Crop Circles

Finance economics looks at the allotment of capital, labor, and material over time. We live in in an uncertain environment. It examines how money is traded now to create money in the future. It tries to gauge the amount of money transferred into the future, based on risks and uncertainties. It looks at how decisions by one party can make a decision to affect the money transfer in the future. And lastly, it examines how certain knowledge of the future can reduce uncertainty.  Their safety ratings and bank checks seemed on target, so they led us to believe.

A number of new economics books are focusing on how the calculations may have been off, leading to the current recession. A number of voices were calling out the warnings all along, it seemed, but they were drowned out by others who were overtly confident that the system itself could never fail.

Fair value of assests is the focus of financial economics, how risky assets are, which discount rates should be applied, what cash flows will come from a transaction and which assets or events cash flows are dependent upon. As such, it has classically been at-odds with behavioral economic theory. Commodities, stocks, bonds, money market, financial institutions, derivatives, regulations; these are all the language of bank and finance economics.

Behavioral economists, on the other hand, take a more psychological approach to finance. They examine how economic decisions by borrowers, consumers and financial institutions affect market prices, returns, values and allocation of resources. Bubbles, market trends, socioeconomic trends, market crashes and directional trends, prospect theory; this is some of the terminology used in that discipline, which tends to consider more microeconomics theories. However, on the personal economic front, catching a break from high prices is attention getting. Purchasing cheap checks online  are a practical way to benefit from online sources that have found a more efficient way to market their product. Saving 50% off what banks would charge, cheap personal checks online is a direct boost to anyone’s bottom line.

Even though financial economic experts propose solutions to problems, politics can devastate the implementation of any meaningful solution. Now that they’ve acknowledged the potential devastation that “bubbles” can cause in the market, they must work out how to manage those contingencies and limit the scope of the damage. They must learn how liquid markets can suddenly dry up and determine which policies or actions could keep cash flowing freely and purchasing power strong.

A purer form of capitalism would solve most problems, but the socialist agendas prevent such implementation. They must look at how wrong-headed government regulation (or lack thereof) played a part in the current crisis and make intelligent recommendations for the future. They need to find new models for calculating systemic risk and help bank institutions look at the cause and effect picture in management economics to make more informed decisions.