Long Term Responses To Debt Crisis


In June 2009, a string of regulatory proposals were introduced By U S President Barack Obama as long term responses to debt crisis. These proposals deal with consumer protection, executive pay, bank financial requirements and long-drawn-out regulation of the shadow banking system. These long term responses to American debt crisis also cover improved authority for the Federal Reserve to safely wind-down systemically important institutions. Additional regulations were brought in place to limit the ability of banks to engage in proprietary trading.

As debt crisis long term response, economists, politicians, journalists, and business leaders have proposed an array of regulatory changes, so as to play down the effect of the current debt crisis and prevent any recurrence. Here is a list of these regulatory changes, proposed as long term responses to American debt crisis:          

  • Ben Bernanke: Institute resolution procedures to close troubled financial institutions in the shadow banking system

  • Joseph Stiglitz: Control the leverage assumed by financial institutions and require any executive compensation to be related to long-term performance.
  • Simon Johnson: To limit systemic risk, it is necessary to break-up institutions that are "too big to fail"

  • Paul Krugman: Regulate the institutions that act or function similarly to banks.

  •  Alan Greenspan: Encouraging the Banks to have a well-built capital cushion

  • Warren Buffett: Home mortgages  should require minimum down payments of at least 10% and income verification.

  • Eric Dinallo: Make sure that any financial institution has the compulsory capital required to sustain its financial commitments.

  • HM Treasury: Contingent capital or capital insurance held by the private sector could add-on to the common equity in times of crisis.

  •  Michael Spence and Gordon Brown: In order to identify any systemic risk, ther should be an early-warning

  • Niall Ferguson and Jeffrey Sachs: Before using taxpayer money in bailouts, haircuts on bondholders and counterparties should be imposed.

  • Nouriel Roubini: To assist homeowners, the mortgage balances should be reduced thus giving the lender a share in any future home appreciation

  • Adair Turner: In August 2009 warning that a “puffed-up” financial sector which paid excessive salaries has grown too big for society and thus supported the idea of new global taxes on financial transactions.
Many of these regulations as long term responses to debt crisis are yet to be implemented

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