Thesis: The actors involved in the Great Recession as well as those that facilitated the current Chinese real estate bubble have yet to face any criminal prosecution; which stands in disproportionate contrast to the hundreds that were jailed in the better handled Savings and Loan Crisis that was significantly less impactful on the global economy.
The recent 2008 Financial Crisis, dubbed the Great Recession, has been one of the worst financial panics to grip this nation since the Great Depression of the 1920s and 30s. It comes nearly two decades after a financial crisis, the Savings and Loan Crisis, roughly 1/7 the size of the current crisis, shook the nation. Both crises have preceded the current real estate bubble and financial turmoil that …show more content…
The amount that they had to pay to generate deposits from people also rose, however the fixed rate mortgage amounts they earned from their loans remained constant and losses began to mount quickly. This is known as asset-liability mismatch and many of these institutions had become insolvent or were close to it because of it, so the government stepped in with a solution that only further exacerbated the problem. On March 31, 1980 President Carter signed the Depository Institutions Deregulation and Monetary Control Act, which gave the thrifts the same capabilities as a bank without any of the regulations that typically surround a bank (FDIC). Another deregulation was the Garn- St. Germain Depository Institutions Act of 1982 that allowed S&L's to diversify their activities with the view of increasing profits (FDIC). The hope was that by deregulating the S&Ls they could make riskier investments otherwise not allowed to generate higher returns for their assets instead of losing money with the mortgage loans; essentially allowing the already insolvent institutions to go for broke in their investment strategies. The regulators of the industry acted with forbearance as they let the insolvent institutions continue to operate without as much regulation as before. The moral hazard problem that this created was massive as CEOs of thrifts threw caution to the wind in hopes of realizing …show more content…
The Troubled Asset Relief Program (TARP) provided $700 billion to bailout the banking system from its toxic assets and prop up the economy. At the time of the S&L debacle the George H.W. Bush administration put top priority on dealing with it and making sure that the people responsible for it would be prosecuted, however the Obama administration was unable to formulate a competent task force to investigate matters thoroughly enough to hold accountable any of the elite bankers who facilitated the 2008 crisis. The similarities between the two crises are surprising and one would think that the lessons learned in the past could have helped prevent or at a minimum better manage a future crisis; however they did not. The same factors that enabled the S&L Crisis played pivotal roles in the 2008 Crisis as well like deregulation with the repeal of Glass-Steagall Act, risky investments with CDOs and other complex financial instruments, and the promotion of moral hazard. There is also the issue of incompetency by regulators, excessive mortgage fraud, and of course a real estate bubble collapse that caused liquidity problems and bankruptcies. These were all magnified sevenfold in the Great Recession in comparison to the S&L crisis. So then why were there not seven times as many resources devoted to finding the actors who led our
The recent 2008 Financial Crisis, dubbed the Great Recession, has been one of the worst financial panics to grip this nation since the Great Depression of the 1920s and 30s. It comes nearly two decades after a financial crisis, the Savings and Loan Crisis, roughly 1/7 the size of the current crisis, shook the nation. Both crises have preceded the current real estate bubble and financial turmoil that …show more content…
The amount that they had to pay to generate deposits from people also rose, however the fixed rate mortgage amounts they earned from their loans remained constant and losses began to mount quickly. This is known as asset-liability mismatch and many of these institutions had become insolvent or were close to it because of it, so the government stepped in with a solution that only further exacerbated the problem. On March 31, 1980 President Carter signed the Depository Institutions Deregulation and Monetary Control Act, which gave the thrifts the same capabilities as a bank without any of the regulations that typically surround a bank (FDIC). Another deregulation was the Garn- St. Germain Depository Institutions Act of 1982 that allowed S&L's to diversify their activities with the view of increasing profits (FDIC). The hope was that by deregulating the S&Ls they could make riskier investments otherwise not allowed to generate higher returns for their assets instead of losing money with the mortgage loans; essentially allowing the already insolvent institutions to go for broke in their investment strategies. The regulators of the industry acted with forbearance as they let the insolvent institutions continue to operate without as much regulation as before. The moral hazard problem that this created was massive as CEOs of thrifts threw caution to the wind in hopes of realizing …show more content…
The Troubled Asset Relief Program (TARP) provided $700 billion to bailout the banking system from its toxic assets and prop up the economy. At the time of the S&L debacle the George H.W. Bush administration put top priority on dealing with it and making sure that the people responsible for it would be prosecuted, however the Obama administration was unable to formulate a competent task force to investigate matters thoroughly enough to hold accountable any of the elite bankers who facilitated the 2008 crisis. The similarities between the two crises are surprising and one would think that the lessons learned in the past could have helped prevent or at a minimum better manage a future crisis; however they did not. The same factors that enabled the S&L Crisis played pivotal roles in the 2008 Crisis as well like deregulation with the repeal of Glass-Steagall Act, risky investments with CDOs and other complex financial instruments, and the promotion of moral hazard. There is also the issue of incompetency by regulators, excessive mortgage fraud, and of course a real estate bubble collapse that caused liquidity problems and bankruptcies. These were all magnified sevenfold in the Great Recession in comparison to the S&L crisis. So then why were there not seven times as many resources devoted to finding the actors who led our