Question

How would you respond to this post?

The credit crisis of 2008, according to Jarvis (2009), was initiated when bankers started lending to unqualified borrowers. When the unqualified borrowers started defaulting on their loans, it started a snowball effect in which lenders and investors who owned the mortgages could no longer pay their debts either. The credit crisis could have been avoided if governmental regulations were in place to keep lenders from providing mortgages to candidates who clearly did not qualify. Setting credit score, down payment and proof of income requirements that lenders are required to adhere to could have prevented the credit crisis. The credit crisis of 2008 provides a prime example of why governmental regulation is needed. Businesses have their own best interest in mind; most companies seek to make a profit no matter the expense to the consumer. Without government regulations, businesses can take advantage of consumers without consequence. According to Jarvis (2008), the lenders knowingly provided mortgages to borrowers that they knew would likely default, with the intent of then being able to sell the house for an additional profit. Governmental regulation of business is necessary but should be limited as well. According to Seaquist (2012) states, “The APA gives agencies broad rule making powers, as long as they act within the guidelines that the APA provides” (section 5.3). Administrative agencies that regulate businesses also must act within specified guidelines. As long as there is a system of checks and balances at every level, then governmental regulation of businesses serves the greater good.

Answer 1

Answer: I agree with this post. The administrative and regulatory authorities and agencies need to regulate the businesses in order to prevent them for entering into mal-practices. The credit crisis of 2008 is a clear example of how the businesses can act in a reckless manner in order to gain profits. If there was a vigil on the lending practices of the lenders, the credit crisis could have been prevented. There was nearly no check on who was offered a loan. The lenders knowingly provided mortgages to the customers whom they knew will not be able to repay. They did so for making profits by selling the houses of such defaulters at higher profits but as the housing bubble burst, the prices fell sharply. The rise in the number of defaults and the lower house prices resulted in the huge losses to these lenders. If there was a proper vigil and control over the quality of loans this could have been avoided. Though tight regulations are against the concept of free trade but still the importance of government regulation of market cannot be ignored. This credit crisis of 2008 indicates that how the businesses may behave irresponsibly when there are very loose regulations. Hence there is a need to have regulatory supervision on the businesses up to some extent.