How Government Regulations Could Have Prevented or Mitigated the Credit Crisis Essay

Abstract

There are two significant interventions the government could have done to prevent the credit crisis. The first one is that the government should have regulated the mortgage brokers. They advanced non-performing loans, pooled investment funds that traded more on liquid assets, and used the profits on more complex trading to gain extra income. The approach led to heavily leveraged and debt-burdened mortgagers who could not finance their debts (Jarvis, 2009). Government regulations might have softened the recession by reducing the burden (Amadeo, 2020). Appropriate directives would have ensured that loans were only given to creditworthy clients. The second significant intervention is that the government should have written off the bad debts when the crisis began. These solutions would have minimized the dire consequences experienced during the crisis.

Effects of Government Regulations on Businesses

Government regulations may have both positive and negative impacts on the economy. One of the significant contributors to the credit crisis was financial innovation that surpassed human intellect (Amadeo, 2020). Regulations may restrict organizational growth by limiting innovation and the effective use of resources. They can also disrupt the laws of demand and supply by disrupting production and distribution channels. Furthermore, they can cause problems in revenue and profit generation required for growth and sustainability. For example, a business will have to incur extra costs on environmental or workers’ safety regulations. Multiple restrictions can also reduce the number of ventures and have negative economic consequences. However, minimal government controls can lead to problems such as employee exploitation. The public may lose trust in these organizations resulting in the loss of customers in the long run. Therefore, the government should balance policy guidelines to yield optimal benefits to all stakeholders.

References

Amadeo, K. (2020). Could the financial crisis have been avoided? The Balance. Web.

Jarvis, J. (2009).The crisis of credit visualization [Video]. Vimeo.