This Week In Finance

"The State of the World"

The new semester has begun in earnest for most of us, and, in teaching the introductory corpfin course, I am always looking for ways to interest non-Finance majors in the discipline. (We think Finance is inherently fascinating, but not everyone agrees . . .)

Anyway, one point I make early on is to suggest that any decision-maker, financial or otherwise, must have a solid understanding of the financial markets and the macroeconomy. Additionally, s/he must have some understanding of the effect of world events on markets and national economies.

A short article in the September 27th issue of Fortune entitled "Remember the Global Economic Crisis of '98? Big Trouble is Still a Heartbeat Away" should provide a good springboard for class discussion of "big-picture" issues, as well as an opportunity to clarify and explain the importance of Federal Reserve policies (and why Alan Greenspan may be the most closely-watched person on the planet).

The article suggests that, while some people are breathing sighs of relief that the world seems to have weathered the economic crises of last year (the Russian meltdown, the Pacific Rim currency crisis, etc.), the world financial picture is far from certain. Specifically, Joseph Stiglitz notes that economic reforms over the past year haven't gone far enough. And, since "the U.S. stock market now accounts for more than half the value of the world's equity markets, compared with 35% a decade ago . . . an accident could well throw the economy of the rest of the world into chaos."

As such, this might go a long way toward explaining the incredible attention paid to Greenspan's every utterance (and, according to friends in the stock brokerage business, the thickness of the valise he carries across the street when he goes to testify to Congress). What do your students think?

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