, the Middle East has seen its share of radicals, such as Al-Qaeda influencing the youth during this period of Economic stand still.

            And what is to become of the same generation in the United States. The expectation of a college education in America is one not completely shared by foreign counterparts, however it may only be working to delay the inevitable. A continues number of students graduate only to discover their degrees maybe worthless in finding them employment. And while the movement of the ninety-nine percent movement lacked centralized leadership, the emergence of the Tea Party, the continued polarization of political parties, along with the major demographic shift taking place is enough to radicalize the youth in the United States as well. The longest lasting impact of the global recession, could be the complete radicalization, and polarization of an entire generations political views.

Blog 4: Globalization by Mark Russell

Mark Russell

GVPT 200

Prof. Shirk

November 10, 2013

Blog 4: Globalization and the Thought of Corporate Governance

            Globalization has always been a topic of interest to me as someone who likes addressing the bigger picture and world politics as a whole. From the lecture and the slides, I would like to address whether or not the idea of Globalization has come about recently or not. In my mind, globalization is the spread of goods, cultures, and ideas, which has been present since the beginning of time but I think the origins start with the Roman Era, and the Silk Road and are truly shown with the expansion of the British Empire.

Globalization is defined as, “the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets,” by Merriam-Webster, with its first use recorded in 1951. However, we can’t believe that in 1951 globalization was originated.

The first example that came to mind was that of the Roman Empire. Now while I don’t believe that this is true globalization, I do believe that it contains many of the fundamental aspects needed. The Roman Empire was the first civilization to rapidly expand while carrying their culture, religion, and form of government and spread it to the territory that they inhabited. Now while they did not connect the entire globe, the Romans had the most powerful empire in the world for centuries while exploring and mapping the known world.

Although it was not a civilization, I believe the Silk Road could also be looked at as a basic form of globalization. Once again there was a free flow of capital throughout the Middle East and China. This trade route is the epitome of free trade and the development of new ideas. However, this did not touch on a global scale, as implied in the name of globalization. So far these two examples have provided solid examples of parts of globalization, however I believe that neither had the full sense of interconnectedness needed to be considered global.

With all that being said, I believe the first true example comes with England. To establish the key point that the other two examples lacked, it was said that the sun never set on the British Empire, establishing that it covered a vast amount of territory from Africa to India and the United States. This empire was like nothing before them, controlling the most territory through a dominant navy and a prolific army. With this empire there was constant trade of goods from all over the globe while ideas and culture also spread. Additionally, They were constantly exploiting free or cheap labor through these colonies which is similar to what the Roman’s had done throughout history.

However, I believe that this can be seen because of Britain’s rise to be a unipolar power. In my mind there was no other nation quite like them in the global system that allowed for them to take power and control it for so long.

In the 1950’s this unipolarity order arose again this time by the United States, with the development of modern technology. However, I d strongly believe that this has been demonstrated well prior to this point, while sometimes not in full. Although it was mentioned within the slides, I believe that there was more to touch on and discuss within this essay.