due two hours

1. Interestingly enough, while I won't stake a claim to any political party on this post, I have stood by one claim since I've been old enough to vote. I may not approve of the President or his actions; one thing is sure; I don't want his job either. I will take the same approach here. I believe government regulations could've helped prevent the major credit crisis of 2008 in many ways. However, as I have suggested, I don't necessarily have any full-proof ideas either. Regardless of the company, group, or entity, almost every organization has a series of checks and balances. For example, I can't help but wonder what condition people might be in without the formation of the FDA to regulate food and drugs to keep businesses in line (Seaquist, 2012). If you contemplate communist Germany during the rule of Hitler, aside from the mass genocide that spread through the area like wildfire, one more thing stands out. There was little to no freedom. 

                  We, as humans, have proven that we are cyclical people. As mentioned, during WWII, many people had no freedom. From the opposite perspective, why do I need a babysitter when my wife and I go out to dinner? Primarily because the freedom otherwise given to a three and one-year-old would enable naive and creative minds to endanger themselves. There must be a balance, and there must be a group or entity with the power to prevent catastrophic issues like the credit crisis from happening. Having regulations in place would help both the greater good and businesses, although, at times, it may not seem like it. Looking back, I would be interested to learn if the investors and bankers that wanted a huge return on their money would do it all again had they known the impact of their actions prior to investing. Regardless of the situation, there must be a balance in all things. How do I know? Every single time I lose my balance, I fall.

 2. I recall the time when everyone seemed to be living above their means, purchasing homes that they could not afford, cashing in equity on said home, and then using the money to purchase additional items. This type of greed and unwise financial dealings gave birth to the destruction of financial markets.  The credit crisis of 2008 often referred to as the Great Recession is by far one of the worst economic down turns of our time. “Excessive borrowing, lending, and investment were inextricably interconnected through a range of transaction structures derived from well understood techniques of securitization. Essentially, securitization is a transaction structure in which loans (such as loans secured by residential real estate, i.e., mortgages) are pooled together ("repackaged") as collateral underlying the issuance of securities, predominantly debt securities”. The event caused great financial lost and caused homes to decrease greatly in value. However, after every crisis, the question is posed “what can be done to prevent this from happening again?”

The government is usually the entity called upon to identify specific root causes and implement stringent guidelines that prevent similar situations. Could the government have prevented the issue? The answer I believe at its core is yes. As the old adage goes “Hind sight is 20/20”. The markets “were not adequately addressed either by market participants or regulators” (Douglas, 2009).  The problem with injecting the government is that usually over regulation starts which hampers financial growth. To solve this issue, 20 countries came together (G-20) and released their Declaration of the Summit on Financial Markets and the World Economy. “The most significant aspects of the proposed remedies relate to reform of financial regulation while at the same time avoiding over-regulation” (Douglas, 2009). I believe taken a collective approach helped make the financial problem better as wells as add much needed regulation. The structure provided added what could have prevented the Debt Crisis in the first place.

3. The link between the financial sector and economic growth is vital; therefore, the government must maintain strict economic policies to encourage growth and protect the interest of its citizens. Some analysts believe the financial sector is self-regulatory; hence, they require less control from the government. I object to such beliefs- the financial industry has had numerous opportunities to hold themselves accountable for responsible business practices, but have failed on multiple occasions. Typical examples of such situations include the 2008 financial crisis, which was the results of corrupt subprime lending practices that involved almost all of the important financial institutions. Another example was the fake account scandal that engulfed Wells Fargo, one of the major financial giants in the country (Egan 2018, CNN Business). Also, HSBC was caught laundering money for Mexican drug cartels in 2018. These are examples that prove that such institutions cannot be left unregulated, as their appetite for profit will always trump the stakeholder's interest. 

 

Increased government scrutiny is significant in maintaining balance and ethical practices in the financial sector. The various agencies that oversee the financial industry must work in collaboration with the leaders of all the major financial institutions. A good relationship will ensure the government adopts a more balanced approach towards oversights that are not overreaching to promote and maintain overall investors' confidence.  Even though such controls typically mean more work for the institution, it will help increase internal scrutiny’s, and self-control, protecting these companies, and the public from fraud in the long-term. In 2007, the Securities and Exchange Commission relaxed financial regulations such as net capital investment for investment banks like Wells Fargo, Bank of America, Lehman Brothers, and Goldman Sachs. Meaning they could take on more debt than they could afford.  Quick returns were valued over sound business practices leading to most of them issuing predatory loans to the customer without the required stipulations. In the end, such negligent practices brought the entire economy down (Investopedia 2019).

 

Also, if the financial sector wishes to be self-regulatory, they should not turn to the government to bail them out when they get in trouble. The industry plays a vital role in the economy; failure can bring the entire economy to its knees. Hence, the government must maintain constant oversight to ensure organizations are acting within regulations without compromise. In 2008, the government spent $700 billion of taxpayers' money to bail out the financial sector to avert an economic meltdown (Collins, 2018, Forbes Money). Major financial institutions are too big to fail. Meaning government assistance is needed during a crisis. If that is the case, then they should welcome strong government oversight to ensure such a situation is prevented continuously.

 

4. Agencies have two main purposes: assisting in carrying out vital government functions and exerting regulatory control.The government does need to increase its regulation of business for the good of society. No I don’t believe the marketplace is self-regulating because the marketplace goes into a financial burden to a point of going into default or bankruptcy. The government does not place an unfair costs in regulating ethical conduct. For instance, at the airline to which I am employed, the government does not allow anyone to work for an airline or in the airport without a SIDA badge. It is a government issue badge that you will receive once you pass a background check. This is to ensure that all businesses have a certain type of people working for them. People who have not been convicted of a crime and can respect others at their job. This type of regulation is helpful because ever since 9/11 the airport security as been high. Either the airlines or other businesses in the airport wants a honest, loyal, and trustworthy person working for them.

 

An independent federal agency is created through Congress that establishes the agency and allows it to perform its duties. The creation of the agency and its authority are detailed in the enabling legislation—the act of Congress that creates the agency. The details of the agency's operation are left to the agency, which creates its own rules in accordance with the guidelines set forth in the 1946 Administrative Procedure Act (APA). Agencies are allowed to have broad rule making powers, as long as they are within guidelines according to The APA.

 

 

 

 

Reference 

Seaquist, G. (2012).  Business law for managers.  San Diego, CA: Bridgepoint Education, In