“We are having the single worst recovery the U.S. has had since the Great Depression. I don't care how you measure it. The East Coast knows it. The West Coast knows it. North, South, old, young, everyone knows it's the worst recovery since the Great Depression” (Arthur Laffer) I felt this was an apt way to begin my report and analysis on the credit crisis and aspects which can help the world to recover. Although the quote discusses the US I feel this can be applied worldwide. I will discuss in detail what I feel should be implemented to fight the extent and period of recession and austerity which we are operating in. The areas which I will focus on for this analysis will be on the regulation of the financial markets and how they can affect the credit securities market. I feel that this can all be rationally explained and if these ideas are put into place the recovery can be steadfast. The recent crisis has been brought about by a lack of regulation in certain areas which I will address further on in this report. I feel that other areas were blamed for causing financial unrest and should be exempt from regulation which may be stringently imposed on them. I feel the next 5 years will be crucial in shaping the global economy for the next 20-30 years with regulation of the credit securities market essential. We all observed what occurred when deregulation occurred pre 2008 and I feel that in the credit securities market there are major aspects which need to be addressed. I will offer analysis on new legislation being signed in and conclude if this is in the best interests or not of the financial markets, I will also offer opinions on Credit Rating Agencies, Hedge funds and other regulation area which are of great importance to the financial markets and the global economy.
Effects of the Credit Crisis on Regulation
One of the main effects found through my study of AC4119 was the way the credit crisis was caused by regulation deficiencies. One such way was that the Credit Securities and the way they were unregulated. This has meant the implementation of a new act in 2010 the Dodd-Frank Act which gives regulators new resolution authority which allows regulation of oversight and systematic risk. Under the act financial stability on a system wide basis is included as a regulator objective. The act also includes a new method on the Federal Reserve emergency credit or discount window The act allows for a profound increase in regulation of the financial markets. The coming months and years will determine how effectively this increased regulatory presence will advance the acts objectives. I will discuss this later in my analysis how I feel it will turn out but now I will mention the effects that the new regulations will have on the credit markets and how they were brought about. Before Dodd- Frank Alan Greenspan had lobbied to further deregulate CDO, CDS’s and other derivatives to allow the markets to operate efficiently, however we all saw how this ended up. A major problem pre 2008 was that a majority of people in these markets were unaware of the items they were trading.
Regulation of the Credit Default Swap Market
As I have discussed in the introduction one of the defining factors which will shape the global economy for the next 10-20 years will be how efficiently the authorities dealt with Credit Default Swaps. At the moment the financial instruments are not as tightly regulated as insurance products securities or futures. The current consensus is that the CDS market will be subject to tighter regulation but is this really a good thing necessarily? The right wing conservative general public feel that these products have caused enough harm to the global economy and should be completely banned and suspended the market from trading anymore. This is a view also shared by the European authorities as they feel that the speculators on the market are buying too many Default swaps on Greece. I believe the default...