Most bankers in the 1960s and 1970s made nowhere near the money bankers earn today. However, once the 1980s came, investment banks that were once private could now go public causing a financial industry boom. Suddenly, these banks had access to large amounts of stockholder money to invest without abutting oversight. These bankers began making extensive sums of money, no longer needing that second job. Greed fueled the choices that were made during the deregulation of the financial industry. Those with power measured from wealth could—and, still can— manipulate the American economy and deceive those without power, who cannot see behind the closed door. The housing market crash in 2008 took place because investment banks and political figures had power to operate with the public eyes false assumption that everything was conducted with legitimacy.
After the Great Depression, for forty years, strict regulations were imposed on the financial industry and allowed for growth in the U.S. economy. However, the idea of deregulation in this industry lurked; granted it would give more freedom and potential to enhance income. Thus, it was during the Reagan presidency when his administration proposed the idea and drive the economy forward! The investment banks quickly backed the president while bankers became motivated and steadfast to utilize the deregulation to their advantage. However, this came with the expense of altering the world economy forever, but they didn’t fucking know that.
In the 1980s, Reagan appointed two important government officials to his administration during his presidency. The first, Donald Regan who was appointed Secretary of Treasury and then Alan Greenspan, appointed chairman of the Federal Reserve. Both these men had roles in the financial industry and supported the steps towards deregulation. Come the end of the decade, the deregulation of savings in loan companies allowed risky investments with a depositor’s money had failed. These risky investments all done with thought by the investor that these were legitimate and profiting investments. Sadly, taxpayers—working U.S citizen—ended up paying 124 billion dollars in bail out while firms walked with highly profitable gains. By 2001, the popping of internet stock bubble occurred with the cost of 5 trillion-dollars. All of this fueled by deceivingly greedy investment banks, taking advantage of investors and knowing no questions would be asked. These investment banks were deceiving investors while the SEC stood by and watched.
The securities and exchange commission (SEC) was created after the Great Depression to regulate investment. Nonetheless, the SEC would continue to take no action in preventing illegal activity within these investment banks. After all, investment firms had no obligation to admit to criminal activity. Therefore, the SEC fined investment banks that were caught in these criminal activities but never went looking for it. The U.S. stood by assuming all was good. These acts continued throughout the following years too. During the 1990s, deregulation and technology lead to the creation of derivatives which economists and bankers claimed would make markets safer but in reality, made them unstable. Now brokers could gamble on essentially anything.
These derivatives were a 50 trillion-dollar unregulated market, and Brooksley Born sought to regulate it before something bad came of it. However, those in power halted her progress, specifically President Clinton’s treasury department. Thus, boom whatta bang, congress passes the Commodity Futures Modernization Act written with the help of none other than…financial lobbyists! Damn, once again, these powerful lobbyist deceived people who had zero insight to know what a derivative even was. Investment banks now had capability to combine thousands of mortgages into complex derivatives. Almost every CDO received a “triple a” rating since investment banks were paying the rating agencies to evaluate and rate these CDO’s. If Moody’s evaluated lower than the firm’s expectation, then the firm instead, goes to Fitch for a better rating. To no surprise the powerful had control over their own ratings by paying off the agencies and still, no one had a clue what the flip was happening. These agencies had no liability if these ratings were proven inaccurate which most were, so there was no incentive to stop. The use of derivatives skyrocketed.
In 2001, the U.S. financial sector had grown larger and more powerful than ever before. People making the loans were no longer at risk if there was no repayment. Thus, barrowers were needlessly placed in expensive subprime loans (borrowing 99.3% of the house price) which many could not repay. This is all due to the fact institutions once again had the power to offer mortgage brokers based off selling the most profitable products, predatory loans. People were now led to buy more houses under the false assumption the housing market could never collapse. These people knew they were doing something dangerous. Subprime lending had increased by 20 times over the span of ten years, and high profits were to be had. Here’s the thing though, it wasn’t real profits nor income.
The system simply created money as income that would later go default three years down the road. Hell, no investigations were even conducted on investment banks and the SEC even cut back its staff during George W. Bush’s presidency, reducing Risk Management staff to one. At that time, it was headed by chairman, Christopher Cox who had no desire to catch these banks in the criminal act. He believed in free movement of capital and catching these banks would increase the likelihood of implementing regulation. Guess what, Cox uses his power to make sure no investigations occur, and no one seems to give a shit assuming everything will be fine.
During the housing market bubble, investment banks began borrowing money—raising their leverage—heavily in order to buy more loans and create more CDO’s to profit from. Over and over, another powerful actor in the economy, Henry Paulson the CEO of Golden Sachs manipulated the system. To further illustrate, Mr. Paulsen man lobbied to relax limits on money borrowing to allow more leverage and money for the finance industry. The banks had more power than ever to gamble with money that wasn’t really there, yet nearly anyone batted an eye at the decision. Be that as it may, something even more catastrophic was in the works…credit default swaps.
Credit default swaps guaranteed money back for investors if there CDO shit the bed, all that was needed was to pay the monthly premium. So, investors payed these premiums with the expectation these insurance companies were setting aside money for a rainy day. For all that, these companies instead gave some hefty cash bonuses to employees once investors agreed to these default swaps. All of this activity and deception operating in the public eye, the public ensued to view their decisions as appropriate and beneficial as these companies used it their advantage and not others. Additionally, these firms giving cashed bonuses away were by and by leading towards an eventual bankruptcy. These bankers and political figures never thought the housing market could actually crash, until it did.
The government had no plan for bankruptcy and that possibility was drawing near. By 2008, home foreclosures had escalated tremendously. People quickly realized money would be lost when they sold their home for less than the mortgage. Loans were going bad and lenders began to suffer from it. However, these institutions still had ahold of the strings which allowed these loans to ‘AA’ or ‘AAA’ ratings when these were clearly dogshit loans. Banks became timid to lend to each other knowing these garbage loans were collateral. All of this led to the bankruptcy of some of the largest investment banks and insurance companies. These bankruptcies were purposeful in the end, investment bank owners did not know the consequence of letting the company go bankrupt.
Throughout the 30-year time period, the American dream was more alive than ever and everyone wanted to take part. No one stopped to ask questions or get a closer look into what was happening behind the curtain of the financial industry. The crash led to heightened unemployment rates that would continue to rise until Barack Obamas presidency. These bankers and many other involved were splurging and blowing money all at the expense of us, American tax paying citizens. Taxpayers bailed out these banks when the government issued a 700 billion-dollar bailout order. Once again, those in power used their status to cheat the system and walk away with millions of dollars while the United States and other economies paid for it.
It was entirely possible to avoid all of this. The government took no action in finding the corporate because it would essentially discredit the governments legitimacy that all these people assumed the government had. Those in power knew what was happening but feared losing its credibility and reliability the public eye had. Thus, the public endured through these times believing anything the government said without questioning it. The government and investment banks knew of other ways around it but these ways proved to not make money as easily as deregulating and cheating the system. It was completely attainable at the time to create derivative products that were not high risk, carrying the equivalent of deductibles. Imposing limits on the risks that could be taken and so forth. Those in power had no one to answer to which is ironic because board of directors for a CEO are in a way supposed to oversee the CEO actions and deem whether the actions are efficient. However, no oversight was had, and the oversight had never resulted in the firing of the CEO. Instead, the board allowed these CEOs to resign with a considerable payoff. Once more, these CEOs used their power to escape the punishment for their doings and instead walked away with enough money to last a lifetime.
It’s unsure to say exactly when and where the next crash could happen. The likelihood of another crash happening is high, considering the heightening of interest rates in markets attributed with the irrational exuberance of investors. Without insiders and knowledge on these markets and how they are being run, the public eye will always assume legitimacy within their government even if there’s not. Throughout history, these crashes are seen time and time again with no assurance another one is not to come. So, here’s some advice, sit back and enjoy a cup of coffee because there is absolutely nothing a person can do about it—that is, unless you have the extreme money and power at hand.