The Politics of the Financial Crisis

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11 Apr 2012
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POL203Y1: U.S. Government and Politics March 5th, 2012.
The Politics of the Financial Crisis
During financial crisis, people saw series of events, and explanations they gave
were their ideological predispositions
Left wing perspective: Financial crisis is story about the consequences of limited
gov’t action, gov’t deregulation
If smarter people were in charge then crisis could have been avoided
Right wing perspective: the crisis is a consequence not of deregulation or inactive
gov’t but was consequence of…
Crisis is what occurs in capitalist economy, not clear how to avoid these crises,
many of the actions that precipitated the crisis can be understood as error
Review: The Question of Inequality?
Immigration is highly plausible can in many cases increase inequality
The Financial Crisis of 2008: What happened?
Financial crisis was crisis of credit
Major financial institutions were no able/or are willing to do these
In variety of ways, economy relies on access to credit
Government Failure? (Jacobs-King)
To understand why crisis occurred, must understand it through financial
deregulation
Enforcement is dispersed, making it difficult to have a coherent regulatory policy
The American state is weak because it is infiltrated revolving door
Capacity of state is limited by conflicting influence of political appointees at
national level
Deregulation
Shift from regulatory framework established by GlassSteagaill and the
variations that occur
GlassSteagaill was attempt to reduce risk: Laws try to separate safe,
commercial banking from investment banking
Changes occur in GlassSteagaill in late 1970s
See in Carter era, both parties started taking more flexible take
Major change is Gramm-Leach-Bliley deal
This bill reduced many of features of GlassSteagaillthe separation b/w
investment banking and commercial banking is not as big
This change makes mergers so much easier to achieve under this new framework
How does deregulation create the crisis? The growth of housing bubble
New financial organizations increasing give in to risky loans, either because they
feel invulnerable or that they will be backed up by gov’t in case of crisis
The Housing-Industrial Complex
Some aspects of weakness of regulatory apparatus of national state assume that
deregulation has eliminated…
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