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I identifyone conception that is leverage which occurs at 0.20 in the film. Leverage, onpage 242 in our textbook, is defined as the ratio of debt to equity, which affectsthe probability of its bankrupt. This is the case becauselarge amounts of debt, such as bonds and loans, increase the borrower’sinterest charges and pose a significant claim on its cash flows.
There are lots of causes of the GlobalFinancial Crisis of 2008, such as the housing bubbles, Subprime lending. In my opinion, the most primary cause is therepeal of the Glass–Steagall Act in 1999. TheGlass–Steagall which established in 1933 separated of commercial and investmentbanking. However, the repeal of the Glass–Steagall Act in fact eliminated separationof the risk of investment banks and deposit of commercial banks, which exposeddeposit and commercial banks to risk. Without the main regulation, more andmore commercial banks to join the feast of derivatives which increase risk.
In my opinion, thesupervision and regulation of government and central bank is the single most important remedy. For example, commercial banks are intermediationwhich should reduce the permittedactivities of commercial banks. Moreover, increasing the capital ratio ofcommercial banks is effectivelyreducing the risk. Therefore, governments and central banks play an importantrole in economic stability.
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