Stock Market Collapse Of 2008: The Great Depression

Jake Hiti
Introduction to Political Science
17 March 2014
Professor Alin
Regulation on Wall Street In 2008 the United States suffered the greatest economic crisis since the Great Depression because of our desire for more. Banks on Wall Street took advantage of the American people. In 2008 the big banks of Wall Street brought America to one of the worst financial situations ever-recorded in American history. Banks had more than enough but they also had an enormous thirst for more. Corporate heads had no concern for whoever would lose money, as long as they earned a profit from it. The causes of the economic crisis of 2008 were remarkably similar to the Stock Market collapse of 1929 known as The Great Depression. The Wall Street collapse

In 1933, banks throughout the country were failing, and 4,000 banks were closed permanently (Bettman). Government officials realized that there needed to be a set of rules and regulations to keep banks from self-destruction. Precautions were put in place to prevent another catastrophic collapse in the economy. In 1933, Congress passed the Glass-Steagall act, also known as the Banking Act of 1933. The Glass-Steagall Act gave tighter regulatory power over national banks, to the Federal Reserve System. This Act prohibited bank sales of securities, and created Federal Deposit Insurance Cooperation (FDIC), which insured bank deposits with a pool of money appropriated from banks (Bettman). The bill also prohibited commercial banks from engaging in the investment business. After one of the worst periods in American history it is logical to think that congress would learn from past mistakes, but as the world has proven time and time again history tends to repeat itself. This bill, which sparked over fifty years of economic growth, was put to a halt in 1999. In 1999, Congress passed the Gramm-Leach-Bliley Act, and this bill picked apart the safeguards put in place in 1933 and set Wall Street banks on a quick path to

Many big Wall Street banks such as Goldman-Sachs had a hand in bad business practices. In 2007, Goldman-Sachs created what is called a synthetic collateralized debt obligation. The CDO’s were composed of 90 mortgage bonds derived from mortgages taken out over the last eighteen months (Delaney). Many of the loans taken out were to high-risk clients, although these loans were high risk they still were given high ratings. Goldman knew that these clients could not afford the mortgages, but still would encourage investors to purchase the CDO’s. If every client were to make his or her mortgage payment, then the investor would make money from the enormous interest rate, and this made for a very enticing offer. The problem was that mortgages were given to people who had no means of repaying the loan. When the recipient of the mortgage could not afford the payments the CDO was worthless to the investor. There were over three million foreclosures in 2008, many of which were Goldman-Sachs loans. Foreclosures decreased surrounding property values, so not only did Goldman cheat investors, they plagued the housing market. It is clear that big banks will run themselves into the ground with out supervision from Washington. With money starved banks and greedy Wall Street executives behind the wheel of our economy there is no choice but to have