How could government regulations have prevented or mitigated the credit crisis of 2008?

Bus 670 week 3 discussion question 2 administrative law and business

Government regulations could have prevented or mitigated the credit crisis of 2008 in several ways. One way is by introducing stricter lending guidelines to ensure that only those with a stable income and good credit history are eligible for a loan. This will help prevent lenders from approving loans to borrowers who may not be able to afford them, reducing the risk of defaulting on payments. Additionally, government regulations can also set limits on how much money banks can lend as well as impose restrictions on certain types of risky investments such as derivatives and mortgage-backed securities. Furthermore, they can implement regular stress tests and inspections to make sure that financial institutions are operating within their means and following proper risk management procedures. Lastly, government regulations can provide incentives for banks to invest more capital into low-income areas through affordable housing initiatives rather than relying heavily on subprime mortgages which have proven to be especially vulnerable during times of economic downturns.