Running head: ABC COMPANY MEMEORANDUM

ABC COMPANY MEMEORANDUM

Author’s Name:

Instructor’s Name:

Course:

Due Date:

ABC COMPANY

MEMORANDUM

To: The Chief Executive Officer of ABC Company

From: The Executive Assistant

Date: May 7, 2011

Subject: Summary of the book “fall: America, free markets, and the sinking of the world’s economy by Joseph E. Stiglitz”, findings, and recommendations/ conclusions.

Introduction

This memo aims at giving an overview of the book written by Joseph E. Stiglitz that talk about the America, free markets, and how the world’s economy is sinking. In addition, alongside the review the purpose of this memo is to provide the findings about the various changes that have resulted in the current economic situation. This is because the main area of focus will be on emerging changes in the financial or regulatory environment. Towards the end, of the memo, conclusion and various recommendations concerning the business will be highlighted. The author of the book is one of the world leading scholar and an expert on market failure. His latest book about the freefall is comprehensive and up to date as it is made up of both the theories and facts.

This is one of the most compulsory books for everyone who aims at understanding the financial crisis experienced. In his book, the author has tried to analyze the various economic reasons for the fall of banks. In addition, he goes ahead to expound on the misled faith of the entire nation concerning the ability of the free market to regulate themselves and guarantee wealth to others. In his work, the author has tried as much as possible to criticize those individuals who just muddle through instead of emphasizing on the importance of change.

Discussion

Summary of the book

In this book, it is believed that the market lies at heart for every successful economy. However, it can prove difficult to have an efficient market in situations where there are no government regulations. In his book, the author criticizes the United States of America finance industry, it size, level of ignorance that exists in the industry, and high level of risk. It was believed that taking over was the only solution for a firm that failed to comply and take advantage of the opportunities. Takeover was not friendly as there was an emphasis of hostile takeovers in situations firm failures (Stiglitz, 2010).

In every financial institution, that offers mortgage to customers it has been confirmed that the impact of such mortgage default is enormous. In addition, problems have resulted in financial institutions because most of the time mortgage speculators compute and announce a high return from foreseen closures than the real computations of the mortgage that have been refunded. Freefall has done a perfect job in giving and putting across the various issues that talks about economic recession problems experienced in America in 2008 (Stiglitz, 2010). In his argument, he claims that it is difficult to trace the various developments that have emerged to the mortgages and loans acquired by the investors. Despite the fact that he claimed the necessity of having government regulations on financial institutions, he states that is not the only solution.

The author has paid a lot of attention to other factors stated to have been influenced by the government action (Stiglitz, 2010). International, the supply has been confirmed to be more than the demand, and as a result, he has emphasized on the importance of boosting demand. He points out the rising level of inequality that shifts money from those who spend it to those who did not spend who, as a result, weaken the general demands of the consumers. In addition, the high level of prices for oil has been mentioned as one of the issues that have had a significant impact on the low-income earners. As a result of these, the Greenspan has been encouraged to hold the interest rates low so as to minimize the level of negative impact that can result.

Finally, the author believes that there exist individuals who have short term decision making individuals who believe that the markets are most of the time inefficient. He then concludes that the banks that are considered to be so crucial to fall should pay high rates as deposits for their insurance cover. This will enable such institutions to with stand situations that befall during economic recession experience in a state. It is then considered necessary to have an appropriate means of communication between the state and the free market.

Findings concerning the changing business environment

Indeed, the changing environment has had substantial impacts on the business and thus a lot of cushions and adaptations should be the target for every business. As a result, this company is not left behind as there is the need to be flexible and be ready to adapt to the changes that come up in the market. In understanding the book written by Stiglitz, the concepts of economics are put forth clearly thus enabling us to understand that there are a number of issues that have changed which makes it necessary for businesses to adapt.

In this company, it is true that the political factors and government regulations have considerable impact on the operation. For instance, political factors have always been contrary with the company’s ideologies. In addition, the political views concerning the company’s desires and developments might not be true neither are they easy to comply. This then can hinders the development aimed within the company and at the same time can help enhance development.

Government regulations, on the other hand, have had a considerable impact on the company’s operation. This is because, for the company to be able to secure financial support from the various financial institutions a lot of measures must be complied. The government has regulated most banks in terms of the level of money they are allowed to lend to the public. In addition, the rates charged by the bank for the money lent to customers are controlled by the government. In this case, when we have tried to acquire financial support from financial institutions, we end up paying high rates of interest for whichever amount of money we are given. As if that is not enough, a lot of barriers have been put in place which restricts us from obtaining the money.

Conclusion

As stated by Stiglitz that it is necessary to have sufficient information between the government and banks, the same should apply to this company. It is necessary to have an organization within the company that allows free flow of information right from the management level down to the young employees. For instance, the chief executive officer should be willing to have a bottom to top communication. This is communication, which involve passing of available information from the junior employees to the senior. As a result of these, the company will be able to have sufficient information concerning the prevailing conditions in the market. This is because; in many companies and organizations, it is believed that the junior employees have access to more information about the free market as compared with the senior. Therefore, if this is allowed to dominate in this company, as the chief executive manager will get all the relevant and necessary information about the market from the junior employees. This will also allow us to have a proper analysis of the prevailing market conditions.

Recommendation

Having analyzed the book by Stiglitz, and at the same time looked at the prevailing changes that are taking place in the business environment in relation to our company it is then worth noting that;

1. The government policy decision makers are capable of bringing fort an efficient, economic outcome. However, their ability can only be constrained by factors such as monopoly power, externalities, and irrationality that prevail. As a result, businesses including this company should try as much as possible to work in line with the requirements and regulations put across by the policy makers.

2. Most of the economic models are only the approximations of reality in the market. As a result, approximations should not let us be frustrated but should rater make us work towards meeting them or should let us work even higher.

3. In this country, it could be better reforming banks to enable a number of business and companies to have access to the financial support they could desperately be in need. As a result of these, the challenges, which we have, recently experienced in acquiring cash for company’s development, will be a forgotten story. In addition, this will enable us to develop and achieve set targets.

4. Finally, companies and business need to work hand in hand with the financial institutions such as banks, and even the government. This is because; it will enable the government to reduce the chances of economic recession in the country and at the same time enabling businesses and companies to acquire funding for their development. From this recommendation, it means that even this company should be led in a manner that is suitable and capable of encouraging an intimate relationship. In addition, the chief executive officer must be willing to let the company and its operations appreciate the importance of the government and banks.

References

Stiglitz, E.J. (2010). Freefall: America, Free Markets, and the Sinking of the World

Economy. New York: W. W. Norton & Company Publishers.

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ABC is a Company based in United Kingdom that major in production and distribution of consumer goods. The company has recently been assigned a new chief executive officer from a company based in India that deals with production and distribution of industrial goods. As a result, he needs to be brief of the changes that exist in the business environment.