The first article, illustrates an inside perspective of the financial institutions and regulatory agencies that contributed to the ultimate demise of the United State’s economy in 2008. Not only were Wall Street power-houses taking part in high risk mortgage lending as well as other ethically deficient practices, but offices put in place to prevent unsound actions such as these declined to do so. This behavior ultimately boils down to a failed system of checks and balances, truly calling into question the conduct that took place behind closed Wall Street doors. The key factors that played extensive roles in the economy’s 2008 crash consist of high risk lending, regulatory failure, inflated credit ratings, and investment bank abuses. Washington Mutual Bank and Long Beach Mortgage Corporation truly set the tone and influenced system corruption as they engaged in questionable lending practices that curated billions of revenue dollars in poor quality mortgages. By consciously choosing to value volume and speed over loan quality in order to make a quick dollar, these corporations failed to consider the lasting consequences their actions would have. Instead of taking meaningful enforcement against WaMu and Long Beach, even after violations had been identified, the Office of Thrift Supervision turned a blind eye to their regulatory duties. This was a very pivotal moment in the storm of financial crisis factors, adding to the severity of damage that could easily have been halted early on. Credit inflation proceeded to mask security risks as is apparent in the actions of credit rating agencies, Moody Investors Service Inc. and Standard & Poor’s Financial Services LLC. By ignoring unsustainable rises in housing, risky loans, and mortgage fraud and continuing to issue AAA ratings to thousands of securities, financial markets experienced extreme shock when downgrades and losses ensued. Finally, investment banks such as Goldman Sachs and Deutsche Bank continued to instigate economic instability by steadily streaming funds to lenders generating poor quality loans, and profited from corrupt mortgage related structured finance products. The United States economy is a structurally convoluted system that would be able to withstand some of these factors, but it is the interconnectedness and force of all these components that simultaneously destroyed the country’s financial system.
While “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse” takes on the perspective of private banks who played key roles in the financial crash, “The 2008 Housing Crisis” takes on a new viewpoint revolving around the role of the federal government during this time. While some critics chose to blame federal housing policy for the downfall of the United States financial system, it has actually provided long-term benefits to both the economy and consumers through its promotion of liquidity and affordability. These policies stem from the after-effects of the Great Depression, and have served critical roles in the lives of many Americans as they seek to establish homeownership. By intervening in the frozen mortgage market in the 1930’s the federal government was able to bring forth much needed stability to the national housing market, including the establishment of the Federal Housing Association (FHA), national mortgage associations, and the GI Bill. With the formulation of the FHA the government created an insurance policy on mortgages to help protect banks against losses on FHA-specific loans. Along with the Federal Housing Association’s foundation, national mortgage associations also became required principles, which served as another layer of economic security promotion. When the United States faced financial stress after World War II, it was the GI that fueled the Veteran’s Administration to provide government backing for affordable mortgages to millions, ultimately stimulating impressive economic growth. Unfortunately these benefits did not apply to all Americans for the better half of the 1900’s, as families of color were excluded from such federal investments in homeownership. It wasn’t until the 1960’s and 70’s that civil rights legislation required such adverse and toxic policies to be reversed, bringing about changes in the FHA’s lending practices and the establishment of the Fair Housing Act and the Community Reinvestment Act. But despite these corrections, years of discrimination have garnered irreversible damage that has heavily contributed to racial household wealth gaps in our country today. While the federal housing policy certainly hasn’t always been the most ethically sound entity over the years, it still cannot be credited with inducing the financial crisis of 2008. Predatory private mortgage lending and unregulated markets ran rampant on Wall Street leading up to the crash, placing an unsupportable strain on the economy. Meanwhile federal housing policy bolstering access, liquidity, and affordability has continued to generate high rates of homeownership following the 1930’s failure in the housing market.
Although 10 years have past since our country has experienced economic turmoil at such a severe extent, economic recessions are not short-term events, and have lasting effects that are still prevalent today. According to an article published during the midst of the economy’s tumult, long-term consequences include negative effects on educational achievement, opportunity, private investment, and entrepreneurial activity and business formation. Education is a fundamental value of our country, but income losses or even unemployment induced by the crash can reduce families’ abilities to cultivate a supportive learning environment, threatens early childhood nutrition, and can force a delay or abandonment of a college career. As you can see in the images below, the correlation between parents and children comes at a high-degree and can last for many generations to come.
Children from higher income families are more likely to pursue a higher education in their future, and downfalls in the county’s economic state can have very damaging effects on families who feel the brunt force of this. Not only do individuals and families suffer lasting effects but investment levels plummet, reducing the development of future innovations and severely deteriorating small/new business in years to come. Together these articles should serve as a lesson that history is prone to repeating itself, and if we as citizens and consumers don’t remain educated and promote regulation for the occurrences on Wall Street and of our economy, then another financial crisis will certainly be looming in our country’s future.