Finance economics looks at the allocation 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 uncertainty and risk. It looks at how one party of the transaction can make a decision to affect the future outcome of the money transfer. Last, but not least, it examines how certain knowledge of the future can reduce uncertainty. Their safety ratings and bank checks seemed reasonable, so they led us to believe.
One could also argue the government is taking the necessary steps to get the economy back on track, according to numerous theories of macro economics. However, the blinders were on for many of the nation’s most respected economists and it’s going to take some progressive solutions to bring redemption to this tarnished profession.
Financial economics focus on the fair values of assets, how much risk is in the asset, which discount rates should be applied, what cash flows will come from a transaction and which events cash flow or assets are dependent upon. Therefore, it has a combative role with behavioral economic theory. Stocks, bonds, commodities, derivatives, money market, financial institutions, 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, allocation of resources and values. Bubbles, market trends, crashes, socioeconomic and market 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 financial institutions would charge, cheap personal checks online is a direct add on to anyone’s bottom line.
Finance economics experts have a lot of work to do. Bubbles in the market are often the result of government influence on banks in that they impose artificial constraints on lending practices, they must figure 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 special interest 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.