...Professor Robert Pollin TA: Evelyn Kwakye May 7, 2015 Deregulation During the 1970s and 1980s the United States government went through a period of deregulation. Deregulation is a reduction of government involvement and control within an industry. Did this deregulation lead to the 2008 financial crisis? This is a hot button topic that is highly debated and causes a great deal of controversy. The financial crisis of 2008, known as the Great Recession, impacted the entire country and practically every individual citizen. Many politicians, such as Speaker of the House Nancy Pelosi, look for an easy blame or a scapegoat, for example, the deregulation by the Bush Administration. Pelosi has been quoted saying " the Bush Administration's eight long years of failed deregulation policies have resulted in our nation's largest bailout ever, leaving the American taxpayers on the hook potentially for billions of dollars" (Gattuso). The issue with that statement is that the economic deregulation she speaks of did not take place during the Bush Administration, but many years prior and the laws of that time are not controversial in today’s economic situation. Rather more recent regulatory laws are to blame for the financial crisis of 2008. Why did we Regulate in the First Place? The Great Depression is unopposed when it comes to economic downfalls in the United States. The financial hardships that took place during the 1930s rocked this country to its core...
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...efficiency of industries in the economy” (Forsyth 1992). The elements that characterise economic rationalism include- • Deregulation of the economy...
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...2) The Bubble, 3) The Crisis, 4) Accountability, and 5) Where We Are Now. The parts of the film come together to uncover the corruption of government, regulatory bodies, financial institutions and academia, which resulted in the biggest financial meltdown in the U.S. since the Depression and the first global recession in history. This paper will examine the film’s parts and analyze the moral, ethical, and regulatory lapses that were years in the making. Part 1: How We Got Here Until 1980, the financial industry was relatively stable. Investment banks had primarily been small private groups of individuals who invested their own money on riskier investments and as a result closely monitored their investments. In the 1980’s, investment banks went public, which meant they had access to the public’s money to invest in these riskier ventures—since it wasn’t their own money, there was not the same close monitoring. Deregulation allowed for the comingling of government, investment bankers, and lobbyists. In 1981 the CEO of Merrill Lynch was appointed Treasury Secretary by Ronald Regan. Deregulation allowed the financial industry to explode and for those in power to make more and more money. The powers of Wall Street were invading government with the intent to change policy to their benefit. Deregulation resulted in the S & L crisis and losses of $124 billion to investors, and the 2001 dot-com meltdown with $5 trillion in losses. Investment bankers used public money to enrich...
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...The Impact of Deregulation on the Airline Industry The aviation industry in the United States was facing several problems such as falling productivity, high inflation, rising labor costs, higher fuel costs and low economic growth. These problems led to the deregulation of the airline industry in 1978 with the Airline Deregulation Act that removed the various controls that influenced the decision power of the companies. The deregulation lasted about three years and the main objective was to increase competition between airline carriers and lower service prices. The deregulation began with the easing of tariffs and liberalization of routes. During the regulations, customers paid high rates and hadn’t many options because there weren’t many airlines companies. After the deregulation, increased competition, new companies have emerged due to lowering barriers entry of new airlines industries and the price decreased. In this competitive environment, the company has increased its investments in quality and marketing as well as the efficient use of its fleet in order to attract more consumers. Also, the cost control has become a major factor in the management of airlines. However, the rapid growth of the airline industry has triggered some problems like congestion at some airports, travel delays and low runway capacity especially during peak hours of travel. These problems are caused due to increased demand and the lack of investment in some airports. The opening of foreign markets...
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...gives a deep look at the financial crisis as it discusses the reasons of the global financial crisis that has cost people's money, their houses and property and also their jobs. The movie begins with one of the most famous examples that affected by the crisis which is Iceland. Notably by their nature, picturesque view and a strong economy, Iceland began the deregulation policy which would cause major problems in the environment and the economy. When the financial crisis happened, the government was owed billions of money as debt and lots of people lost their money and jobs. The movie then went to explain the roots of the problem as the crisis was actually doing not happened suddenly but began thirty years ago at the former President Reagan’s era. He reorganized investment laws and reduced suppression to allow the saving and loan companies to make riskier investments with their customer’s money. As the deregulation was implemented, the illegal activities that are done by the biggest financial companies was increasing such as money laundry, customers defraud and etc. The legal and legislative lenient were the reason to create new and suspicious products called derivatives which would have a bad effect in the economy. Using derivatives, they can gamble on anything even in bankruptcy of the company and failure of investment. Although there were attempt to regulate these products but the political forces were against it and defend these products as the regulation for it were unnecessary...
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...global economy on the line, but looks back to the rise of the financial industry. The biggest question which the documentary arouses is that knowing what happened, why are the miscreants not being punished? As the director, Charles Ferguson, himself stated while receiving the Oscar, “Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail, and that's wrong.”1 Lets us first look at the prelude (context) of this financial crisis: ADMAP REVIEW OF THE MOVIE – INSIDE JOB The Clinton era (1990s) worked as a bridge between the Wall Street and the government. More and more Wall Street CEOs gained access to the government, taking up administrative positions like 2 • Robert Rubin On Wall Street: Chairman and COO of Goldman Sachs For the Government: Secretary of Treasury under Bill Clinton Laura Tyson On Wall Street: Board director of Stanley Morgan For the government: Chair of the US President's Council of Economic Advisers during the Clinton Administration. She also served as Director of the National Economic Council. during the Clinton Administration. In 1980s - the era of President Ronald Regean – set the foundation for deregulation of various aspects of financial markets. The markets and financial services were deregulated, and the driving force for this liberalization was Alan Greenspan. The deregulation of...
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...Political- Legal factors, Social factors, Economic factors, and Social factors, or PEST is the analysis of these four macroenvironmental forces. Political-Legal factors can be very costly to business regardless of the industry of the firm (Parnell, 2014). In the late 1970’s through the early 1980s the federal government shifted toward the deregulation of the banking industry. With the deregulation of the banking sector, some of the top banking and mortgage institutions to price gauge and use discriminating practices. Consequently, due to this type of behavior, economist believe the Great Recession was the fallout in 2007-2008 (Hearit, 2018). “According to Financial liberalization, which is widely considered critical in providing an...
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...Airline Markets Work...Or Do They? Regulatory Reform in the Airline Industry Severin Borenstein and Nancy L. Rose October 2008 Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business, U.C. Berkeley (www.haas.berkeley.edu), Director of the University of California Energy Institute (www.ucei.org), and a Research Associate of the National Bureau of Economic Research (www.nber.org). Address: Haas School of Business, University of California, Berkeley, CA 94720-1900. Email: borenste@haas.berkeley.edu. Nancy Rose is Professor of Economics at the Massachusetts Institute of Technology (econwww.mit.edu) and a Research Associate of the National Bureau of Economic Research. Address: MIT Department of Economics, E52-280b, 50 Memorial Drive, Cambridge MA 02142-1347. Email: nrose@mit.edu. Nancy Rose gratefully acknowledges fellowship support from the John Simon Guggenheim Memorial Foundation and MIT. We thank Andrea Martens, Jen-Jen L’ao, Yao Lu and Michael Bryant for research assistance on this project. For helpful comments and discussions, we thank Jim Dana, Joe Farrell, Michael Levine, Steven Berry, participants in the NBER conference on regulatory reform, September 2005, and seminars at University of Toronto, Northwestern University, University of Michigan, UC Berkeley, and UC Davis. This paper is forthcoming as Chapter 2 of Economic Regulation and Its Reform: What Have We Learned?, N.L. Rose ed., University...
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...File: Chapter 01 The Financial Services Industry: Depository Institutions Multiple Choice [QUESTION] A non-bank depository institution is also referred to as: A. Drift. B. Thrift. C. Phrift. D. Draft. Answer: B Level of difficulty: 1 [QUESTION] Which of the following statements is true? A. A non-bank depository institution is also referred to as drift. B. A non-bank depository institution meets the legal definition of a bank. C. A non-bank depository institution undertakes exactly the same activities like a bank. D. A non-bank depository institution is also referred to as drift and a non-bank depository institution undertakes exactly the same activities like a bank . E. None of the given answers. Answer: E Level of difficulty: 2 [QUESTION] Which of the following statements is true? A. Authorised depository institutions are those that have been granted an authority by the RBA to operate in Australia. B. Authorised depository institutions are those that have been granted an authority by APRA to operate in Australia. C. Authorised depository institutions are those that have been granted an authority by the Australian Government to operate in Australia. D. Authorised depository institutions are those that have been granted an authority by ASIC to operate in Australia. E. None of the given answers. Answer: B Level of difficulty: 2 [QUESTION] Which of the following statements is true? A. Building societies are depository institutions. B...
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...The Journey From Deregulation to Regulation - Are We Walking In Circles? Executive Summary This paper attempts to explore the cycle from deregulation to regulation against the backdrop of events from 2001 to 2008, with some reference to later laws such as Dodd-Frank. The context is against the quote from Aristotle that “law is order, and good law is good order”. A Brief history of Deregulation: Regulations have been considered a blessing and a curse since time immemorial. It could be argued, especially with those of a theological mindset, that religions introduced the first forms of regulations. The penalty for deviations were well laid out, and often times had precedent, but exceptions were always sought and loopholes were often explored. Modern economics, regardless of which school of thought is followed, can be compared to a religion1. There are tenets, or commandments. There are different religions, from Keynes, to Marx to Milton. Without extending this analogy, it is relevant to point out that economic theories either rely on governments to participate wholeheartedly in the state of economic affairs by regulating businesses, corporations and industries, or to let the system weed out the weaker in favor of the stronger. In the United States, bitter past experience shaped the regulations surrounding businesses. The Great Depression was the first indicator that the system needed to be made more robust, which in turn led to regulations that formed the base of what our current...
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...REPORT ABOUT EASYJET Seite 1/53 REPORT ABOUT EASYJET Analyses about Industry, Market, Competition and chosen strategy Reinhard Fellner Wien, am 09.06.2002 C:\Users\rf\Documents\A R C H I V 311013\F 160108\B820_Strategy\TMA\TMA01\TMA01_B820rf.doc I R M E N R E I N H A R D 301109\MBA FILES Druck: 20.11.13, 22:42 REPORT ABOUT EASYJET Seite 2/53 Executive Summary Deregulation has seriously changed the environment and structure of airline industry. Out of STEP analysis I have identified the following ain issues: Deregulation will stimulate competition, but also market growth Lower prices will cause focus on costs Focus on security measures will increase costs There is no need for added values in connection with prestige Analysing the airline industry by Porter’s “Five Forces” I have stated: Big Player and/or Alliances fight a price war, often using a second brand (Buzz, etc.) Big Players have not identified and reacted on the change in environment Few structural changes to support the need of cost effectiveness und to bring them in line with new customer requirements Because of the very static picture I have supported that analysis by BCG strategic model: BCG's Strategic Enviroments Matrix Many Source of Advantage FRAGMENTED Airline Industry SPECIALIZATION 2nd brand for Budget Segment STALEMATE Budget Airlines VOLUME Few Small Size of Advantage Big Global airlines which come from the „Fragmented...
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...and when investors tried to sell the stock no one was buying. It was not only private citizens that realized their losses but the banks that had invested the savings of their customers in stocks and could not pay the customers back. After the Great Depression subsided the financial industry was tightly regulated. Of the new regulations put into place the most important were: banks are prohibited from gambling with customer’s savings and investment bankers need to be more risk averse. The effect of the new changes would result in economic growth for the next 40 years in the United States. In the 1980’s banks went public giving them huge amounts of stockholder money. They used it as a reason to get into risky investments and slowly started becoming more irresponsible with other people’s money. The deregulation of savings and loans in 1980 gave them many of the capabilities of banks, without the same regulations as banks. When the real estate market crashed savings and loans went with it. (http://en.wikipedia.org/wiki/Savings_and_loan_crisis) In The nineties banks consolidated into a few huge firms. Banks became so large that their failure could mean catastrophic consequences for the entire financial sector. “One such merger was already carried out well before the passage of the legislation, the $72 billion deal which brought together Citibank, the biggest New York bank, and Travelers Group Inc., the huge insurance...
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...Enron: The Smartest Guys in the Room Summary After a two and half hour checking dictionary and writing notes, I finally understood this movie. Indeed, it’s a great movie with a tragic and thought-provoking ending. As the movie, it is complicated to say that whose responsibility is the most. Inside Enron The U.S. Senate’s Permanent Subcommittee on Investigations listed high risk accounting, inappropriate conflicts of interest, extensive undisclosed off-the-books activity, and excessive compensation at top of the report findings (Permanent Subcommittee on Investigations, 2002). These unscrupulous operations are made by increasingly arrogant Enron. Therefore, it cannot be denied that Enron is demise by its own corporate culture. Meanwhile, its culture is affected by individuals’ actions which are closely linked with Kenneth Lay, former chairman and CEO of Enron, and Jeffrey Skilling, former CEO and COO. Ken Lay comes from a quite poor family. When he was a child he had to work some jobs such as newspaper delivery boy and lawn mower. I think it’s the major reason that he becomes an egomania who puts earnings before scruples. Actually, his condition makes me reminding President Lincoln whose also came from a poor family with enormous ambitions. Fortunately, Lincoln chose to do right things using his intelligence and abilities. However, Jeff Skilling had different situation. Back to his admission interview in Harvard Business School, the professor asked him...
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...The Rise and Collapse of Enron: Financial Innovation, Errors and Lessons Elisa S. Moncarz* Raúl Moncarz* Alejandra Cabello** Benjamin Moncarz*** Abstract Recent collapses of high profile business failures like Enron, Worldcom, Parmlat, and Tyco has been a subject of great debate among regulators, investors, government and academics in the recent past. Enron’s case was the greatest failure in the history of American capitalism and had a major impact on financial markets by causing significant losses to investors. Enron was a company ranked by Fortune as the most innovative company in the United States; it exemplified the transition from the production to the knowledge economy. Many lessons can we learn from its collapse. In this paper we present an analysis of the factors that contributed to Enron’s rise and failure, underlying the role that energy deregulation and manipulation of financial statements played on Enron’s demise. We summarize some lessons that can be learned in order to prevent another Enron and restore confidence in the financial markets, as well as in the accounting and auditing professions. Keywords: Enron, Corporate Ethics, Corporate Bankruptcy, Creative Accounting. Introduction T he rise and fall of high profile businesses like Enron, WorldCom, Parmlat and Tyco has been a subject of great debate and research among regulators, investors, government and academics in the recent years. Enron, for one, was the greatest failure *Professor-investigator...
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...individual firms is determined wholly by the conduct of participants in that industry (including themselves), and that conduct is largely (but not completely) determined by industry structure, conduct and performance over time. Feedback loops signify the impact that performance will ultimately have on conduct ad structure (and thus in turn on performance again), and the impact that industry conduct has on structure. It also hypothesizes that external shocks, such as changes in technology or government regulation, alter industry structure, and in turn conduct and performance, over time. SCP Model Industry External shocks Producers S tructure C onduct P erformance Feedback Industry structure is determined by the economics of demand and supply in the industry, as well as by “ industry chain economics” which represents the , inherent bargaining of customers, producers, and suppliers in the industry, and the sources of this power (e.g., vertical or information market failures). Conduct is characterized by strategic decision competitors in the industry make given industry structure and performance. Examples include marketing, capacity, vertical integration, operations, and management control decisions. Performance may be measured on numerous axes, including financial performance, technological progress, and job creation. There are three main drivers of external shocks to the industry: technology breakthroughs, changes in government...
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