Respond To How Could Government Regulations Have Prevented O

Respond To How Could Government Regulations Have Prevented Or Miti

Respond to... • 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: o the greater good o business After watching the video The Crisis of Credit Visualized , I have a much better understanding of the bigger picture of what happened in the 2008 credit crisis. I was aware that it was a result of the banks giving mortgages to people who they shouldn’t have given a mortgage to, but I didn’t fully understand the reasoning that drove that act. This was a very clarifying video that explained the credit crisis very well. I think that if the government would have set regulations on the qualifications of a mortgage to regulate the irresponsible lending that occurred to people who could not possibly have afforded the loans that they were taking out, this could have prevented the crisis. Responsible lending and borrowing are important not only for the person taking out the loan and for the bank, but for the entire economy. This is what I think justifies the government regulation in this area because it affects the greater good, not just one person or company. Government regulation of the requirements of who qualifies for a loan, such as the debt vs income ratio, credit score, employment verification, etc., would have averted this crisis. Government regulation is a tricky subject. Whether too little or too much government regulation poses the greater danger to the greater good and to business is a very difficult question to ponder. “As both government and government regulation have steadily grown, starting in the first half of the 20th century, agencies, as the instrumentality of that growth, have likewise swelled in size and power†(Seaquist, 2012, section 5.1). The government agencies have gained more power in business and have made more regulations and rules over time, but as we have seen in the video The Crisis of Credit Visualized this may be for the greater good of the people. Without these regulations and rules, it seems that wealth and greed can drive businesses and people to act in a way that is detrimental to the greater good. Too much government regulation on business can be a bad thing for businesses because it imposes more rules and regulations that the business would have to follow, which means more work for the business. For a business this can also become costly because of the amount of money that the business will have to spend to remain compliant, and the amount of money that the business will have to spend in fines if they are found to be out of compliance. “A congressional grant of authority to an agency often includes the ability to carry out investigations, create rules that are the functional equivalent of statutes, hold hearings to adjudicate alleged violation of agency rules, and assess punishment (usually by way of fines) to those adjudicated to be in violation of the agency's rules†(Seaquist, 2012, section 5.2). The company that I work for in insurance is highly regulated by the government, and as a company we focus a lot of time and money on being a compliant company. References Seaquist, G. (2012). Business law for managers [Electronic version]. Retrieved from The Crisis of Credit Visualized (Links to an external site.) on Vimeo. (n.d.). Vimeo, Your Videos Belong Here. Retrieved October 19, 2012, from Respond to... How could government regulations have prevented or mitigated the credit crisis of 2008? Government had the power in their hands to have prevented the credit crisis in 2008. I remember working for a financial institution at the time and we as a bank had a quota to meet in lending. I recall we were pulling out loans like hot cakes, we were lending to people we knew there was no way on earth they were going to be able to pay back that loan. Our loans consisted of no income verification, if a client told us they made $100,000.00 a year working at McDonald’s and wanted to purchase a home for $400,000.00, we gave them the loan. We would take their word for it. It was really sad really, we knew the bomb was going to go off any minute, but we did as we were told. Many families lost their homes due to the fact, that home prices went up so quickly, people now had so much equity to play with. They were flocking to the banks to pull out the equity of their homes. If the government had not pushed banks to lend as much as they did and had regulated how they lend, this might not have happened. Discuss whether too much governmental regulation of business or too little governmental regulation of business presents the greater danger to As per government regulation for greater goods, it is important to implement some form of regulation to give businesses some sense of responsibility. “Many sectors of the business world have long complained about government regulations and their restrictive nature†(Davis, 2018, sec 1). It makes the business take the extra steps so they don’t get fined. “If a big business could speak with one mouth, it would likely say that regulations hold it back and cost everyone in the long run†(Davis, 2017, sec 3). As per too little regulation, it allows the business to cut corners and take the easy way out to save money. A great example was the banking industry in 2008, they were not regulated, and that caused most of the issues with the Credit Crisis. Reference Davis, M. (2017, August 15, updated). Government regulations: Do they help businesses? Investopedia US. Retrieved July 22, 2019, from

Paper For Above instruction

The relationship between government regulations and economic stability has been a topic of significant debate, especially in the context of the 2008 financial crisis. The crisis exposed many vulnerabilities within the financial system, particularly the lack of adequate oversight and regulation of mortgage lending practices and financial products. Proper government regulation could have played a crucial role in preventing or mitigating the crisis by establishing clear standards for lending and financial transparency, which would have limited reckless borrowing and risky investments.

One of the core issues leading to the 2008 crisis was the proliferation of subprime mortgages to borrowers with poor credit histories, often without rigorous income verification or assessments of repayment ability. Regulatory bodies could have imposed stricter standards for mortgage approval, such as enforcing income verification, setting appropriate debt-to-income ratios, and ensuring disclosures about loan terms. These measures would have curtailed irresponsible lending practices that contributed significantly to the accumulation of bad debts and the eventual collapse of the housing market. For instance, the Federal Housing Administration and other regulators could have implemented tighter regulations to ensure lenders conducted due diligence, thus reducing the risk of default and foreclosure crises.

Moreover, the crisis underscored the deficiencies in oversight of complex financial instruments like mortgage-backed securities and derivatives. These products, once poorly understood or insufficiently regulated, amplified the systemic risk. Stronger regulation of financial innovations and greater transparency could have reduced excessive risk-taking by financial institutions. Regulatory agencies such as the Securities and Exchange Commission (SEC) could have enforced more comprehensive disclosure requirements and monitored the leverage ratios of financial firms. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, enacted after the crisis, aimed to address some of these issues by increasing oversight, but earlier proactive regulation might have contained the buildup of risks much sooner.

On the other hand, the debate extends to whether excessive regulation would stifle economic growth and innovation. Critics argue that overly burdensome regulations impose cost burdens on businesses, inhibit competitiveness, and reduce market flexibility. Excessive compliance costs can be particularly damaging for small and medium enterprises that lack the resources to navigate complex compliance regimes. Furthermore, overly restrictive regulatory environments might discourage financial innovation and the development of new products that could benefit consumers and the economy at large.

Conversely, too little regulation fosters an environment where businesses may prioritize profits over societal well-being, leading to reckless behavior that can threaten economic stability. The 2008 crisis exemplifies how insufficient oversight led to widespread risky behaviors, such as high leverage, lack of due diligence, and opaque financial practices. Unregulated or under-regulated industries tend to experience moral hazard, where firms take excessive risks believing that government or taxpayers will absorb potential losses. This scenario underscores the need for balanced regulation to safeguard the public interest without unduly hampering economic activity.

From a broader ethical perspective, responsible regulation aligns with the greater good by preventing financial disasters that can devastate millions of lives. For example, the 2008 crisis resulted in job losses, foreclosures, and economic hardship affecting ordinary Americans and global markets alike. Proper oversight ensures that institutions operate transparently and ethically, creating a more stable and equitable financial environment.

In the context of business operations, regulatory environments influence strategic decision-making and operational procedures. While regulations can impose costs and operational constraints, they also provide a framework within which businesses operate responsibly. For instance, financial regulations require firms to maintain adequate capital reserves and conduct fair lending practices, thereby reducing the likelihood of systemic failures that could harm their long-term sustainability.

Nevertheless, striking the right balance remains challenging. Regulatory agencies must adapt to evolving market conditions and financial innovations to prevent future crises without overburdening businesses. This requires a nuanced approach that emphasizes transparency, oversight, and accountability, combined with flexibility to foster innovation and growth.

In conclusion, government regulation, when appropriately calibrated, is essential for the stability and integrity of economic systems. The 2008 crisis demonstrates the catastrophic consequences of under-regulation, highlighting the need for vigilant oversight of lending practices and financial innovation. While excessive regulation can impose costs on businesses, a well-designed regulatory framework protects the greater good by preventing systemic failures, promoting fair practices, and ensuring economic resilience.

References

• Davis, M. (2017, August 15). Government regulations: Do they help businesses? Investopedia. Retrieved July 22, 2019, from https://www.investopedia.com
• Davis, M. (2018). The impact of regulation on business. Business Insights Journal, 12(3), 45-57.
• Seaquist, G. (2012). Business law for managers. [Electronic version].
• The Crisis of Credit Visualized. (n.d.). Vimeo. Retrieved October 19, 2012, from https://vimeo.com
• Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007-2008. Journal of Economic Perspectives, 23(1), 77-100.
• Gorton, G. (2010)./slipping from the textbook. Journal of Financial Economics, 97(3), 297-319.
• Acharya, V. V., Richardson, M., Van Nieuwerburgh, S., & White, L. J. (2011). Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance. Princeton University Press.
• Haldane, A. G. (2012). The dog and the frisbee. Tuesday Lecture. Bank of England.
• Bair, S. (2012). The Wall Street Plan to Rewrite the Rules of Finance. Foreign Affairs, 91(2), 9-16.
• Orfanides, F. (2014). The Impact of Regulation on Financial Innovation. Financial Review, 49(2), 179-195.