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Geography 3422A/B Study Guide - Bear Stearns, Mbia, Commodity Futures Trading Commission


Department
Geography
Course Code
GEOG 3422A/B
Professor
Milford Green

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Movie: Inside Job 2/26/2013 1:24:00 PM
Global Recession How We Got Here
Lehman Brothers bankruptcy initiated the stock market collapse
After the Great Depression the US had 40 years of steady growth
without any major disruptions
Investment banks used to be small partnerships
Paul Volcker chairman of the federal reserve 1979-1987
1980 investment banks went public giving them large amounts of
money in stocks
1982 the Regan administration deregulated savings and loan
companies allowing them to make risky investments with their
investors money
o By the end of the decade they had failed
o Thousands of savings and loan executives went to jail for
eluding their investors
o Charles Keeting paid Alan Greenspan (economist), where he
praised Keetings expertise and said he saw no risk in allowing
Keeting to invest his customers money, Keeting went to
prison, but Greenspan was appointed chairman of the federal
reserve
1990s under the Clinton administration, deregulation continued
o The financial sector had consolidated into a few large firms,
each so large that the failure of one could threaten the whole
system
o 1998 Citi Corp and Travellers merged to form Citigroup, the
largest financial services company in the world
The merger was found to be illegal by an act passed
after the Great Depression (Glass-Steagall) which
restricted investment banks from engaging in risky
banking practices
Greenspan was able to put off the law suit for a year, in
which time the Gramm-Leach-Bliley Act, known as the
“Citigroup relief act” was passed that trumped the
Glass-Steagall Act and cleared the way for future
mergers
Eliot Spitzer governor of NY state

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o Investigation revealed that investment banks had promoted
internet companies they knew would fail
Since deregulation began, the biggest financial companies have
been caught committing fraud to their customers and laundering
money over and over again
o UBS was caught helping wealthy Americans evade taxes
o Citibank, JP Morgan and Merrill Lynch all helped Enron conceal
its fraud
Derivatives claimed to have made markets safer, but actually
made them more risky
o Bankers could gamble on anything rise and fall of oil prices,
which companies would fail, etc.
o Commodity Futures Trading Commission set up to regulate
derivatives, headed by Brooksely Bourne (and Michael
Greenberger)
Clinton’s treasury department essentially directed her to
stop trying to regulate because that was where all the
banks money cam from
A bill was passed to essentially ban regulation of
derivatives
Larry Summers Treasury Secretary, 1999-2001, also
didn’t want regulation
By 2001, the financial sector was dominated by a few large firms:
o Investment banks:
Goldman Sachs
Morgan Stanley
Lehman Brothers
Merrill Lynch
Bear Stearns
o Two financial conglomerates:
Citigroup
JP Morgan
o Three securities insurance companies:
AIG
MBIA
AMBAC
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