I believe that the financial crisis of 2008 was cause by years of deregulation, leading to unbridled speculation and securitization with risky assets. This belief is upheld by research on the topic. The sources I have looked at provide me with the information that I need to come to the conclusion that the use of the complex financial instruments and mathematical algorithms that are used to assess risk and securitize risky assets were the main cause of the crisis in 2008. The greed of Wall Street bankers was also a major contributor, in my opinion. If they hadn’t have pushed so hard on the government agencies for the deregulations they enjoy and which allowed them to continue with the practices that have, in hindsight, proved to be do detrimental to the financial system of the United States and of the world. The repeal of the Glass- Steagal Act in 1999 led to banks being able to merge with security underwriting companies. The merger between Citicorp and Travelers’ Insurance Group led to the formation of Citigroup. This merger occurred without congressional approval, so it was technically illegal. The congress then granted the company an exception while they passed the legislation to make the merger legal. The article in the 1987 time magazine quotes that the wall street investment bankers wanted to keep commercial banks out of the securities business, because ‘they would get in over their heads if they were allowed such privileges.’ How right they were! And twenty one years before the crisis, no less!
Thursday, October 27, 2011
RJA #9b: Freewriting
What are the root causes of the 2008 financial crisis?
I believe that the financial crisis of 2008 was cause by years of deregulation, leading to unbridled speculation and securitization with risky assets. This belief is upheld by research on the topic. The sources I have looked at provide me with the information that I need to come to the conclusion that the use of the complex financial instruments and mathematical algorithms that are used to assess risk and securitize risky assets were the main cause of the crisis in 2008. The greed of Wall Street bankers was also a major contributor, in my opinion. If they hadn’t have pushed so hard on the government agencies for the deregulations they enjoy and which allowed them to continue with the practices that have, in hindsight, proved to be do detrimental to the financial system of the United States and of the world. The repeal of the Glass- Steagal Act in 1999 led to banks being able to merge with security underwriting companies. The merger between Citicorp and Travelers’ Insurance Group led to the formation of Citigroup. This merger occurred without congressional approval, so it was technically illegal. The congress then granted the company an exception while they passed the legislation to make the merger legal. The article in the 1987 time magazine quotes that the wall street investment bankers wanted to keep commercial banks out of the securities business, because ‘they would get in over their heads if they were allowed such privileges.’ How right they were! And twenty one years before the crisis, no less!
I believe that the financial crisis of 2008 was cause by years of deregulation, leading to unbridled speculation and securitization with risky assets. This belief is upheld by research on the topic. The sources I have looked at provide me with the information that I need to come to the conclusion that the use of the complex financial instruments and mathematical algorithms that are used to assess risk and securitize risky assets were the main cause of the crisis in 2008. The greed of Wall Street bankers was also a major contributor, in my opinion. If they hadn’t have pushed so hard on the government agencies for the deregulations they enjoy and which allowed them to continue with the practices that have, in hindsight, proved to be do detrimental to the financial system of the United States and of the world. The repeal of the Glass- Steagal Act in 1999 led to banks being able to merge with security underwriting companies. The merger between Citicorp and Travelers’ Insurance Group led to the formation of Citigroup. This merger occurred without congressional approval, so it was technically illegal. The congress then granted the company an exception while they passed the legislation to make the merger legal. The article in the 1987 time magazine quotes that the wall street investment bankers wanted to keep commercial banks out of the securities business, because ‘they would get in over their heads if they were allowed such privileges.’ How right they were! And twenty one years before the crisis, no less!
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