UK's over-Reliance on Deregulation and Current Economic Crisis - Essay Example

Download file to see previous pages Debt accumulated in the deregulated industry of the United Kingdom through the rising acknowledgment on the amount of bad debt in the system was much bigger than that it was previously presumed to be. Sequentially, confusion arose amongst the United States financial regulators concerning the approach to be used to react to the increasing number of borrowing defaults. Reluctantly driven to make mortgage corporations Fannie Mae and Freddie Mac public, they suddenly swapped to permitting prominent investment banks Lehman Brothers to fold (Kilmister, 2008). 3. Crisis in European banking system The European banking system deteriorated into a downturn in three ways. Firstly, the intensifying tide of bad balances put the banks at risk of bankruptcy. Secondly, the clear change in the Federal Reserve policy from the previous save from bear sterns formed a panic in the inert-bank borrowing market. The United Kingdom was doubtful on which banks could withstand the bad debts and stopped the lending services that they offered, leading to an entire market seize up. Thirdly, stock market financial speculators also dreaded losses, hence drawing back from their shares. Bank regulation is grounded on the notion of borrowings can just be a definite amount of bank capital and such a situation is bound to go through a substantial decline in shares and ultimately reduce capital by a great extent. Bank borrowing in the European market decreased significantly ending in further risks of the stability of the financial system in the United Kingdom. While these issues were mainly experienced the US and UK only, the real estate sector shot up, and bank deregulation had been particularly strong in continental Europe....
This paper aims to establish set of necessary measures, that should be taken by the government in order to to battle the ramifications of the economic Crisis in the UK. It is argued in the paper, that the level of deregulation in the monetary sectors of the UK had aggravated the economic impacts of the crisis.
Financial modernization has enhanced liquidity and facilitated investors to spread risk of venturing in the financial sector through intercontinental diversification. The disadvantage of the approach is that worldwide implications of the present crisis are more reflective of past economic depressions.
The spending cutbacks by the government were observed to be essential by contrasting the economies’ of United Kingdom with Greece and Ireland. Outside the Euro market, the United Kingdom faces a much superior flexibility on other financial markets apart from the bond markets.
It is apparent that the objective of the government was to have the least level of state participation in the economic sector and provide subsidies that could be used to reinstate commercial and central banks to profitability positions, in anticipation of a rapid sale of the government’s ventures.
The new regulatory protections rushed by the UK`s government have been implemented with the aim of preventing the outburst of another financial crisis. The new policies enacted by the governments have established an economy not ready for a financial crisis. The policies have created room for perhaps a much worse crisis in the future. ...Download file to see next pagesRead More