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too big to fail? what are the ramifications?

Do you think banks can self regulate themselves? One would think that they should be held accountable for their mistakes but as we have seen, Uncle Sam came to rescue many of the banks for certain bankruptcy. What is the flaw with the government always bailing out banks or any firm for that matter?

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Nothing can self-regulate, not even cats or gold fish (who will overeat until they explode). It is the nature of people, especially, to eventually drift to extremes, as each new extreme becomes the 'new normal'. In the case of banks, in the pursuit of profits, they will pursue ever increasingly risky investments as returns drop due to the best investments having already been snapped up by others earlier. We saw that in the events leading up to 2007.

Banks did not self-regulate as they gave mortgages for houses that were way over-priced to people who had very poor credit scores and were increasingly at risk for default. So, all of this cheap and easy credit helped to further increase the housing bubble. Why this could even happen is because there were two government guaranteed organizations who would take these risky loans off the books of the banks who made them: Fannie Mae and Freddie Mac. These two would then create baskets of mortgages and sell these off as ...

Solution Summary

The author discuss the issues surrounding governments bailing out large banks and other companies during financial crisis. Is it possible for these companies to self-regulate? What role does the government have in the economy?