Thursday, July 11, 2013

The U.S. Financial Crisis

Today was by far the most interesting day of class.  All we did was discuss the events and policies that led up to the financial meltdown of 2008.  This was extremely eye-opening, as I learned exactly what it was that banks were doing and what went wrong.  In order to reduce risks, the financial system was jumping through all these different hoops, that, in theory, eliminated risk completely.  But theory and practice are very different, and when trillions of dollars are tied up in these "risk free" systems and something fails, then everything goes wrong.

It was also astonishing to see how the banks basically would lend out money and then remove all responsibility by selling the loan.  To me this seems completely morally irresponsible.  This isn't as bad, however, as the banks that would provide people with home loans who they knew couldn't pay them back, and then would bet that the loans would fail.  This is a direct violation of fiduciary responsibility and is illegal!  I don't understand why the heads of these banks weren't prosecuted.  But the blame does not fall solely on the bankers.  There were hundreds of thousands of people who took out home loans that they could not afford to pay back, and that is a hugely irresponsible thing to do.  That is what caused the housing market crash, and eventually the huge recession.
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