This Documentary Explores How Changes In The Policy Environm

This Documentaryexplores How Changes In The Policy Environment And Ba

This documentary explores how changes in the policy environment and banking practices helped create the financial crisis. It won the 2010 Academy Award for Best Documentary Feature and provides an explanation of how the 2008 Financial Crisis developed. Based on the documentary "Inside Job," answer the following questions:

1. What kind of deregulatory actions has been taken by Reagan, Clinton, and Bush administrations throughout the 1980s, 1990s, and 2000s that contributed to the emergence of the Great Recession? Explain the actions taken by each president.
2. Which act did the merger of Citicorp & Travelers violate?
3. How successful has the Obama Administration been regulating the financial system? Why?

Paper For Above instruction

The global financial crisis of 2007-2008, often termed the Great Recession, serves as a defining event in contemporary economic history, revealing the repercussions of deregulation, risky financial practices, and ineffective oversight. The documentary "Inside Job" provides an in-depth analysis of the underlying causes, focusing significantly on policy decisions and regulatory lapses that fostered an environment susceptible to systemic failure (Gianpiero, 2010). This paper explores the deregulatory actions of the Reagan, Clinton, and Bush administrations, the violation of regulatory statutes by the Citicorp and Travelers merger, and the regulatory approaches of the Obama administration to evaluate the evolution and effectiveness of financial oversight in the United States.

Deregulatory Actions by Reagan, Clinton, and Bush Administrations

During the Reagan administration, the shift toward deregulation was marked by a commitment to free-market policies aimed at reducing government influence over the economy. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which deregulated savings and loan associations, exemplifies such efforts. Reagan's administration also supported the repeal of Glass-Steagall regulations, encouraging banks to diversify their activities, which policymakers believed would enhance competition and efficiency (Barth, 2004). These deregulatory measures inadvertently increased the interconnectedness of financial institutions and risk exposure.

The Clinton administration further accelerated deregulatory policies, notably through the Gramm-Leach-Bliley Act of 1999. This legislation effectively repealed the Glass-Steagall Act's restrictions on affiliations between commercial banks, investment banks, and insurance companies (Ferguson, 2008). Clinton's support for the act aimed to modernize the financial industry, but critics argue it dismantled the barriers that once limited risk-taking by large financial entities. Consequently, the act contributed to the consolidation of major financial firms and increased systemic risk.

The Bush administration's deregulatory stance continued the trend, especially with the Commodity Futures Modernization Act of 2000. This act deregulated over-the-counter derivatives markets, including credit default swaps, which became central to the financial crisis (Partnoy, 2010). Bush's policies facilitated the growth of complex financial products that obscured risk and contributed to the buildup of systemic vulnerabilities. The absence of comprehensive oversight allowed financial institutions to engage in speculative practices unchecked.

The Citicorp & Travelers Merger and Regulatory Violation

The merger between Citicorp and Travelers in 1998 was a landmark event that combined commercial banking with insurance and securities underwriting. This merger violated the Glass-Steagall Act, which prohibited affiliations between commercial banks and investment banks to prevent excessive risk aggregation. Although the act had been repealed in part by the Gramm-Leach-Bliley Act, the merger directly contravened the spirit of the original legislation, raising concerns about regulatory loopholes and the potential for conflicts of interest (Powell, 2000). The collapse of the merger's regulatory oversight exemplifies weaknesses in the post-repeal financial regulatory framework.

The Obama Administration's Regulatory Response

The Obama administration inherited a fragile financial system deeply affected by deregulation and risky practices. Its approach to regulation aimed to restore stability, increase transparency, and prevent future crises. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 marked a comprehensive effort to oversee and regulate key areas of the financial sector (Corker & Levin, 2010). Dodd-Frank introduced stricter capital requirements, established the Consumer Financial Protection Bureau (CFPB), and created the Financial Stability Oversight Council (FSOC) to monitor systemic risks.

Evaluation of the success of Obama’s regulatory efforts shows mixed results. While the reforms significantly improved oversight and transparency, critics argue that they did not sufficiently address the root causes of the crisis or curb the risk-taking incentives embedded within the financial system (Acharya et al., 2011). Banks and financial institutions have continued to develop complex products, and some regulatory gaps remain. Nonetheless, the reforms moved the United States closer toward comprehensive oversight than before the crisis and established frameworks for future regulation.

Conclusion

In conclusion, the deregulatory actions undertaken by the Reagan, Clinton, and Bush administrations played a critical role in increasing systemic risk and enabling financial institutions to engage in risky behaviors. The Citicorp and Travelers merger exemplifies regulatory loopholes that encouraged risky consolidations, while the Obama administration’s reforms aimed to mitigate such risks through comprehensive regulation. The evolution of policy responses underscores the importance of balanced regulation that fosters economic growth without compromising financial stability. Moving forward, continuous oversight and adaptive regulation are essential to prevent another financial crisis.

References

• Acharya, V. V., Cooley, T. F., Richardson, M., & Walter, I. (2011). Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance. John Wiley & Sons.
• Barth, J. R. (2004). The Repeal of Glass-Steagall and the Current Financial Crisis. Cato Journal, 24(3), 377-402.
• Corker, B., & Levin, C. (2010). Dodd-Frank Wall Street Reform and Consumer Protection Act. Senate Report.
• Ferguson, N. (2008). The Ascent of Money: A Financial History of the World. Penguin Press.
• Gianpiero, B. (2010). Inside Job. Sony Pictures Classics.
• Partnoy, F. (2010). Infectious Greed: How Deceit and Risk Corrupted the Financial Markets. PublicAffairs.
• Powell, E. (2000). The Glass-Steagall Act: The End of the Segregation of Commercial and Investment Banking. Congressional Research Service.