Financial Crisis The Global Economic collapse of 2008

Starting in the 1990’s the business of government was business. “…regulators “lacked the political will” to scrutinize and hold accountable the institutions they were supposed to oversee. The financial industry spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with it made more than $1 billion in campaign contributions.” 0 New York Times January 25, 2011 Financial institutions made friends in government through lobbying and political contributions

The Business of Government Lobbyists Political Action Committees (PAC) 0 “Lobbying” is the act of attempting to influence decisions made by officials in the government, 0 Lobbying is done by private- sector individuals, corporations, or advocacy groups. 0 Professional lobbyists are people whose business is trying to influence legislation on behalf of a special interest who hires them. 0 PACs, control the most "corporate" of money. 0 Controlled by companies, trade associations, unions, issue groups and even politicians these committees pool contributions from individuals and distribute them to candidates, political parties and other PACs. 0 PACs can also spend money independently on political activities, like advertising and other efforts to support or oppose candidates in an election

0 Cheap credit made it too easy for people to buy houses or make other investments based on pure speculation. 0 Cheap credit created more money in the system and people wanted to spend that money. 0 People wanted to buy the same thing, which increased demand and caused inflation. 0 Mortgages became easily available, which increased demand for housing, which created an increase in home values. 0 These mortgages were “bundled” as securities products and sold as “good” investments 0 When people defaulted on the loans, the investments went bad and the bubble burst. What Happened?

Housing Demands Prices rise higher than real valueAnyone can get a mortgage Securitization Mortgages are “bundled” as an investment These investments are sold to pension and state funds as “AAA” investments Low Interest Rates Easy creditDeregulation The bubble bursts! Too many people default on their loans. Homes go into foreclosure. The “investments” are bad. Pension systems and large investment companies lose millions.

Then what? 0 A series of bank and insurance company failures triggered a financial crisis that effectively halted global credit markets and required unprecedented government intervention. 0 Fannie Mae (FNM) and Freddie Mac (FRE) were both taken over by the government. 0 Lehman Brothers declared bankruptcy 0 Bank of America agreed to purchase Merrill Lynch (MER), 0 American International Group (AIG) was saved by an $85 billion capital injection by the federal government. 0 J P Morgan Chase (JPM) agreed to purchase the assets of Washington Mutual (WM) in what was the biggest bank failure in history. 0 By September 17, 2008, more public corporations had filed for bankruptcy in the U.S. than in all of

A Few Players 0 Timothy F. Geithner - was president of the Federal Reserve Bank of New York during the crisis and is now the Treasury Secretary 0 Alan Greenspan – head of the Federal Reserve during the crisis 0 Ben Bernanke – Head of the Federal Reserve during the response 0 Henry Paulson - former CEO of Goldman Sachs, appointed Treasury Secretary in 2006

More on who’s who 0 The Federal National Mortgage Association 0 The nation’s largest mortgage buyer 0 It was taken over by the federal government on Sept. 8, The Federal Home Loan Mortgage Corporation 0 The nation’s second- largest mortgage buyer 0 Publicly traded company that operates under a federal charter 0 It was taken over by the federal government on Sept. 8, 2008 Fannie MaeFreddie Mac

Federal Reserve 0 The Federal Reserve System is the central bank of the United States. 0 Created in It operates independently, although its governors are appointed by the president and it is subject to Congressional oversight 0 Has the power to change interest rates and purchase vast amounts of financial assets 0 The Fed has exercised more influence over economic growth and the level of employment in recent decades than any other government entity 0 Since 12/2008 it has amassed more than $2 trillion in government debt and mortgage-backed securities

Treasury Secretary 0 The Treasury head is essentially the chief financial officer of the United States. 0 Advises the president on financial policy 0 Oversees the nation's accounts, including Social Security and Medicare 0 The official boss of such departmental bureaus as the Bureau of Alcohol, Tobacco and Firearms, the Internal Revenue Service, and the U.S. Secret Service 0 Responsible for making sure the manufacture of coins and cash goes smoothly

The Crisis of Credit Visualized (Scroll down to the video in middle of page)

Making Connections 0 Easy Credit 0 No regulation 0 Buying on speculation (stocks) 0 Inflated stock values 0 Bull market 0 Get rich quick 0 Easy credit 0 Deregulation 0 Buying on speculation (homes) 0 Inflated home values 0 Bull market 0 Get rich quick The Great Depression 2008 Financial Crisis

Comparing then and now 0 Glass-Steagall Banking Act Investment Bankers Code Committee Securities Act The Gramm-Leach-Bliley Act Reformed Uniform Securities Act Commodity Futures Modernization Act 2000 Then ( )Now ( ) History of Financial regulation :

The Essay What should be the role of the government? Should the government regulate business and the economic sector? What is the government’s responsibility to the people?

Hook Thesis Statement Introduction Causes Result/Outcome Body Paragraph: Great Depression Causes Result/Outcome Body Paragraph: 2008 Recession Summary of key ideas Restatement of thesis Conclusion Essay Structure #1

Hook Thesis statement Introduction Causes of the Depression Causes of the 2008 recession Body paragraph 1: Compare/Contrast Causes Results/Outcome New Deal Results/Outcome 2010 Body Paragraph 2: Compare/Contrast Outcomes Restatement of Thesis Summary of main ideas Conclusion Essay Structure #2

Essay Requirements pages 0 11 point font 0 Times New Roman spacing

References 0 NYTimes: nomy/26inquiry.html NYTimes: nomy/26inquiry.html 0 financial-crisis#Securitizationandthesubprimecrisis financial-crisis#Securitizationandthesubprimecrisis