The Economic Dependence on Banks and Financial Establishments

The Economic Dependence on Banks and Financial Establishments

  • Submitted By: mohitg
  • Date Submitted: 02/11/2009 9:50 AM
  • Category: English
  • Words: 478
  • Page: 2
  • Views: 360

a for apple
b for
book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book book books. Every modern economy requires a financial system to bring risk-averse savers and risk-taking entrepreneurs together. Some countries do this more through commercial banks and some more through capital markets. Both models are prone to trouble—remember that “financially repressed” Japan in the 1990s had as severe a banking crisis as “financially innovative” America has today.
The problem is that banks and other financial institutions are inherently unstable animals that can pull an entire economy down with them—and hence need tight regulation. There is a growing global consensus on this right now.
Where does that leave bankers and their stratospheric salaries? Recent research suggests that legislative action may not be needed to bring finance sector salaries closer to those in the rest of the economy. The deflated bubble and stricter regulation of banks will almost automatically do the job.
Thomas Philippon of the NYU Stern School of Business and Ariell Reshef of the University of Virginia have recently done a detailed study for the National Bureau of Economic Research on how wages and skills in the US financial industry have changed between 1909 and 2006.
They have charted out a U-shaped pattern over the period of close to a century. From 1909 to 1933, the US financial sector was a high-skill, high-wage island. Then there was a huge change as “the financial industry rapidly lost its high human capital and its wage premium relative to the rest of the private sector”. This phase lasted till around 1980. And the finance business once again became a high-skill, high-wage one after that.
It is pretty obvious that these long-term...

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