How we got here?
financial deregulation
- investment banks (Lehman brothers): mortgage loans, especially subprime with higher interest rate→house purchase increased, house price increased→make huge profits (not real profits)→financial bubble
- insurance companies (AIG): sell derivatives (credit default swaps) to investors
*rating agencies: earn money buy giving high rating to risky securities
When the market of derivatives collapsed, the banking industry was sinking. Due to globalisation, the global economy was linked. Therefore, global recession→a series of problems like unemployment→"At the end of the day, the poorest pay the most"
Accountability:
- banks: lobbying→political influence
- academy (economic discipline): powerful role in shaping US gov policy; advocate of financial deregulation; interest problem (get paid by banks: working inside or writing paper to bank's interest); very few warned of this crisis
Obama administration after 2008:
very little reform of financial industry
still high bank compensation
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