Question

Concerning the 2008 economic collapse, what functions were the analysts, accountants, regulators, and/or rating agencies supposed to perform to regulate and protect the industry from such outcomes? Did they do an adequate job as "gatekeepers"? What precautions could they have taken to prevent the collapse, and what prevented them from doing so?

Answer 1

answer :

The functions analysts were supposed to do to perform to regulate and protect the industry from economic collapse :

• Proper analysis of the changes occurring in our economy by financial reasons.
• To analyse the causes of subprime mortgage crisis. If analysts would have done it then the crisis would have been avoided or reduced.
• Analysis of credit flow from one sector to another.

The functions accountants were supposed to do to perform to regulate and protect the industry from economic collapse :

• Check on the off balance sheet entities.
• Wouldn’t have allowed depository banks to move assets and liabilities of off balance sheet to complex legal entities.

The functions regulators were supposed to do to perform to regulate and protect the industry from economic collapse :

• Proper banking regulation
• Check on cash regulation
• Reducing self-regulation of investment banks

The functions rating agencies were supposed to do to perform to regulate and protect the industry from economic collapse :

• Could have properly rated debtor’s ability to pay
• Proper valuation of credit ratings for securities

They did not do an adequate job as "gatekeepers”. If they could have done it properly than economic crisis could have been controlled and would have avoided it before taking shape of such a big crisis.

Precautions :

• Check on overleveraging or increase in debt burden
• Maintaining financial stability
• Less relaxation on credit lending by investment banks
• By making credit conditions little complex
• Correct pricing of risk
• Proper utilization of monetary and fiscal policies   

There less attention towards lending policies of investment banks, lack of ability to analyse the situation correctly and lack of instant policy makin ability prevented them from controlling the economic situation before it became worst.

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