Crises have been major characteristics and elements of the financial scenery for hundreds of years. Financial crises happen with no warnings; one of these financial crises is the subprime mortgage crises that took place at August 2007 in the United States as a result of striking rise in the financial negligence and wrong doing. Moreover, many other financial crises have occurred as a result of the U.S crises which affected the globe. Asian countries including Hong Kong, Singapore, South Korea, and Taiwan known as the “Dragons” in addition to Indonesia, Malaysia, Philippine and Thailand known as the “Tigers” has also faced financial crises. Asian financial crises have started to occur in the year 1997-1998 after they were a great example of the financial and economical success and development at high rates. The financial crises started to occur in Asia in the year 1997 after the Baht which was the currency of Thailand was out under pressure and the government didn’t support and defend it anymore in July 2, 1997 leading to a 14% decrease of the currency on the local, on ground market and decreased up to 19% in the close lands I.e. the offshore of the market (Franck and Fourcan, 2003) . These crises have continued and extended with the problems that have faced the currencies of Philippine and Malaysian which were the peso and ringgit respectively. The government tried to defend these currencies but they had failed to do so and the loses increased which pushed the central bank of Malaysia to stop defending the ringgit in July 11 and the central bank of Indonesia to stop supporting the rupee on the 14th of August. These crises have continued to reach the Asian countries known as “Dragons” that stopped defending their currencies after their decrease. The financial crises have also attacked the “European Monetary System” in 1992-1993, the Mexican crises in the year 1994-1995. As a result of the financial crises at the United States have affected the global markets not only the local markets. In general financial crises are used to describe all the bad monetary situations that lead to sudden unexpected losses in the assets and money value of a certain country, the financial crises are always associated with panics in the markets and great loses. Beside what is mentioned above, there are several types of financial crises that have different causes and different effects globally and locally. Moreover, there are several theories that discussed the issues of financial crises from different angles and different points of views.

The above map shows the growth in the GDP all around the world in the year 2007, it shows improvement in the production of goods and services as well as improvement in the value of the assets and the profits.

Literature Review:

Continuing financial crises and depressions of the economical world quickly during the last 50 years, this fact has gave curiosity to the scientists in order to explore the world of economy and find solutions for the financial problems starting with Jean Charles Leonard de Sismondi, who was followed by several scientists that established different theories from different angles and different points of views, aiming to reach equilibrium between the supply and the demand to decrease the financial risks. Some of those are Karl Marx, Hyman Minisky as well as the “coordination games”, and “Herding and Learning Models “.

Marxist Theory:

The central theme of Karl Marx was to develop an economical theory; Marx’s theory was based on materialism, and a materialistic analysis of the case aiming to centralize the profits. From Marx perception successful working industries pay for the employees less than the profits which mean that in this case wages and salaries of employees are less that the gains of the company, where the company uses the profits in order to cover the money paid in the business investments, this action in the long run leads to great loses because as the population will not be able to pay the costs of the products since the wages are lower. In addition to that, when the businesses want to expand their business the prices directly fall.

This theory and its concepts are only valid under three conditions:

1. The taxes placed by the government and returned to the population including families, welfare, benefits…
2. Portion of the people who are employed compared to the business man and the investors.
3. The huge amount of money and capital needed to start big businesses such as military industry, airline transportation, the production of chemicals …

Beside what is mentioned above, the empirical and econometrics researches continued to study and explore the “world systems theory” and studying the economical cycle especially after the oil crises.

Minisky’s Theory:

Hyman Minisky planned a “post-Keynesian” which a school of economic thought. Minisky was concerned about the domestic market the universal expansion of monetary weakness; the movement to the threshold of monetary disaster; the disturbance of steadiness by unusual and surprising events, and “debt-deflation”, including the skills to stop the “debt-deflation” procedure. As the development and growth extends, confidence enlarges, and meetings about the appropriate height of balance due and danger start s to alter. Prices of monetary possessions increase and the universal altitude of assumptions rises. Speculation is in use to be the effort to bet on the upcoming way and type of the marketplace. In addition to that, with respect to Minisky fragile economics is the path to the financial crises, Minisky made his analysis easier by developing three ways a firm can follow, “hedge finance, speculative finance, and Ponzi finance”. First, hedge finance, profits movements should meet up with the economical responsibilities all the time taking into consideration the principal and the significance on mortgages, second speculative finance means that the organization has to evolve over the liabilities because revenues are meant to cover the interest costs without covering any of the principal costs, third for Ponzi finance, is the most dangerous and fragile one because the income flows don’t neither cover the interest cost nor the principal cost and in this case the company is obliged to borrow money to minimize the liabilities. In this case the only solution is to increase the market value in order to be able to pay off interest and principle costs.

According to Minisky, fragile finance is directly related to the business cycle and they move together in the same dimensions, for example after the recession the best approach is the hedge since it’s the easier and the most economical and secured one, whereas when the profits are increasing and they are enough to cover all the interest speculative financing is the best approach. After the financial crises, refinancing will be difficult to obtain for many reasons especially if there is no new money entries which will lead to serious economical crises, and during recessions the business cycle will be closed.

Coordination Games: