Lesson 7: Financial Deregulation and the 2008 Housing Crisis

September 21, 2017

Review:

• Monetary Policy
• Term Project Assignment (see details below)

Presentation:

• Deregulation of the Financial System
  • Reaganomics
    • Unregulated capitalism
    • Trickle-down economics premise
      • Reduce taxes
      • The wealthy will invest more
      • New industries and jobs will be created
      • Rising tide lifts all boats
  • 1999 Repeal of Glass-Steagall
    • Gramm-Leach-Bliley Act
    • Republican Congress + Democratic (Clinton) White House
    • Removed “firewall” between commercial banks and investment banks
  • Derivatives Market
    • $100 Trillion in 2001, over $500 Trillion in 2008
    • Completely unregulated in 2008
    • Still trying, unsuccessfully, to regulate now
  • 2004 Securities and Exchange Commission (SEC)
    • In reply to global investment banks asking for more freedom
      • Agreed to loosen capital requirements
      • Allowed fewer reserves and more debt
      • Enabled voluntary regulation and self-reporting
  • Short History of Financial Deregulation in the US
• Money for Nothing: Inside the Federal Reserve (begin at 0:36, end at 1:05)

Term Project Assignment:

• You are trying to raise capital for a Real Estate Investment Hedge Fund.
• An investor has requested proposals for investing $1 million in Pueblo residential real estate.
• Create an investment plan
  • List specific properties (active or very recently active)
  • Estimated valuation and purchase price
  • ROI analysis summary
  • Exit strategy for investors – how will they get their money?
• Students may choose to deliver a
  • PowerPoint-style Presentation to the class (5-10 min), or
  • Written investment prospectus (5-10 page paper)
• Students may work together on a plan but each individual must deliver their own presentation or paper