Sample Essay

In the case of the financial sector, large financial companies like the Citibank are bound to give their clients asymmetrical information about their fixed securities. This is because the customers are very loyal to the bank and thus they tend to believe whatever they are being told. Due to the customers may end up receiving over priced services, which could prove to be none performing. The over reliance on the information offered by the bank only may lead to one buying the product without knowing the exact risks involved in it. This is what happened in the case of Lehman Brothers for they were selling their fixed securities to the people without first warning them of the risk involved.

The customers were not told everything that they should have known before making their decisions. The big banks in the US had also used their positions in the market to change legislation that was preventing people from borrowing what they could most likely not be able to repay. At the end of the day, customers and the banks incurred heavy losses. This argument leads to the conclusion that large financial institutions should be dismantled as they may lead to asymmetry in information, misallocation of resources as well as the risk of mispricing their services. It is evident that in a market with few large firms there will always be informational asymmetries that lead to the large financial institutions enriching themselves with their extra ordinary profits, which are countered by their misallocation of resources.

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