Tougher Regulations Needed

Recently the American economy has been hectic to say the least.  Huge corporations that are staples of our economy have been going bankrupt, getting acquired, and getting bailed out by the government and tax payers.  The great recession was set upon us three years ago and things have scarcely improved since then.  While the collapse of the housing market bubble deserves a lot of the blame as the immediate cause of the most recent round of economic woes, the overall environment of lax regulations set us up for this disaster.

In case of Enron, it was changes in accounting practices mostly that led to their eventual downfall. Enron was allowed to take a lot of their debts off of their balance sheet and dump them off on their subsidiaries making their financial statements look much stronger than they should have been.  Since the company did not accurately describe their financial standing, they couldn’t pay their bills when their creditors came calling.

AIG’s downfall was a little more complex.  From what I’ve gathered, industry regulations and limits put in place after the Great Depression were slowly repealed when the economy was on a roll in the 1980s.  Removing these regulations allowed banks and other business gurus to create more complex financial packages that were riskier but allowed for greater return.  By the late 2000s things had gotten so complex and convoluted that hardly anyone could understand some of these investments.  AIG ended up getting burnt by a lot of these when the housing market crashed and no longer could meet their financial obligations leading to their failure.

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