The 2008 financial crisis sent the world economy into a downward spiral. The crisis originated from the United States. According to the article, the crisis was as a result of an economic bubble that was supply-driven. This hiccup was as a result of the over reliance on the credit rating agency by the markets, the gatekeeper as well as the US’s move towards rules that were more and more self regulatory.
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The crisis would not have arisen had the regulators acted in the correct manner. Investment bankers, securities analysts and auditors, are some of the gatekeepers played a vital role in the crisis. Additionally, failures at the managerial group also resulted in the crash as it led to a re evaluation of the cost of the agencies by the investors. Managers in most companies chose to inflate their companies’ income over the 1996-2002 periods.
This action prompted the enacting of the Sabanese-Oxley Act. Finally, major disaster in regulation also precipitated the crisis. The Securities and Exchange Commission (SEC) participated by relaxing its rules as early as 2004. The blame on the agencies bestowed with the responsibility of rating credit was that they chose to have inflated ratings for the structured financial offerings.
Furthermore, SEC chose to loosen its tight grip on regulatory arbitrage to increase traffic similar to the European market. This option intended to make the United States’ market more competitive than the European markets.
Conclusively, the 2008 financial crisis provides a valuable learning experience. It clearly indicates that regulation cannot be replaced by competition. Furthermore, when the markets of relevance increase in competitiveness, so does the need for stronger and more cautious restrictions.
Coffee, J.C. “What Went Wrong? An Initial Inquiry into the Causes of the 2008 Financial Crisis.” Journal of Corporate Law Studies 9.1 (2009): 1-22. Print.