Economic crisis has various effects: Laws a blessing and a curse

‘ ‘ ‘ While some regulatory laws might have caused the economy’s current state of crisis, other… ‘ ‘ ‘ While some regulatory laws might have caused the economy’s current state of crisis, other laws have been keeping it afloat, a Pitt professor says. ‘ ‘ ‘ ‘We have a long way to go before we reach another Great Depression,’ said Pitt business law professor Douglas M. Branson. ‘During the Great Depression, more than 35 percent of people were out of work after the market crash, as compared to today, where only about 6 percent of people are out of work.’ ‘ ‘ ‘ Branson said that today’s monetary systems give the government a better chance to intervene and that the Federal Reserve is more firmly established today than it was during the Great Depression. ‘ ‘ ‘ At the same time, Branson said he believes that today’s crisis occurred because American law gave companies too much leverage. Businesses have borrowed too much money and then not been able to pull themselves out of debt. ‘ ‘ ‘ ‘We are trying to get back in the middle of accounting manipulation and accounting conservatism,’ said Branson. ‘ ‘ ‘ Accounting manipulation occurs, Branson said, when companies take measures that make it look like their costs seem lower. They therefore have more money to do business with. ‘ ‘ ‘ Companies that are economically conservative, however, tend to not depend on money until it’s sitting in their bank account. ‘ ‘ ‘ ‘ ‘ ‘ Washington to the rescue ‘ ‘ ‘ The government reacted to the crisis by proposing large-scale interventions. The Bush administration proposed, and Congress eventually passed, a $700 billion plan that uses taxpayers’ money to bail out Wall Street by buying bad mortgages from financial institutions. ‘ ‘ ‘ This week, the Bush administration announced that it would use at least $250 billion to buy shares in failing banks. ‘ ‘ ‘ Both plans have been controversial. ‘What caused the main concern over [the plan] was the way the money could be spent,’ said Haider Ala Hamoudi, an associate professor who specializes in commercial law. ‘The concern was due to the fact that there were no parameters put into place to say where the money would go. For instance, if $10 billion was used, it could inevitably just be divided between shareholders.’ ‘ ‘ ‘ Hamoudi said the presidential candidates’ relief plans are almost identical. ‘ ‘ ‘ ‘There is an economic consensus that there is a need for a massive new set of regulatory tools,’ said Hamoudi. ‘These out-of-date tools contributed to the problems that got us into this mess.’ ‘ ‘ ‘ ‘The Democrats are generally viewed as more proactive and better regulators, so I feel that people may trust Obama more when it comes to improving this situation,’ he said. ‘In the end, it really comes down to which candidate you trust the most in following through with what they say they will do.’ ‘ ‘ ‘ Branson said he believes the country’s economic future is bleak, no matter who wins the election. ‘ ‘ ‘ ‘I do not believe that either of [the candidates] have any understanding of what is going on in regards to our financial situation,’ said Branson. ‘ ‘ ‘ What really sparked the financial crisis was that the market value of homes began to decrease. ‘ ‘ ‘ ‘Normally, when someone puts a mortgage on their home, the value of the home continues to go up. In the housing market today, that is no longer the case,’ said Hamoudi. ‘ ‘ ‘ Hamoudi said that if a bank fails, the federal government would take the bank over and inject money into it. Depositors wouldn’t have to worry about losing their money. ‘ ‘ ‘ ‘In reality,’ said Hamoudi, ‘the money in your bank account is really only as safe as the government that protects it.’