01:220:395 Lecture Notes - Lecture 9: Bear Stearns, Morgan Stanley, Oligopoly

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2 May 2016
Department
2/23/2016
Inside Job by Charles Ferguson
Revolving door policy
- Financial executives receive government appointment
- Results: deregulation, oligopolies, collusion, criminal behavior
Oligopolies
- Investment banking
oMerrill Lynch
oGoldman Sachs
oMorgan Stanley
oLehman Brothers
oBear Stearns
- Securities Rating Companies
oMoody’s
oStandard & Poor’s
oFitch
“Too big to fail”
- When an oligopolistic market becomes so large that it’s demise has a major
adverse effect on the nation’s economy
- Results: government bailout
The bubble
- Make toxic loans, earn commission on loans, bundle and sell loans, bet against
loans, insure against loan default, bet against firm collapse, avoid criminal
prosecution
Result
- Deregulated industry, housing market collapse, home foreclosure, financial
market collapse, government bailout, recession, behavior continues
Deregulation Behavior
- Glass-Steagall Act 1933
oPrevent banks from engaging in risky behavior
oSeparate commercial banks from investment banks that sell new stock
securities
oPrevented shocks in the stock market from effecting commercial
banking
Current Legislation
- In 1999 congress repealed the glass-steagall act by enacting gramm-leach-
bliley on nov 12, 1999
- Dood-frank amendment
- Volker Rule
Deregulation of financial market
- Presidents: Reagan, Bush, Clinton, Bush, Obama
- Federal Reserve chairman: Greenspan, Bernanke
- Dates: 1978 to present
Dodd-Frank Amendment
- Signed into law July 2010
- Limited bank trading
- Monitor bank risk
- To date, 40% of the 400 provisions have been finalized
Volker Rule
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