Will The New Age Economic Reforms Prevent Another Recession?

Economy | October 21, 2009 at 11:26 pm

To err is human. This present day recession is a consequence of errors made by the people of America regarding finances. All the three parties, the government, the entrepreneurs and the consumers are all culprits in the money mess. Financial aid agencies have also greatly contributed to this economic crisis which had a lot to teach people about faulty management of economy. By observing the mistakes made and learning from them, the government has come up with reforms that aim to take care of all the loopholes of the economic system that were revealed by the crisis so that another crises does not repeat again.

Of all the major flaws; predatory savings, credit and investment practices by financially aiding companies seem be a major factor of concern in the new economy. The government has mentioned penalties against companies that harass their customers on these grounds. Apart from that even consumers are observed to have been suffering more in these ruined economic times because of their sloppy money management ways. One of the major contributory factors to the creation of the economic crises was economic policies that had loopholes in them. These were exploited by opportunistic marketers who escaped with all kinds of money mismanagement and inefficient handling. Now the government has come up with rules to control such irresponsible and selfish behavior which has resulted in the creation of this economic crisis.

causes of economic recession According to the Obama administration’s new economic reforms, most of the financial processes you’ll be a part of will be transparent to you, but that does not mean that it will guarantee you a hundred percent risk free environment. After all, you are a mature individual. If you carelessly make mistakes with your finances and management of resources, you stand a fair chance of losing all your wealth. The reforms will only eliminate any unfair predatory practices that are existent in the financial systems.

The reforms are majorly focusing on three areas:

There are a lot of financial processes that have managed to not come under the government scanner or the financial regulatory authorities. Subprime mortgages were one of them. Only about thirty percent of subprime mortgaging was being done by regulated deposit while the rest seventy percent was being done by unregulated bodies.
Those activities that differ in pace from the laws governing them are the ones that have contributed to faulty economical practices. Every day new activities would come up which would take advantage of some loopholes in the old laws. This has lead to corrupt practices that resulted in the diseased economy of the country. Now the reforms have new laws for checking the corrupt practices. An example of such corrupt practices is the default swaps of your credit, such as swapping insurance for debt etc. This was the major reason why Lehman brothers, AIG and Dominos crashed.
New financial institutions are rapidly mushrooming and making progress, but they don’t have proper ways of allowing government to take control in the case of any crises.

With all these reforms I do think there is hope of building up a new and strong economy which will prevent another depression from happening in the near future. But being realistic, I’ll not say that these reforms are going to develop a perfect economy because every reform comes up with a new loophole which gives rise to malpractices again. But that’s how evolution takes place!