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Deregulation and 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? 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 Please analyze the backgrounds and impacts of deregulation wave? Please use examples to support your arguments.
The backgrounds of de-regulation wave were lobbying by some key business people to get certain industries deregulated. The reasons given for deregulation were that it would lower the barriers of entry for new businesses, lower prices bringing benefits to consumers, greater variety to the consumers, more competition, improving quality, and higher productivity. It was touted that de-regulation would lead to lower costs and more profitable industry.
However, the result was job losses, worker displacement, and bankruptcies. Examples, are the bankruptcies in the airlines industry and the governmental support that had to be given to the banking industry recently.

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

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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