Anticipation of Foreclosure Crisis Could Have Lessened Agony
December 1st, 2008
If the foreclosure crisis had been anticipated, as is expected of any risk management programme by the authorities, the agony of the crisis could have been lessened commented Michael Chertoff of Homeland Security. The worst part of it is that the concerned institutions do not learn from the mistakes. They reduce essential long-term spending and again court disaster.
But there is a new approach taking shape he added as “people are beginning to wonder if changes” are required in the role played by the government for tackling the risk factor in the foreclosure related financial crisis. Chertoff explained that there is in reality no really free market economy. It is always bound by rules coupled with regulations enforced by the government. Even the most passionate capitalist and free market thinker aggress the basic principle that government does have a part to play in enforcing rules of movements. This allows the free economy to operate running along the laid out tracks.
Chertoff suggested that the lawmakers when thinking about regulations in addressing the foreclosure crisis should ponder carefully over what the government should do as regards risk management at various levels – the individual and the social. This will enable the government to take a balanced and sensible approach.
Chertoff clarified, “The free market and people who operate in it tend to favour and focus on (the) short term.” They focus on immediate gains that can be reaped and shy away from long-term costs that are rather uncertain. This encourages risky behaviour and make the people sit back sure of the fact that when disaster will strike the government will bail them out. The term making the rounds in the present foreclosure crisis is ‘moral hazard’. It has been used in many debates about whether the U.S. government should spend funds on those financial houses whose ignoring of the risk factor helped to create the present credit crisis. Here the individ ual as well as the government should give due importance to the anticipated risk factor to avoid a rerun of the foreclosure crisis.
Another problem s that of internalize of costs are not done. It is the story of the upstream owner of land who fouls the water used by the downstream landowner. In the same way the companies that do not put their own house in order causes a deluge of foul water to poison the rest of the land. So regulation must be there – but not over regulation.
- Fewer Foreclosures Among Low-cost Brooklyn Homes
- Bank of America is a Lagging Behind in Loan Modifications to Prevent Foreclosures
- The Aftermath of the Housing Boom is Followed by Foreclosure Doom in Homestead
- Lenders Being Legally Challenged for Activating Predatory Lending
- Foreclosures Have Made Life for CEO’s Expensive and Fraught With Fear
- With Foreclosures and Unemployment Continuing it is Doubtful if Recession is Over
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