Regulation and the greater good-discussion & reply to edwards & karen

 

After viewing The Crisis of Credit Visualized (Links to an external site.)Links to an external site. video, respond to each of the following:

  • How could government regulations have prevented or mitigated the credit crisis of 2008?
  • Discuss whether too much governmental regulation of business or too  little governmental regulation of business presents the greater danger  to:  
    • the greater good
    • business

Guided Response: Respond to at least two of your  fellow students’ posts in a substantive manner. Some ways to do this  include the following, though you may choose a different approach,  providing your response is substantive:

Agree or disagree with other students’ positions. Defend your position by using information from the week’s readings.

 

Government regulations could have prevented the credit crisis in 2008  by way of not allowing federal agencies to make up their own rules and  setting stricter guidelines for them to follow in the administrative  procedure act. Since investors could not get much on their return from  investing in treasury bills, they got connected with home mortgages and  made money so easy that they were willing to give easy perquisites on  home owners. “Lenders started adding risk to new mortgages by not  requiring down payments and no proof of income. Instead of lending to  responsible homeowners called prime mortgages they lending to less  responsible homeowners called subprime mortgages” (“The Crisis of Credit  Visualized”, 2012). Investors should have known that if they let a  person purchase a home with no steady income, down payment, or a credit  check, the mortgage will more likely go into default within a few  months.

Too little governmental regulation of business is a greater danger to  the greater good and business because investors can greedy like they  did in the mortgage crisis. Some may argue that too much government  regulation can prevent the economy from growing, but it is needed in  most cases to keep it going in the ruins like the credit crisis. Because  of the credit crisis jobs had to let go a lot of workers due to the  budget cuts, which made unemployment rates sky high. Stricter  governmental regulation would have prevented job losses, and people  losing their homes and business properties because of interest rates  being excessively high.

References

The Crisis of Credit Visualized (Links to an external site.)  Links to an external site. on Vimeo. (n.d.). Vimeo, Your Videos Belong  Here. Retrieved October 19, 2012, from http://vimeo.com/3261363 (Links to an external site.)

 

Credit crisis is dangerous for the economy which can only be  mitigated using the better leverage position of the company. The video  describes about the integration of investors and the owners of the  premises. The mortgage broker is involved in connecting the owners and  the investors so as to establish a credit position in the economy. The  economy is set as strong with the help of collateral debt obligation in  order to improve the economic situation of the company. The Central Bank  shall better be able to meet the financial crisis with a lower interest  rate that has taken few steps in connecting the lending process.

Too much of government regulations affect the market but these also  help in providing confidence of safety towards the respective banking  system. Thus, the deposits might be withdrawn and shall therefore be  secured by establishing various guarantees in the form of treasury  bills, certificate of deposits and respective classes of investors as a  whole.

Important actions shall be taken by the government at the time of  crisis within the country which shall therefore be able to manage the  existing resources and the lending methodology. The prevention of run on  bank to the customers and investors shall be appropriate so that the  public shall better be able to manage the resources efficiently and  effectively. Mortgages being sold to those people, who were not being  able to repay the money, hence shall have an impact on the financial and  economic front.

In order to conclude, the economy shall be able to manage the funding  process and too many regulations shall be engaged in a dangerous and  crisis situation within the economy. Strict regulations would be able to  fund the existing resources and the respective strategies shall be  adopted using substantial degree of estimation.

References

Fahlenbrach, R., & Stulz, R. M. (2011). Bank CEO incentives and the credit crisis. Journal of financial economics99(1), 11-26.

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