Financial Liberalization : Deregulation Of Financial Markets And The Freedom Of Capital Mobility Across Economies

The panic of 1907 and the Great Recession of 2007-2009 has both been major economic events in the United States economic history. This paper compares and contrasts these two major events and enables us to understand importance of certain financial institutions and regulations during troubled times in the financial sector. In this paper, both panics of 1907 and 2007 are historically analyzed and compared.

During the 1930s, the most prominent reason for U.S. banking regulation was to prevent bank panics and more economic disaster like those that had been experienced during the Great Depression. Later deregulation and financial innovation in industrialized countries during the 1980s eroded banks monopoly power, thus weakening their banking systems and seeming to embody the fears of post-Depression policy makers who instituted regulation in the first place. Fear that individual bank failures could spread across international borders creates pressure to harmonize bank regulation worldwide. One advocate suggests that universal banking, at least for industrialized countries with internationally active banks, would “level the playing field” by eliminating competitive advantages created by government subsidies. Although this is a valid point, one of the major driving forces behind the globalization of the banking world is the ability of banks to take

The American financial system before the Federal Reserve came along in 1913 was tragic. With the economy on the rise, growing

In 2008 America’s financial system was brought to a stand still as decades of negligence and financial decisions caused our economy to sink into the worst recession since the great depression. Cultivating a problem worse than America has seen in roughly a century points one finger not at a particular cause, but a string of events that finally gave way. Now, eight years later our economy is still recovering, and time has allowed us to look back at decades of mistakes to try and connect the dots of the perfect storm that collapsed our financial market in 2008. In 2009 Brookings Institution, one of Washington’s oldest think tanks, concluded there were three causes that resulted in the crisis. Economists Martin Baily and Douglas Elliot stated that the results of government intervention in the housing market, the influences Wall Street had on Washington, and global economic forces were the three main causes of the economic collapse. They believed that a housing bubble inflated when Fannie Mae and Freddie Mac, two government-sponsored enterprises, intervened in the housing market. The banking industry was called out to be blamed for years of manipulation of our political and financial systems. Lastly, Baily and Elliot cite the global economy and the existence of a credit boom throughout European and Asian nations. Low inflation and consistent growth throughout the world economy spiked investors’ interest in acquiring riskier investments, which encouraged

The financial crisis of 2007-2009 resulted from a variety of external factors and market incentives, in combination with the housing price bubble in the United States. When high levels of bank and consumer leverage appeared, rising consumption caused increasingly risky lending, shown in the laxity in the standard of securities ' screening and riskier mortgages. As a consequence, the high default rate of these risky subprime mortgages incurred the burst of the housing bubble and increased defaults. Finally, liquidity rapidly shrank in the United States, giving rise to the financial crisis which later spread worldwide (Thakor, 2015). However, in the beginning of the era in which this chain of events took place, deregulation was widely practiced, as the regulations and restrictions of the economic and business markets were regarded as barriers to further development (Orhangazi, 2014). Expanded deregulation primarily influenced the factors leading to the crisis. The aim of this paper is to discuss whether or not deregulation was the main underlying reason for the 2007/08 financial crisis. I will argue that deregulation was the underlying cause due to the fact that the most important origins of the crisis — the explosion of financial innovation, leverage, securitisation, shadow banking and human greed — were based on deregulation. My argument is presented in three stages. The first section examines deregulation policies which resulted in the expansion of financial innovation and

President Warren Harding and President Calvin Coolidge were the Presidents during the roaring 20s and they favored large businesses and helped those businesses by making tax cuts that encouraged business expansion. While the rising of these big businesses did help in decreasing unemployment, they also played a role in the increase of the cost of living. This higher cost of living made the Great Depression worse. Another lapse of judgement by the government pertained to both the stock market and the federal banking system. In the 20’s banks were allowed to invest in land and the stock market with very little government regulations. The banks were using the people’s money to invest in unstable and unpredictable endeavors. When the stock market crashed, the banks had no money to give back to the people who stored their money in the banks.

One of the primary factors that can be attributed as to have led the recent financial crisis is the financial deregulation allowing financial institutions a lot of freedom in the way they operated. The manifestation of this was seen in the form of:

At the time after the stock market crash (1929), during the Great Depression, most of the people agreed that the main cause for the event was the “improper banking activity” which was mainly seen as the bank involvement in the stock market investment. Banks were taking high risks in hope for rewards, they were “accused of being too speculative in the pre-Depression era” (HEAKAL, 2010, pg.1). They were not only investing their assets, but they were also buying issues in order to resale them to the public. Nearly five thousand banks failed in the U.S. during the Great Depression. As a result of that most people wouldn’t trust the U.S. financial structure anymore. In order to rebuild the

First, an overview of the Twentieth Century American Banking System. Banking regulations are implanted to strengthen the banking sector and to eliminate bank panics. For example, the creation of the Federal Reserve System in 1913 was largely a response to lessons learned in the Panic of 1907. Industry regulation and structure, risk management viz. moral hazard, adverse selection.

John Galbraith’s book, “The Great Crash, 1929”, examines the history of the lead-up to the Wall Street Crash of 1929. It argues that market stability and corporate interests are fundamentally at odds. “Economics, like physics, has a fundamental canon: you cannot make money out of nothing” (Galbraith, The Great Crash 1929). To best understand the history of financial bubbles, Galbraith chronicles the times that people overlooked that fact. He focuses on the primary causes of The Great Crash, those being: the bad corporate structure, the bad banking structure, the ambiguous state of the foreign balance and lastly, the poor state of economic knowledge.

In the time leading up to and throughout the Great Depression the Federal Reserve struggled to enact monetary policy to ease the turmoil in the economy. Due to a lack of technology, there was a delay between events in the economy and when the Fed received information on the event (Richardson). Additionally, the Fed was decentralized resulting in contradicting policies between districts. Disagreements amongst the governors on which institutions the fed should protect during bank runs caused hundreds of banks to fail (Richardson). Furthermore, the United State was one of the world’s largest economies on the gold standard, and thus the fed’s monetary policies were forced upon other countries using this standard leading to a global economic crisis (Bernanke).

In July 2007, the United States were kicked off by the subprime mortgage crisis, emphasized by the banking and financial crisis of 2008. The global economic crisis called the Great Recession followed in 2008. It has been famously regarded as preventable by the memory of the Great Depression in the late twenties. The stock market crash of “Black Thursday” on the 24th of October 1929 marked the end of the “Roaring Twenties”, temporary period of prosperity and endless hope in the United States. But this hope did not last long as the violent crisis suddenly questioned the good sense of capitalism. President Hoover (1929-1933) at that time chose a liberal alternative to disengage the state from the U.S. economy. This crisis has been echoed in countries and immerged the global economy into a deep recession. This essay will explain that the grassroots of the 1929 stock market crash, as well as the hold to the international gold standard and international trade and lending have brought the world into a worldwide economic depression.

Alexander Hamilton proposed using a banking system in America in 1781 after seeing how beneficial they were in other nations for advancing trade. In 1791, First Bank of the United States became the first commercial bank of the United States in Philadelphia, Pennsylvania. By the 1900’s, there were almost 170 banks per every million people in the United States, but because of this, there was a lot of debate about banking and the regulations needed and the fears that people had about the amount of control it was giving the government. This paper will be starting from the Great Depression and talk its way into the current situation of the United States banking regulations and why there is a debate on if there should be more or fewer regulations on banking.

The main concept of the article is to explain why the New International Financial Architecture (NIFA) was created and who is being benefited from this approach. The discussion begins with an examination of the power structures of the global political economy by focusing on the continued dominance of the USA. The article presents the contradictory relations between USA and global finance will be explored so as to shed more critical light on the NIFA. This article critically examines the NIFA by linking its institutional components to the larger contradictions of the capitalist inter-state system. A contradiction is the constant promotion of financial liberalization in emerging

Financialisation is the process in which financial institutions/markets increase in size and gain greater influence over economic policy and outcomes (Palley, 2007).Another link to financialisation is high degree of leverage. This is because with leverage, you can get a loan for 9/10s of the money, so you only need a small portion, and you are able to make lots of profit. Leverage is linked to financialisation in a sense that if it works, you get lots of profit with a working system, however if it doesn’t work, then you can lose lots of money, and in high degrees of leverage, you can be losing lots of money by the investment not working out, and someone then has to pay off the loaned money. In this essay, I will be analysing whether or not financialisation was the main cause of the 2008 global financial crisis, or if there were other factors involved in the great recession. I will be arguing that financialisation was a cause of the crash, but because it was aided by other factors, it is not the sole reason behind the collapse. The points that I will be making in my argument will be in relation to the financial crisis in the context of financialisation, talking about market deregulation and subprime mortgages. The second point that I will make will be about the greed of the CEOs on Wall Street, and their irresponsibility when it comes to the money of others. The final point that I will be making will be about the irresponsibility on behalf of the regulators, and how they