Lesson 9: Deregulation and the 2008 Financial Crisis
September 23, 2021
Review:
- Monetary Policy
- Money for Nothing: Inside the Federal Reserve
- Housing Bubble in China?
Presentation:
- The 2008 Crisis Explained
- video (referring to Big Short)
- stick figures
- 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
- Brooksley Born
- Still trying, unsuccessfully, to regulate now
- Current value: $1.2 Quadrillion … whoa
- 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
- Christopher Cox, Head of SEC under George W. Bush administration
- Former Reagan staffer and US Rep from Southern California
- Facilitated lack of oversight
- Contributed to 2008 Crisis
- In reply to global investment banks asking for more freedom
- Short History of Financial Deregulation in the US
- Déjà vu all over again
- Savings and Loan Deregulation in the 1980s > Savings and Loan Crisis
- Energy Deregulation in the 1990s > Enron
- “You can’t overestimate what happens when you encourage regulators to believe that the goal of regulation is not to regulate,” said Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University.
- Recent deregulation since Trump election
- Reaganomics
Assignment:
- Watch The Big Short
