What Successful Economies Do Is Keep It For A Minimum?

Decent Essays
‘Corruption, embezzlement, fraud, these are all characteristics which exist everywhere. It is regrettably the way human nature functions, whether we like it or not. What successful economies do is keep it to a minimum. No one has ever eliminated any of that stuff.’

Alan Greenspan, Federal Reserve Chairman (1987-2006)
(Batra, R, 2005)

In 300 B.C, a Greek sea merchant named Hegestratos engineered one of the earliest recorded cases of fraud when he ‘took out an insurance on a boat for a large sum’. At the moment when Hegestratos took this antique insurance policy, also know as bottomry, he already had the intention of sinking his own boat halfway through his next trip. His goal was to collect the insurance money. He
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The buyers are exposed to many risks. Indeed, the finance sector is highly dependent on information and how this information is shared in the market. The quality of a financial product is often identified a long time after the original transaction. Regulation is indispensable in order to protect the consumers from misinformation or fraud. There are many different agents operating in a same market, such as institutions or individuals, with very different levels of expertise. One of the roles of financial regulators is to ensure that the most vulnerable are not being wronged. That is why the regulatory system is carrying out tasks to prohibit the sale of certain financial products and specifying where they can be sold. (Goodhart, C, 2013)

The reality of systemic risk made the task of regulating the financial system increasingly complicated, as the crises aren’t contained in one country or market. The extreme inter-dependence between the different agents is the main reason why we need regulation today, as some misconducts can cause a domino effect, affecting markets globally. The structure of the banking system in itself explains this process. In the finance industry, banks borrow money from other banks. If one bank fails, the one who lent the funds in the first place might also follow the same path, creating panic in the markets. The government’s first prerogative is to protect its citizens from these
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