Importance of Legal System, Research Paper Example

Webster’s Dictionary defines the law as “an established rule of conduct; the body of such rules; a principle of construction or procedure; rule stating uniform behavior under uniform circumstances” (Merriam-Webster, 2006, p. 196).  It is the law which, ultimately, defines our society and circumscribes certain behaviors that are not deemed healthy for that society as a whole and this applies equally to the specific area of business practice.  This paper will discuss how the law effects both society as a whole and business in particular, then focus in on the consequences of fractures in the legal system and lastly touch upon the importance of stability and predictability for society and business.

The law of the United States is a complex of rules and regulations issuing from the federal government as well as from state and local governments that includes criminal law and law on contracts, torts, and property, among many other things (Wikipedia, 2014, p1) which can affect the daily lives of people in society and of businessmen in particular. There are a variety of laws which govern how business in general is transacted, but also has regulations in place for particular industries: regulations from the federal government, for example, include those regarding environmental and worker safety protection, regulations to protect against unfair competition (i.e. antitrust laws), and regulations on advertising (United States Small Business Association, 2014, p1). This helps not only business but society in general by defining the boundaries, by letting both businessmen and society know which actions are permitted and which are not, so that plans can be made based on the belief that the United States will exist in more or less the same form in the future as it does today.

The Subprime Mortgage Crisis And A Fractured Legal System

An excellent example of how a break-down in the legal structures governing business, and of the effects this can have both on business and society at large, is the subprime mortgage crisis.  A recent post by contributor Stephen Denning of Forbes Magazine, in recounting the history of the lead-up to the crisis sites, among other factors, the repeal of the Glass-Steagall Act which originally made a legal distinction between investment and regular banks and made it legal for banks to engage in riskier behavior, and also the lack of regulation on derivatives, which were “exempt from all oversight, counter-party disclosure, exchange listing requirements, state insurance supervision and reserve requirements” (Denning, 2011, p. 1).  There are many others who will argue in the same vein, that it was deregulation and a lack of oversight which led to the crisis. For instance, a recent article in the Law and Society Review has a review of a book by Stephen Ramirez entitled Lawless Capitalism: The Subprime Mortgage Crisis and the Case for Economic Rule of Law. In it, Ramirez argues that the subprime leaders caused this crisis due to their “recklessness” (Black, 2014, p12) and that the crisis occurred in the first place because “those with economic power erode the law that once held even the financial elites accountable” (Black, 2014, p6).  His solution is to restore the economic rule of law (Black, 2014, p 18), that is, to reestablish legal economic oversight in the business world.

Importance Of Predictability And Stability In Our Legal System

Factors like predictability and stability in our legal system – and in business – are extremely important. One of the things that Stephen Denning, continuing in his Forbes article, worries about is the future stability of the financial sector; of especially worry to him is that Alan Greenspan (and now his successor) are holding interests rates at a very low level for a long period of time, as happened about ten years ago before the mortgage crisis began, and that even now the financial sector is trying to come up with what he calls “the successor to sub-prime mortgages and default swaps” (Denning, 2011, p. 2).  If Denning is correct, then this could be very serious for both business and society, as a stabilizing force is needed in order for everyone to know what conduct – including business conduct – is permitted and what is not; there is no way for long-term business plans, some of which can span years or decades in their scope, to flourish in an atmosphere of uncertainty, both about societal stability in general and about fiscal health in particular.

Conclusion    

In conclusion, it is apparent that the laws which govern our society – and our business – help create a certain stability which is requisite for both society as a whole and business in particular to function; it mostly does this by defining what is and is not acceptable practice and by giving everyone the rules which they need to live by.  When the legal system breaks down, as it did the lead-up to the financial crisis, then this break-down can lead to large-scale instability, like the kind that was experienced during the subprime mortgage meltdown.  This instability is not good either for society as the whole or for business and regulation is needed of both for there to be continuity in this country.

References

Black, W.K. (2014).  Lawless Capitalism: The Subprime Mortgage Crisis and the Case for Economic Rule of Law.  By Stephen Ramirez.  New York: New York University Press, 306pp. Law and Society Review.  48:240-242.

Denning, Stephen (2011).  Lest We Forget: Why We Had A Financial Crisis. Forbes Magazine Online. Retrieved from www.forbes.com/stevedenning/2011/11/22/5086.

Merriam-Webster Pocket Dictionary.  (2006). Springfield, MA: Merriam-Webster, Incorporated.

United States Small Business Administration. (2014). Business Law and Regulation. United States Small Business Administration.  Retrieved from www.sba.gov

Wikipedia Online Encyclopedia.  (2014). The Law of the United States. Wikipedia Online Encyclopedia. Retrieved from www.en.wikipedia.org/wiki/American_law