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Financial crisis

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The Deregulation Movement and Financial Crisis

Beginning in the late 1970s and continuing through the 2000s, the business environment moved toward relying less on government regulation and more on the marketplace to achieve desired economic objectives. Consensus successes in deregulation have come in airlines, railroads, telephones, and natural gas pipelines. However, reduced regulatory supervision has at times proven problematic. Several large investment banks, commercial banks, and insurance companies (e.g. Bear Stearns, Lehman Brothers, Wachovia, and AIG) failed or were bailed out at taxpayer expense during the financial crisis of 2007-2009 when excessive leverage exposed these firms to massive default risk.

(Questions)

1 Please analyze the backgrounds and impacts of deregulation wave? Please use examples to support your arguments.

2 What are the possible causes for Financial Crisis during 2007-2009? Please mark your reasons by 1,2,3. Give examples if necessary

3 Please comment on the impact of Financial Crisis from the perspective of firms, and investors, and social perspectives. Do you think the government should bail out the large financial companies like AIG? Please be concise about your answers and mark them accordingly.

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1. 1 Please analyze the backgrounds and impacts of deregulation wave? Please use examples to support your arguments.
There were many reasons for deregulation. Several industries were under regulation for certain reasons. Entry had been restricted to attract and stimulate investment of the private companies. These include the airlines, railroads, telephones, and natural gas pipelines. However, regulation led to the creation of monopolies and it became necessary for the government to protect the interests of the public. It was perceived that now there were several firms that were financially strong and were already offering similar services. So, favoring competition, different industries were deregulated.
Consider the example of natural gas pipelines. It was affected by 1985, FERC Order 436, The Natural Gas Wellhead Decontrol Act, 1989, and the FERC Order 636. The effects of these orders were that pipelines could offer service to all customers, there were cost savings, payments for contracts increased, transportation function of pipelines increased, new pricing patterns emerged, the first sale was defined, and pipeline services were unbundled.
Consider the example of the telephones; the industry was regulated by the Communications Act of ...

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