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POLSCI 1G06 Chapter Notes -Subprime Mortgage Crisis, Systemic Risk, Prime Rate


Department
Political Science
Course Code
POLSCI 1G06
Professor
Todd Alway

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GLASS STEGALL AND THE 2008 SUB-PRIME MARKET
11/22/2012 5:25:00 PM
INTRODUCTION AND THESIS
Thesis : The glass stegall act repeal caused the subprime mortgage
crisis which resulted to the largest recessions in American history
since the great depression.
IMPORTANTCE OF TOPIC
The importance of this topic is drawing the correlation between the
glass stegall repeal and the subprime mortgage in the late 2000’s
that resulted in largest recession in American history since the
great depression and after 60 years of economic growth
KEY TERMS :
Glass Stegall Act:
o The glass stegall act or also know as the bank act of 1933
was passed in congress after the great depression and used
the act as a block between the commercial banks and the
investment banks . This was a way to protect the assets of
commercial banks. Commercial banks were for everyday
people who kept their personal accounts while investment
banks were mainly for stock portfolio and trading purpose.
Glass Stegall was instill to prevent commercial banks from
trading in the stock markets and prevent another event like
the great depression. However in it was repealed in 1999
during the Clinton administration
Sub-prime lending/mortgages
o Sub-prime mortgages were loans given to individuals with
poor credit , people who could not pay back previous loans
and defaulted . The loans had a higher interest rate about two
to three percent then the average prime rate mortgages most
Americans were getting. At times therse loans were called
NINJA loans ; NO INCOME, NO JOB , NO ASSESTS
Deregulations
o Removal of government power in corporation for more
competition.
ARGUMETNS IN PAPER
1. Systemic risk
2. Deregulation of financial institution
3. Banking system
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