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Should the regulators have forecast the ongoing recession?

As the FSA releases details of the criteria used in various stress tests amongst UK financial companies, there is a growing debate as to whether the UK regulator should have been able to forecast the current demise of the UK economy as a whole. Even though we are currently in a situation which has never been repeated in the modern era there are various aspects which have appeared in the past, most notably the 1930s depression. So should regulators have been able to forecast the dramatic decline?

Unfortunately for those looking to make the FSA and other regulators a scapegoat for the current situation this argument does not hold true. In basic terms, we are now paying the price for a decade in which financial markets around the world were pushed to unsustainable levels by investors and corporate greed. While the demise of the US property market was the catalyst for a collapse in the worldwide economy there is no doubt that each and every banking operation and corporate business in the world has to take its fair share of responsibility.

Fear and greed are two elements which pushed worldwide stock markets to unsustainable highs and also saw banking operations chasing mortgage income on thinner and thinner profit margins.

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