The recent 2008 financial meltdown is a prime example of how systemic corruption tears at our democracy and threatens everyday lives. By the time the fallout from the 2008 financial crisis started to sink in, it was too late for many homeowners and investors. The Global Financial Crisis of 2007/08 collapsed large financial institutions such as Bear Stearns and AIG, crashed the worlds stock-markets, and wiped out trillions in consumer wealth. This crisis was directly triggered by a faulty and complex mix of policies that encouraged home ownership, providing easy money to borrowers and overvaluation of bundled subprime mortgages, based on the theory that housing prices would always rise. Those responsible were mainly large investment banks who were basing their faulty investments on highly complex derivative models. These complex financial instruments (derivatives) made it difficult for creditors and regulators to monitor in an attempt to reduce financial risk. These instruments also made it virtually impossible to reorganize financial institutions in bankruptcy, and contributed to the need for the bailouts, which was funded mainly by taxpayer dollars.
Once it became clear we were in deep trouble, questions regarding bank solvency, easy consumer credit, and investor confidence began to take hold. The immediate response from Washington was to inject billions of dollars through the Trouble Relief Asset Program (TARP) in order to stabilize our nations economy. In addition, Congress instituted several sweeping new policies such as the “Wall Street Reform and Consumer Protection Act”, and the “Dodd-Frank Wall Street Reform and Consumer Protection Act”. While this did some to reassure investors and stabilize markets, it still has not gone far enough in the opinion of many, including myself.
During this period, many in Congress and on Wall Street aggressively pushed to keep the financial markets unregulated, even when facing a second Great Depression. These individuals wanted to keep the financial system “status-quo”, and did not want to add regulations that would limit their executive pay and corporate revenue. After it became clear who was to blame and at fault, our politicians and government did nothing but point fingers during the Financial Crisis Inquiry Commission (FCIC) in 2010. The FCIC reported its findings in 2011, briefly summarizing its main conclusions: “While the vulnerabilities that created the potential for crisis were years in the making, it was the collapse of the housing bubble, fueled by low interest rates, easy and available credit, scant regulation, and toxic mortgages, that was the spark that ignited a string of events, which led to a full-blown crisis of 2008”. There is still a high risk that the lack of transparency in derivative trading, which now totals more than $700 trillion, will come to eventually haunt us. This growing total is more than ten times the size of the entire world economy, yet incredibly, we have little information about it or its implications. During this rollercoaster period, not a single Wall Street executive was prosecuted in this massive financial scandal, which only added to the public’s growing cynicism and distrust of government.
What are your thoughts? Do you trust your elected officials? Do you feel your money is now safe?