...Bubble, 3) The Crisis, 4) Accountability, and 5) Where We Are Now. The parts of the film come together to uncover the corruption of government, regulatory bodies, financial institutions and academia, which resulted in the biggest financial meltdown in the U.S. since the Depression and the first global recession in history. This paper will examine the film’s parts and analyze the moral, ethical, and regulatory lapses that were years in the making. Part 1: How We Got Here Until 1980, the financial industry was relatively stable. Investment banks had primarily been small private groups of individuals who invested their own money on riskier investments and as a result closely monitored their investments. In the 1980’s, investment banks went public, which meant they had access to the public’s money to invest in these riskier ventures—since it wasn’t their own money, there was not the same close monitoring. Deregulation allowed for the comingling of government, investment bankers, and lobbyists. In 1981 the CEO of Merrill Lynch was appointed Treasury Secretary by Ronald Regan. Deregulation allowed the financial industry to explode and for those in power to make more and more money. The powers of Wall Street were invading government with the intent to change policy to their benefit. Deregulation resulted in the S & L crisis and losses of $124 billion to investors, and the 2001 dot-com meltdown with $5 trillion in losses. Investment bankers used public money to enrich themselves...
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...1. (a) Assume that declining stock market prices in the United States cause many United States financial investors to sell their stocks and increase their money holdings. Draw a correctly labeled graph of the money market and show the impact of the financial investors’ actions on each of the following: (i) Demand for money Interest Rate Money Supply Money Demand (ii) Nominal Interest Rate Money Supply Nominal ------------ Interest Rate ------------------------------ (b) When the Federal Reserve sells bonds, what will happen to the price of bonds in the open market? Explain. Using a correctly labeled graph of the money market...
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...Political- Legal factors, Social factors, Economic factors, and Social factors, or PEST is the analysis of these four macroenvironmental forces. Political-Legal factors can be very costly to business regardless of the industry of the firm (Parnell, 2014). In the late 1970’s through the early 1980s the federal government shifted toward the deregulation of the banking industry. With the deregulation of the banking sector, some of the top banking and mortgage institutions to price gauge and use discriminating practices. Consequently, due to this type of behavior, economist believe the Great Recession was the fallout in 2007-2008 (Hearit, 2018). “According to Financial liberalization, which is widely considered critical in providing an...
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...much less of a dominant role. Within recent decades the UK economy has faced many serious challenges, including three recessions in the early 80’s, early 90’s and late 00’s. Up until the onset of the recent financial crisis, output growth in the UK exceeded that in many other European countries. The UK’s economic performance remains one of the highest in Europe and it is still one of the most globalized countries in the world. Using 1980 as a base, in recent decades the economic output per head of population in Britain has risen giving significantly higher standards of living however the UK economy has been scarred by recession. The 80’s period saw great social, economic, and general change. Wealth and production progressively migrated to more newly industrialising economies. The early 1980s marked a severe global economic recession that affected much of the developed world. In the UK, the 1980s was a period of economic volatility. At the start of 1980, the biggest problem facing the UK was cost push inflation. In the late 1970s, UK inflation reached over 20%. This was caused by rising oil prices and wage push inflation. Unemployment shot up to 3 million and high unemployment persisted throughout the 1980s. After recovering from the 1981 recession, the UK experienced a long period of economic expansion. Towards the end of the 1980s, the growth rate reached record post-war levels. The 1990s began with a severe recession, leading to higher unemployment and a massive slow...
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...decline in economic activity. In 1990’s the world economy was hit by a series of deep crises. Economic crises hit first the Nordic countries Finland and Sweden. The same pattern has later been observed in other countries like Mexico, Russia, Brazil, etc. This economic crises lead to a drastic change in the economic policies adopted by Sweden. Causes In the early 1980s the stage was set for deregulation. An early step was the abolition of the liquidity ratios for banks in 1983. Interest ceilings were lifted in the 1985, and finally the lending ceilings for banks were also removed in 1985. The main driving force behind the deregulation was the rapid development of financial markets. Deregulation also opened up new opportunities for banks which have been in high regulations till then. The active financial markets made the regulations increasingly inefficient. Banks expanded their activities such as leasing, factoring and credit cards into direct lending which pushed them into higher risk markets. Finance companies were partly funded by banks and also by bank guaranteed company investment certificates (marknadsbevis). All these factors led banks expose themselves to extra credit risk. Foreign borrowing was mostly intermediated by the banking system. Lending in foreign currency increased from 27 per cent of total bank lending in 1985 to 47.5 percent in 1990. Private sector was also exposed to considerable exchange rate risk Also in the 1980s, the Swedish economy was characterized...
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...decade and the present financial crisis As world and consumer prices continue to drop, there is renewed fear of deflation. The nightmare scenario is Japan's 'lost decade'. Michael Lim Mah Hui explains what happened in Japan and considers the prospect of a similar fate. IN the last 37 years (1970-2007), there have been 124 banking crises, an average of 3.4 every year (Laeven and Valencia, 2008). Some have been minor, others very serious and long-lasting, like the one in Japan from 1991 to 2002. The most recent is the financial crisis that started in the US in July 2007 and is playing out in front of us today. It is also the most serious, systemic, and global since the Great Depression of 1932. A banking or financial crisis can be defined as a dislocation of the banking system where a significant number of banks and other financial institutions become illiquid and insolvent due to massive defaults on bank loans and other assets. An escalation of non-performing assets of banks will result in heavy losses depleting banks' capital. Banks become insolvent when their debt obligations (liabilities) exceed the value of their assets, i.e., the sale proceeds from their assets are inadequate to pay for their debts. Conditions preceding a banking crisis - financial deregulation Unbridled deregulation of the financial industry is at the heart of financial instability and crises. What began as a trickle became a wave and today it has broken loose as a financial tsunami engulfing the...
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...Indonesia * The Indonesian business environment is the least transparent of the HPAEs, and property rights receive the weakest protection. * Indonesia’s business environment constantly ranks below the fiftieth percentile among a group of fourteen newly industrial countries. * Indonesia’s reliance on informal social networks, instead of on predictable rules and procedures has resulted in private investment tends lagging behind those of East Asian neighbors. * Informal social networks emerged because of leadership’s need to nurture political support from the military, which was the only institution capable of governing the country. * The Armed Forces and the Rise of the New Order - Old government could not collect taxes, so it could not pay its officials and provide an adequate legal system, laws were out of date and the judicial system was dysfunctional. * With backing of military, President Sukarno declared martial law and restored the 1945 Constitution. Threatened that the military might threaten his position, he supported the rise of the PKI, Indonesia’s Communist Party, as counterweight to the military. This led to a power struggle between the army and, other elements of the armed forces, and the PKI, which eventually spun out of control. General Soeharto became head of state and the government became the glue that held together ethnically diverse groups. * The Technocrats and Regime Credibility – Under Soeharto, inflation was at an all-time...
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...technology (IT) equipment has grown rapidly, from $104 million in 1960 to more than $10 billion in 1994. These investments in “hard” technologies (computer hardware, software, telecommunications equipment, etc.) have been accompanied by increases in "soft" technologies, for example, complex financial innovations that were infeasible on a large scale without IT hardware. These developments, together with deregulation, are creating new competitors, new financial markets and instruments, and a new role for commercial banks as providers of financial services. This study documents how changes in information technology have affected the role of banks in financial markets and have influenced changes in the structure and performance of the U.S. banking industry. The analysis also covers new, fast-growing financial innovations linked to IT investment e.g., asset securitization and derivatives. IT’s effect on the banking industry has been positive. Increased competition has caused banks to lose traditional customers, but IT enabled the banks to offer new products, expand into nontraditional areas, operate more efficiently, and minimize risk. The aggregate economy is better off because of a more efficient financial industry and because of the increased quality and value of banking services. IT has been central to the evolution of the market for securitized instruments. Mortgagebacked securities have experienced phenomenal growth over the past 25 years....
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...www.ccsenet.org/ijbm International Journal of Business and Management Vol. 6, No. 7; July 2011 Financial Reform, Ownership and Performance in Banking Industry: The Case of Bangladesh S. M. Sohrab Uddin PhD Student, Graduate School of Asia Pacific Studies Ritsumeikan Asia Pacific University, Japan & Assistant Professor, Department of Finance and Banking, University of Chittagong, Bangladesh E-mail: smsohrabcu@yahoo.com Yasushi Suzuki Professor, Graduate School of Management Ritsumeikan Asia Pacific University, Japan E-mail: szkya@apu.ac.jp Received: December 17, 2010 Accepted: January 20, 2011 doi:10.5539/ijbm.v6n7p28 Abstract Bangladesh entered into the era of financial reform during the early 1980s. Most of the reforms initiated by the government have concentrated predominantly on the banking sector. Consequently, many changes relating to ownership, market concentration, regulatory measures and policies have taken place primarily to enhancing bank performance. In this regard, this study is undertaken to investigate the performance of commercial banks after the implementation of significant financial reform. Data Envelopment Analysis based frontier measures income and cost efficiency and traditional non-frontier measures non-performing loans and return on assets have been used for assessing bank performance. The findings indicate that income and cost efficiency of sample banks have increased by 37.84 percent and 15.28 percent respectively in 2008 compared to 2001...
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...Professor Robert Pollin TA: Evelyn Kwakye May 7, 2015 Deregulation During the 1970s and 1980s the United States government went through a period of deregulation. Deregulation is a reduction of government involvement and control within an industry. Did this deregulation lead to the 2008 financial crisis? This is a hot button topic that is highly debated and causes a great deal of controversy. The financial crisis of 2008, known as the Great Recession, impacted the entire country and practically every individual citizen. Many politicians, such as Speaker of the House Nancy Pelosi, look for an easy blame or a scapegoat, for example, the deregulation by the Bush Administration. Pelosi has been quoted saying " the Bush Administration's eight long years of failed deregulation policies have resulted in our nation's largest bailout ever, leaving the American taxpayers on the hook potentially for billions of dollars" (Gattuso). The issue with that statement is that the economic deregulation she speaks of did not take place during the Bush Administration, but many years prior and the laws of that time are not controversial in today’s economic situation. Rather more recent regulatory laws are to blame for the financial crisis of 2008. Why did we Regulate in the First Place? The Great Depression is unopposed when it comes to economic downfalls in the United States. The financial hardships that took place during the 1930s rocked this country to its core...
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...Counteracting the global economic crisis: values, institutions, policies. When talking about the broad and complicated subject of economic crisis, it is important to mention ideas concerning neutralization of its consequences and prevention of future calamities. The current disturbance in the global economy requires not only to understand how it was initiated, but also how to counteract and draw conclusions from it. The Chinese proverb says: “may you live in interesting times.” These times are now- financial markets are in turmoil, China is rising as economic power, young people from Europe and America are protesting against, what they see as ineffective government and regulations. In next years the world will change even more- also thanks to changes, that will be made as an answer to the global economic crisis- in terms of values, necessary institutions and policies. The first step toward ending the crisis is to introduce new regulations, that would stabilize the market. Since 1980’s the American financial market has been experiencing a long period of deregulation. Although the obvious results of this move- the example can be the deregulation of savings and loans companies, that led to crisis in 1989, the process continued. Decade later, in 1990’s the new market instruments- derivatives, became increasingly popular. Although, their allies argued that they would stabilize the market, the opposite happened. Any attempt to regulate hedge funds was cut out by Commodity...
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...would otherwise be denied credit. Interest only loan options were offered, and combined with the mortgage-backed securities (MBS) added so much liquidity that in turn created a housing boom. Over time borrowers end up paying higher interest rates with zero payment application against their loan amount. Unemployment setbacks that ultimately resulted in defaults, added to the economic crisis. Consequently, more homes were placed in a market that is already saturated with newly constructed homes. This created less demand resulting to more houses that builders were unable to sell. Controls of banking rules and regulations during the 1980’s were relaxed, and monitoring policies for these were not the highest priority. Jimmy Carter’s “Depository Institutions Deregulation and Monetary Control Act of 1980” was a window for financial institutions to continue their momentum of relaxed lending practices. Yet another regulatory policy under the “Gramm-Leach-Bliley Act of 1999” was passed that removed barriers between banks and mortgage investment lenders. This regulation was viewed as pivotal to the economic crisis as it allowed commercial banks, investment groups, security companies and insurance groups to merge and package an...
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...FINANCIAL CRISIS OF OUR TIME WHAT HAS HAPPENED In September 2008, the Bankruptcy of Lehman Brothers and the collapse of AIG, following the demise of Bear Stern and the near collapse of Merrill Lynch triggered a financial crisis. The result was a global recession which cost the World tens of trillion of dollars, rendered 30million people unemployed and doubled the national debt of the U.S. But this crisis was not an accident. It was caused by an out of control calamitous financial industry. In the aftermath of the Great Depression, the US enjoyed a 40 year economic growth without a single financial crisis. The Financial industry was tightly regulated. Critical to these regulations was The Banking Act of 1933, known as the Glass-Steagall Act, which separated commercial banking activities from Investment banking activities, meaning Banks with consumer deposits were prevented from engaging in risky investment banking activities. Most regular banks were regular businesses and they were prohibited from speculating with depositors’ savings. Investment banks, which handled stocks and bonds trading, were small private partnerships. In the 1980’s, the financial industry exploded. The Government, with support from Economists and Financial lobbyists started a 30 year period of financial deregulation. In 1982, the Government deregulated the Savings and Loans companies allowing them to make risky investments with depositors’ money. By the end of the decade, hundreds of Savings and Loans...
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...The process of globalisation is best defined as a movement towards greater economic integration between countries through reduction in the barriers to free trade. The process of globalisation accelerated in the 1990a and 2000s due to the spread of new cost saving technology in transport and communications and the deregulation of financial markets. Indonesia is the largest economy of the South East Asia economic region, having the fourth largest and the 19th largest economy; it is an emerging economy that has increased international integration in recent decades. Although Indonesia has a large economy, it also has a very large population, estimated around 237million people in 2010. Having low standard of living with a national income of $3600 per person, this makes Indonesia rank 147th in the world for income level. This classifies it as a low-middle income economy by the World Bank. Indonesia’s low level of income means that it suffers from a relatively high incidence of poverty, around 30% of the population lives on less than $US1.25 per day. Indonesia suffers from low levels of economic development. According to the United Nations, Indonesia’s HDI of 0.734 is below 110 other economies. Income Inequality in Indonesia, as measured by its Gini index of 37.56, is similar to other economy in the region such as Malaysia and Vietnam. The distribution of income is more equal than in many countries, such as Thailand, the Philippines, or major economies such as China or the United States...
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...What was the Savings and Loans crisis? What caused it? Could the crisis have been prevented? How? The savings and loan crisis was the greatest banking collapse since the great depression. Emerging in the 1970’s and escalating during the 1980’s, by 1989 over half of the United States savings and loan associations along with the Federal Savings and Loan Insurance Corporation fund that was created to insure their deposits had collapsed. The overwhelming cost of the savings and loan crisis still astounds many taxpayers, depositors, and policymakers today. This savings and loan experience produced three valuable lessons: excessive regulation was the initial cause of the industry's problems; federal deposit insurance was ultimately responsible for the high costs of this crisis; government sponsored efforts to protect the industry only invited abuses and increased the ultimate cost of restructuring (England). The foremost cause of the saving and loan crisis was the high inflation levels that occurred during the 1970’s. Savings and loan institutions depended on residential mortgages for income. During the 1970’s these institutions began losing money on fixed rate loans because the interest rates set were created in previous years when interest rates were well under the rate of inflation. Congress subsequently decided to allow the savings and loans to diversify into riskier and more profitable commercial real estate and relaxed lending requirements to prevent the savings and loans...
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