Discussion On Regulation And The Greater Good

Discussion 1regulation And The Greater Goodafter Viewing The Crisis Of

Discussion 1 Regulation and the Greater Good After viewing The Crisis of Credit Visualized video, respond to each of the following: 1. How could government regulations have prevented or mitigated the credit crisis of 2008? 2. Discuss whether too much governmental regulation of business or too little governmental regulation of business presents the greater danger to: a. the greater good b. business Jarvis, J. (2009). The crisis of credit visualized [Video file]. Retrieved from Discussion 2 Administrative Law and Business Some argue that government needs to increase its regulation of business for the good of society as a whole, while others believe that the marketplace is self-regulating and that government intervention through needless regulation places an unfair, costly burden on businesses in general and on small businesses in particular. What role do you believe government regulation should play to ensure ethical conduct by businesses? How do different political viewpoints potentially shape the answer to this question? Text Book> Seaquist, G. (2012). Business law for managers . San Diego, CA: Bridgepoint Education, Inc.

Paper For Above instruction

The global financial crisis of 2008 marked a significant turning point in understanding the necessity and impact of government regulation in the financial sector. The crisis was precipitated by a combination of excessive risk-taking by financial institutions, lack of transparency, and insufficient regulatory oversight. Analyzing how government regulation could have mitigated this crisis reveals the critical role that effective policy mechanisms play in safeguarding economic stability. Additionally, exploring the balance between over-regulation and under-regulation affords insight into safeguarding the greater good and ensuring a thriving business environment.

Government regulation plays a pivotal role in preventing financial excesses that can destabilize the economy. One of the primary ways regulations could have prevented or mitigated the 2008 credit crisis involves strengthening oversight of mortgage lending practices. Regulatory agencies such as the Federal Reserve and the Securities and Exchange Commission (SEC) could have implemented stricter standards for mortgage approvals, ensuring that lenders verified borrowers’ ability to repay. Under the Community Reinvestment Act (CRA), banks were incentivized to lend within certain sectors, but the deregulation era led to the relaxation of lending standards, resulting in subprime mortgages proliferating. Regulatory agencies could have imposed limits on risky mortgage products, requiring transparency and clarity for consumers, thus reducing the likelihood of default and subsequent financial contagion (Acharya, Philippon, Roubini, & Werner, 2011).

Furthermore, improved oversight of derivatives markets could have alleviated systemic risk. Financial derivatives like Credit Default Swaps (CDS) were heavily implicated in amplifying the crisis due to their opacity and interconnectedness among institutions. Regulations mandating comprehensive reporting and higher capital requirements for derivative transactions would have reduced the buildup of systemic risk, present in the form of enormouse exposure that could threaten the entire financial system (Brunnermeier, 2009). The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was enacted after the crisis to address some of these issues, illustrating the importance of proactive regulation.

In terms of whether too much or too little regulation presents a greater danger, the debate centers on the impact on the greater good and business vulnerabilities. Excessive regulation can stifle innovation and economic growth, potentially leading to unintended consequences such as reduced competitiveness or increased costs for small and medium enterprises. Conversely, insufficient regulation invites unchecked risky behavior that can lead to catastrophic failures affecting millions—evident in the 2008 crisis. For the greater good, balanced regulation is essential; it safeguards consumers and maintains financial stability without unduly burdening businesses (Helleiner, 2014).

Regarding the danger posed to the greater good, too little regulation presents a significant threat because it allows unethical conduct and risky practices to flourish, ultimately threatening economic stability and public trust. Ungoverned markets can lead to bubbles and crashes, causing widespread hardship. However, when regulation is too heavy-handed, it can hinder entrepreneurial activity and economic dynamism, potentially leading to stagnation. Therefore, a nuanced regulatory framework that adapts to market conditions and promotes transparency is ideal for promoting both societal welfare and business vitality (Stigler, 1971).

From a business perspective, excessive regulation may increase compliance costs, hinder innovation, and reduce competitiveness, particularly affecting small and medium-sized businesses that lack the resources to navigate complex legal requirements. On the other hand, minimal regulation exposes businesses to unethical practices, fraud, and financial collapses that could ultimately damage their reputation and viability (Seabright, 2019). Ensuring ethical conduct involves a combination of regulations that enforce transparency, accountability, and fair practices, balanced with incentives for responsible corporate behavior.

The political landscape influences how regulation is perceived and implemented. Some political ideologies favor deregulation, emphasizing free markets and reduced government interference, believing that markets self-correct and that regulation hampers growth (Hayek, 1944). Conversely, others argue for increased regulation to address market failures, protect consumers, and ensure social equity. These viewpoints shape legislative priorities, with policymakers' regulatory approaches often reflecting their ideological stance, which impacts the effectiveness and scope of regulations (Ostrom, 1990).

In conclusion, the 2008 credit crisis exemplifies the need for thoughtful regulation that mitigates systemic risks while fostering economic innovation. Effective oversight, especially of risky financial products and practices, could have significantly reduced the crisis’s severity. The degree of regulation should strike a balance—ensuring ethical conduct, protecting the greater good, and enabling business growth. Ultimately, well-designed regulatory frameworks that adapt to market realities and political influences are essential for sustainable economic development and societal welfare.

References

• Acharya, V. V., Philippon, T., Roubini, N., & Werner, A. (2011). Measuring systemic risk. Harvard Business Review, 89(4), 38-45.
• Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007-2008. Journal of Economic Perspectives, 23(1), 77-100.
• Hayek, F. A. (1944). The road to serfdom. Routledge.
• Helleiner, E. (2014). The Status Quo and the Future of Financial Regulation. Global Policy, 5(4), 405-410.
• Ostrom, E. (1990). Governing the commons: The evolution of institutions for collective action. Cambridge University Press.
• Seabright, P. (2019). The Price of Prosperity: Money, Markets, and the State. Oxford University Press.
• Stigler, G. J. (1971). The theory of economic regulation. The Bell Journal of Economics and Management Science, 2(1), 3-21.