Financial Gate Keepers and the Global Crisis
The 2008 financial crisis showed the major flaws of global financial market. Many researchers agree that gatekeepers played crucial role in the development of the critical situation (Utzig 1). Thus, researchers note that one of the major causes of the global crisis was the fact that companies relied on gatekeepers (i.e. “credit reporting agencies, appraisers, and rating agencies”) instead of making “particularized investment decisions” (Block-Lieb and Janger 466). This practice proved to be erroneous.
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It is necessary to note that gatekeepers were (and to certain extent remain being) “the biggest uncontrolled power in the global financial system” (qtd. in Utzig 4). The lack of control led to negative effects. Thus, there were conflicts of interests which resulted in situations when many gatekeepers were concerned with their own profits rather than with providing correct data. Many gatekeepers provided companies with data which were ‘convenient’ for the latter.
Some companies tried to create favorable image, whereas other companies tried to make money on some companies’ (or their subsidiaries’) ratings. Sometimes gatekeepers could ‘do a favor’ to a particular company providing incorrect data. No one paid attention to such wrongful practices until it became too late.
Notably, it was not that difficult for gatekeepers to generate such data, reports and ratings. Sometimes these companies intentionally failed to take into account some factors or were too optimistic about some indexes (Block-Lieb and Janger 467). Gatekeepers could interpret data differently in accordance with their specific aims and goals. Admittedly, ratings have been quite vulnerable to biases. Of course, some gatekeepers took too many liberties when assessing data.
It is possible to state that the global market of 2008 was nothing more than a ‘fictional world’ based on a set of reports which were ‘convenient’ to different companies. In fact, many gatekeepers distorted data which led to a lot of confusion and, eventually, to the global crisis. More so, it is possible to claim that gatekeepers can be considered to be responsible (to a significant extent) for the outbreak of the financial crisis.
Distorted data prevented global investors and analysts from foreseeing possible financial constraints. No realistic report could be created on the basis of the distorted historical data. Such data prevented global investors from analyzing possible risks properly. It was far too difficult to understand the real situation which was rather dangerous. Many researchers state that if gatekeepers had not violated ethical principles and had provided correct data, the global crisis would not have such negative outcomes or it could have been prevented.
It is necessary to note that ignorance of norms of ethics was fostered by the lack of control. The gatekeepers could allege various factors. One of the most common excuses was the fact that ratings and data provided are largely based on opinions and it is impossible to sue people as well as companies for expressing opinions. These companies could feel free when providing data and their evaluations. Gatekeepers felt safe as they could not be sued for providing wrong data as their excuses were ‘constitutional’ as expressing opinions is secured by the Constitution.
These irresponsible practices along with other factors led to the global financial crisis (Utzig 4). The crisis, in its turn, revealed the major faults of the global financial system. The majority of investors have lost confidence in gatekeepers. This led to establishment of some rules and regulations to be followed in the global market.
Why Takeover Regulations Are a Part of Corporate Governance Structure?
Admittedly, contemporary complex markets need governance. Particular regulations help agents to cooperate. Regulations secure fair conduct and they can also be effective when dealing with disagreement. Of course, corporate governance structure includes several components. Takeover is one of the most important components of corporate governance structure. It has been a part of corporate governance structure for several decades and it has been proved to be effective.
Takeover can be defined as “a transaction or series of transactions whereby a person (individual, group of individuals or company) acquires control over the assets of a company” (qtd. in Tye and Novotney 14.12). Notably, takeover regulations have played a very important role in the financial world.
Researchers note that takeover regulations secure transparency and fairness of financial operations. These regulations bring mandatory disclosure of data, which secures equal rights for the parties involved (Tye and Novotney 14.12). The regulations help acquirers to make the right decision when acquiring companies. Companies, shareholders, authorities and public can observe the entire process of acquisition. Admittedly, transparency secures fair conduct of companies. There is no room left for violations and malpractices. This positively affects markets.
Apart from transparency, the regulations are certain kind of guidelines for companies. This standardization of practices also positively affects the development of the markets. Thus, any violations can be easily traced in case some standards are ignored. Not to mention, that companies try to follow rules accepted in the financial world to remain competitive and to obtain a positive image. Thus, it is possible to state that takeover regulations help companies as well as markets to develop.
Block-Lieb, Susan and Edward Janger. “Demand-Side Gatekeepers in the Market for Home Loans.” Temple Law Review 82 (2009): 465-497. Print.
Tye, Kenneth A. and Jerrold M. Novotney. Schools in Transition: The Practitioner as Change Agent. London: McGraw-Hill Education, 2008. Print.
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Utzig, Siegfried. “The Financial Crisis and the Regulation of Credit Rating Agencies: A European Banking Perspective.” ADBI Working Paper 188 (2010). Asian Development Bank Institute. Web.