New Regulations

According to an article by Veronica Salazar from USA TODAY, the cause of the economic meltdown can be traced back to big businesses making poor choices. The blog deals with an article concerning the regulations of stock markets, financing and high risk investments. Over the past months, the events concerning A.I.G’s bail-out and bonuses have led to the question, "Can we leave our financial well being to big corporations without oversights from the government?" The answer is clearly no. The article centers around the idea that regulations need to be in place as soon as possible to lessen the damage of future economy. Their failures threaten not only “their own viability but (also) the health of the financial system and the U.S. economy.” Without the help of the U.S government, these large businesses such as AIG would have gone under, with it the economy. However, these businesses cannot be left unregulated. She thinks that the ideas Treasury Secretary Timothy Geithner outlined Thursday represent a logical starting point.

One, credit default swaps, a large and unsupervised market, must be regulated. They pose a threat in a highly interconnected market with “computerized global trading,” making debts’ credible backing unclear. This means large losses in times of economic downfall. “They're the chief reason taxpayers have put more than $180 billion into AIG.” Two, super-regulators should have “the same power to take over big non-bank financial institutions that the Federal Deposit Insurance Corp. now has to take over banks.” By taking out failing businesses, super regulators can help protect depositors and stabilize the economy. Three, hedge funds, “high-risk investment pools that remain largely unsupervised,” should be supervised more. “The hedge fund Long-Term Capital Management required a $3.6 billion bailout in 1998.” This shows that a company should not be given special treatment regardless of reputation or prestige. When they are borrowing money, a business must provide all necessary documents and evidence. Fourth, to prevent executives from burning down the house for quick profits, financial firms must pay their executives not for short-term performance, but for long-term profit. By doing this, shareholders-owners cut down excess spending and promote better performance.

The author clearly stresses the fact that if you're gambling with taxpayer money, you should accept reasonable limits on your business. The article also points out that If a corporation is too big to fail, it deserves to be broken up into much smaller banking corporations. I agree with that statement. We should have never let these banks get that big.