1. Why did the debt problem occur? It was caused by the deregulation in the financial industry. It permitted banks to engage in hedge fund trading with derivatives. Banks then demanded more loans to support this and created interest only loans that became affordable to subprime borrowers. 2. Is it better for our economy to allow free market forces to govern our financial services or should there be more regulation by the Federal government and the Federal Reserve? The Federal Reserve and the Federal government should take measures of regulating and controlling the markets than by the use of free market forces. The market forces are flexible and can change at any time but set regulations are to stay for a long period hence favorable to many …show more content…
Consumer beware is not really effective in these markets since not all consumer take the time to access this list. Has unfair, predatory lending been taking place at the expense of the borrower? Yes. These predatory lending involves the imposing unfair and abusive loan terms on borrowers. 4. Should government help the large banks and brokerage firms and "bail them out" of these bad loans? The government should not step in to bail out banks on the bad loans. In such cases, the repayment period can be adjusted to avoid the misuse of public funds to benefit individual businesses (banks) that are aimed at making profit at the expense of citizens. The affected banks should negotiate on other favorable methods of bailing them from the bad loans and create strong credit controls that can prevent such bad loans from occurring in future. 5. How much help should be given to borrowers who are in trouble with their mortgages? The prepayment penalty should be nullified and the borrowers should be let back under the risk umbrella of FHA or their payments’ can also be lowered. 6. Does the Federal Reserve have too much power?