Has the Global Financial Crisis Led to Fundamental Change in the Relationship between Government and Business - Research Paper Example

Has the Global Financial Crisis lead to fundamental change in the relationship between government and business? and Section # ofcourse> Word Count: This paper critically analyzes, in light of authentic evidence, the changes that the global financial crisis has brought about in the relationship between a government and business. It is certain that there has been significant impact on this relationship as a result of the global financial melt-down but this presence of a proof adds to the research the authenticity that it would need for years to come, and this report to be considered as an understanding of the changes in government reforms for businesses that dealt money matters with the mass public. Introduction Arguably, the worst financial and economic crisis in the global history has brought about radical changes in the way finances are operated, funds are managed, and checks-and-balances are made. This crisis has brought people on their toes for keeping a close eye on how fund managers and investment firms manage their hard earned earnings. In line with the same, people began to lose their trust amongst the fund managers – let them be banks, brokers, investment firms, funds, or business venture capitalists. This gradually reduced the investments of a common man from these businesses. As funds remains the life-line or the blood of business, this gradual removal of trust and money let down the business at a time where economy was readily taking them down and out, thus, developing a two-fold effect on the businesses. Hereby, government intervention became a critical aspect; though against the concept of controlled economies, government intervention became critical in free-economies of today to ensure that the bankruptcies and the losses incurred are genuine in nature, with absolutely no window-dressing of the declared financials. Role of Government in a Free Economy The role of governments in the era that exists today cannot be forfeited completely and their regulatory aspect needs to keep checks and balances on how business enter into the economy, conduct business, and then retire their business. Today, the era is of free economies, and the conventional era of government intervention is almost over, unless there is an extreme need, which would be discussed later in this section. Traditionally, the role of government as an intervening authority for markets has always been criticized to an extent that the free floating market economies came into existence, whereby, the markets floated freely, with all forms of ups and downs. However, the masses of investors have been in-favor of the government being involved and ensuring the authenticity of the fund managers, and also making sure that the investors are safe by all possible means. Even today, when free economies exist, investors do need safety of their investments and for such assurance; governments become a dependable entity or body for verification and authenticity of money managers. The Impact of Global Financial Crisis on the Investor Trust Investors provide the life line for businesses to flourish – money, and the work for investors mainly work on the relationship of trust – as ‘trust’ becomes the critical factor when counting the trade-off of saving vs. investments. Technically, this trust comes from past performances and rankings provided by authentic government ranking agencies or private sector ones; the former are more reliable for the mass public. Traditionally, trust belonged to the big names whereby the later though provided less returns – charging premium for their ‘trust-worthy’ names and their high rankings. However, the global financial crisis has demolished the trust and ranking of these ‘reliable’ money managers. Thus, turning the cycle back towards the conventional form of controlled economy and its features and functions of government controlling various variables of economy for ensuring the mass public that they would not lose its money at the end of the day. The global financial crisis has brought about a major revolution in the consequent outcome; the crisis was enhanced by the fact that the insurance companies covering the lending of the money managers also defaulted on varying grounds, and ultimately, it was the end customer or lay-man investor who lose the major chunk of their savings, crashing the common man to lose everything. Subsequently, the ‘trust’ not just in the money managers but also in the ranking committees was also lost. And as a major consequence, today, a lay-man investor prefers keeping money to themselves or in foreign exchange or commodities such as gold. Relationship between Government and Business – Impact of Global Financial Crisis The relationship between governments and businesses has been much beyond the traditional thinking of taxation and audit – there is much more to it. Firstly, the premier relationship is that, of course, a business pays taxes at the mandatory time frames, and for the same, there are various audits conducted, in-house as well as externally. While auditing the accounts in particular, the major concern for the government or for auditors, or even when a business floats its shares or bonds and wants to raise equity or debt, as case may be) from the market, the government intervenes to analyze the assumptions which form the grounds of various claims that the business makes. For example, if a money manager claims to provide returns of 10% or 1% above the market rate of return, it is significantly important to analyze the assumptions underlying this possible offering. Additionally, the valuation of assets and liabilities is also based on assumptions, which also come under question when a business is analyzed. Whether independent analysts audit and analyze a business or not, it truly becomes the responsibility of the government to keep checks and balances on the same on behalf of the mass public. This has been the case since the inception of the financial system, and even in free economies, not just controlled economies, government must keep checks and balances and intervene through respective bodies as need be. The recent global financial crisis has raised questions over the government work out in this regard; their approach and dedication to this activity has also been raised questions towards. This question raising has not just put the businesses moving towards bankruptcy, their insurance firms and their investments under doubts, but has also made the governments redefine their regulatory affairs and respective bodies, and fine tune their processes. The compliance to the same strictly requires the assumptions not to be just assumptions but also to be backed by ample evidence. Thus, tightening the screws between business and the government. One may argue that in the sub-prime, the assumptions that led to the disaster, thereby initiating the global economic crunch were strong in the sense that they were based on historical trends; for example they said that property prices always move in the upward direction. This assumption was the fundamental cause of the crisis; it is worth mentioning that the assumption was very valid and a long term analyses shows that the assumption is fairly valid, therefore, there would definitely be more variables that accounted for the crisis. The point for consideration is the fact that the assumptions, singly and jointly were not tested and experimented as models and the chances of failure were reduced to almost zero. This is an example of where and how government regulatory bodies and commissions did not prove to be effective and thus, leading to this disaster. For overcoming these loopholes and points of concerns for the mass investors, the involved governments have developed tighter policies and procedures for businesses whereby anything related to the mass public is involved; let it be money matters or commodities. Conclusion From the discussion held above, it can be concluded that the global financial crisis have brought about revolutionary reforms in the way governments manage relationships with business, to ultimately affect the way these businesses deal with their end investors. The world suffered a shocker with the global financial crisis because the whole stream line of financial sector collapsed; the firms floating bonds defaulted on coupon payments because their investments had backfired, and to add more icing to the cake, the insurance of these bonds failed to cover the huge mass of losses incurred for these bonds. Subsequently, the government regulations came into questions, and these regulations had to be modified in an attempt to avoid any similar crisis situation in the future. Economies such as the US and the UK suffered most, but lessons are to be learnt for everyone. If regulations are modified keeping a strategic eye, and foreseeing what the future issues can be, considering how the previous crisis changed the course of the globe, there would definitely be lesser chances of another major hole in the financial sector, flooding the liquidity out of the global financial markets. 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