Summative statement that markets are better than regulation at causing traders t
ID: 1118409 • Letter: S
Question
Summative statement that markets are better than regulation at causing traders to behave wellyour evaluation Mark Brickell, a founding father of derivatives, made the following statement on April 16, 2008 at the International Swaps and Derivatives Association (ISDA) annual meeting in Vienna. Twenty years ago, we set out to design a business guided by market discipline because we believed that it should be an even better guide to good behavior than regulatory prescription. The credit crunch gives good evidence that market discipline has guided the derivatives business better than government regulation has guided housing finance. Evaluate the credibility of Brickell's statement, with the benefit of hindsight.Explanation / Answer
Regulation is a law which is designed in order to control the behavior of those players in the market who don't follow the norms. Those who fail to follow the rules are subject to fines and imprisonment and could have their property or businesses seized. US is a mixed economy where both the free market and government play important roles.
A regulated economy provides the following advantages:
The following are disadvantages to regulation:
Free market economics aren't perfect, but neither are completely regulated economies. The key is to strike a balance between free markets and the amount of government regulation needed to protect people and the environment. When this balance is reached, the public interest is protected and private business flourishes.
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