Financial Markets and Institutions

Abstract

It is obvious that economies depend on markets for labor and for products, such as consumption goods. In these markets, the so-called “Main Street”, employers find employees who are most suitable for them, and households find products which are best for them. So why then is there a need for Wall Street? That is, why is there a need for bond markets, stock markets and a variety of option markets, where enigmatic persons such as Warren Buffet, George Soros and Bernard Madoff snatch each other’s money? And why do workers and entrepreneurs of “Main Street” need to rescue institutions of Wall Street (investment banks, commercial banks, mortgage banks, etc.) from collapse with billions of dollars in the end? These controversial questions can only be answered if one understands the functions of financial markets and their institutions.