Assignment:
DISCUSSION:
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:
o the greater good
o 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.
REPLY TO: EDWARD
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 https://vimeo.com/3261363 (Links to an external site.)
REPLY TO KAREN:
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 economics, 99(1), 11-26.