(Lorrette, 2013) Apart from that, the credit crisis has also affected the productivity of firms as the process of production was disrupted due to the limited availability of funds. (Akiyoshi and Kobayashi, 2010) There were a few causes to the credit crunch, one of the most debated issues was “Bank CEO Incentives were the major factor in the credit crisis”. The topic which has been debated by academic experts on “World Bank All about Finance Blog” has provided an insight to the people in the financial field. (Luo and Song, 2012) According to their research, Rene M. Stulz and Rudiger Fahlenbrach disagree with the statement above. The authors argue that Bank CEOs have taken actions that... ... middle of paper ... ...Meegan, R. 2009.
The US Financial System: A Crumbling Empire The financial system has been crucial to the role of free enterprise. “Financial markets have come to supply non-financial corporations with mechanisms for managing their risks and for comparing and evaluating diverse investment opportunities in a highly complex global economy” (Cindin, 2008). “However, despite the lifetimes it took to build our financial institutions, bad luck and careless risk management have jeopardized careers and mortgaged these institutions’ futures”(Wallace, 2008). The nation is currently attempting to deal with the biggest financial crisis since the Great Depression. It is now imperative that a way be found which will re-regulate finance without undermining finance’s needed innovative capacity.
The Economist (2008) ‘Confession of a risk manager’, [Online], Available: http://www.economist.com/node/11897037.htm. [30 Oct 2013]. Wilfield, W. E. (2013) Ethical reflections on the financial crisis 2007/2008: making use of Smith, Musgrave and Rajan, New York and Heidelberg: Springer, pp. 1-4.
3763, Sarbanes-Oxley Act of 2002. 107th Cong., 107-204 Public Law 116 STAT. 745 (2002) (enacted). Kermis, George F. and Marguerite D. Kermis. “Model for the Transition from Ethical Deficit to a Transparent Corporate Culture: A Response to the Financial Meltdown.” Journal of Academic and Business Ethics, Fall, 2009.
Housing inflation were inversely related to both foreclosure and delinquency rates. The rates dropped drastically over the years which led to increased house prices that almost collapsed the mortgage programs. As a result of the crisis in subprime mortgages, the Troubled Asset Relief Program (TARP) program was introduced in the beginning of October 2008 by the United State government that enabled the purchase of equity and as... ... middle of paper ... ...s that had surpluses back to the country. Works Cited Kaminsky, G., & Reinhart, C. (1999). The Twin Crises: The Causes of Banking and Balance of Payment Problems, American Economic Review, 89, (3), 473–500.
In 2006 the largest housing bubble we have seen in the past 50 years burst and in December 2007 the recession began. The recession would last for roughly 18 months, officially. However, some economists and citizens would argue that it lasted much longer than that due to the ongoing consequences the nation continued to experience all the way through 2010. Some would say we are still recovering from the recession. When the housing bubble burst the Fed responded by providing large amounts of liquidity to the economy to help soften the blow in the short term.
Ethical corporate behavior has been a recurring issue of public policy. Recent events have brought this issue into sharp focus beginning with the Enron scandal in 2001 and more recently the financial crisis of 2008. Subsequent regulation such as the Sarbanes-Oxley act seem to be in reaction to the public clamoring for government action in the wake of painful economic outcomes. A deeper examination of the events leading up to Enron and the financial crisis both seem to indicate that government agencies were asleep at the switch. Policy such as Sarbanes-Oxley in the wake of Enron have not prevented the more recent financial crisis of 2008.
The policy makers was also lack of accountability that fail to encourage optimism about the reforming the policy process itself (Adrian & Atkinson 2009). The decision by the U.S. Treasury and the Fed to let a major bank (Lehman Brothers) fail led to a system-wide loss of confidence that exacerbated the crisis. The failure of policy makers to deal with the crisis should be seen as a factor in aggravating the crisis. (1) Housing market failure - An Economics professor Taylor conducted a research in 2009 and suggested that the financial crisis was due to government policy and intervention that leaded to excessive money and contributed to housing boom and bust (Taylor 2009). By using the information given in The Economist (October 18, 2007), Taylor indicated that the federal funds interest rate was deviated from the suggested rate based on Taylor Rule – Fed interest rate should be adjusted according to economic situations such as the inflation & employment level.
Regulation of Banking and Financial Services The Failure Process Imposed Upon Financial Institutions The concept of systemic risk sprung to the foreground of the public’s consciousness during the financial crisis of 2007-8 as the Too Big To Fail (TBTF) banks were bailed out by the various US Federal Government agencies e.g., US Treasury via the Troubled Asset Relief Program (TARP) and the US Federal Reserve via Quantitative Easing (QE). However, as it turns out, the concept of systemic risk is not so easy to define in legal terms—as illustrated by the difficulty in nailing down the definition by US Congress via the Dodd-Frank legislation or by the US Treasury and the Federal Deposit Insurance Corporation (FDIC) via regulation (Horton, 2012). One thing is certain—the public has no stomach for any further bailouts, thus, the era of TBTF banks and non-bank financial companies has ended. The FDIC, under new regulatory powers granted by Dodd-Frank, will resolve systemically important bank and non-bank financial institution failures i.e., bank and non-bank financial institutions that become insolvent (Horton, 2012). This process is similar to the way that the FDIC utilizes its traditional regulatory powers to resolve non-systemically important bank failures.
Fordham Journal of Corporate & Financial Law, 13(5), 705+. Kuttner, R. (2009, June). Betting the Fed: The Federal Reserve Can Do What Democratic Institutions Can't. but Its Days as a Shadow Government May Be Numbered. The American Prospect, 20, 33+.