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Money and Banking

Mishkin wrote many arguments concerning the U. S. financial system. Essentially, the basic argument of Mishkin is that many of the structural aspects of the U. S. financial system can be explained in terms of transactions costs and asymmetric information problems. The arguments of Mishkin in this topic is convincing since he was aware that financial markets is vital to the way people save their funds in line with productive investment schemes. In this juncture, Mishkin is also fully aware of the economic downturn which is a result of the defective financial system.

Primarily, Mishkin argued that transaction costs and size of securities post caused huge financial problems country (Docstoc. com, 2009, p. 1). The role of financial intermediaries or banks in preventing any harm or risks to investors is vital in this aspect. Secondarily, Mishkin also disclosed the asymmetric information which reflects that while moral risk exist after a transaction and relates to activities the borrowers performed, which is unwanted to the lender, but which the lender is not aware of (Docstoc.

com, 2009, p. 1). This phenomenon results to the financial breakdown and difficulties of some investors. In connection, the asymmetric information analysis has something to do with Enron bankruptcy

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scandal. Some borrowers of the investors that are connected with Enron performed activities that are inimical to the business operation of the company. Besides, the leaders of the company also performed activities that caused moral hazard to the said business organization.

Finally, analysis of both transaction cost and asymmetric information which is related to financial structure is vital in understanding the U. S. economy. Hence, Mishkin is convincing in providing the aforementioned arguments. References Docstoc. com. 2009. Mishkin, Chapter 8: An Economic Analysis of Financial Structure. Retrieved April 29, 2009, from http://www. docstoc. com/docs/2374208/MISHKIN -CHAPTER-8-An-Economic-Analysis-of-Financial-Structure.

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