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Economic Crisis

The manipulation of this system by factors inside or outside the system can lead to severe negative consequences for the participants of the system. There are many different types of risks in finance. These types and amounts of risk basically provide a rational framework for making financial decisions (Madura, 2007). Therefore the investors face uncertainty when risk surfaces which were not considered before. This uncertainty can lead to a major crisis. Once the general public does not trust the financial system they would not use it. This is system is based on a network of different individuals who keep an equilibrium by injecting and withdrawing funds. To further understand this situation image a country whose public does not believe in the local education system (Madura, 2007). The people there would stop enrolling and slowly the system would just collapse as there would not be any students. A similar situation can be seen for the global economic crisis, similar think started the collapse of the American Economy.The first recession which eventually turned into the global economic recession should be understood and studied in order to comment on the current global economic crisis. The recession of the 1930s also stemmed from the United States of America just like the current global collapse (Paulson, 2010). Due to the severe amount of damage, it caused the entire world. This depression became to be known as the Great Depression. The damage due by this depression was beyond measure. The collapse of economic Europe which later led to World War 2 as a result of this Great Depression. America had actually lent huge amounts of loans to its allied European nations, however, once its own economy came under pressure it asked for the return of its own loans, which in turn led to the collapse of their economies.