U.S. 2008 Bailout-Hillary Clinton’s Perspective
When the economic crisis struck America in 2008, many citizens were so quick to blame it on the repeal of some of the restrictions imposed by the Glass-Steagall Act. There is however limited or no evidence at all to substantiate this claim. This does not necessarily mean that the act was not a good idea at all. Similarly, it should not be assumed that the crisis would not have occurred if all the restrictions imposed by the Glass-Steagall Act were in full implementation. From Hillary Clinton’s eyes, I would not propose the reinstatement of the Act because its absence did not leave America vulnerable to the future financial crisis as many critics propose. Even though the Act did safeguard the taxpayer interests, it placed American banks at a lower competitive potential compared to the banks in other countries which had no restrictions. Critically, I feel that the reenactment of the Act will make America more vulnerable to the financial crisis as the country will be forced to rely on low profits as opposed to the higher profits which would accumulate from merging both commercial and investment activities in banks. PLAGIARIZED SAMPLE ORDER YOUR PAPER NOW
The main reason why commercial banking was separating from investment banking was to establish and maintain a banking system which was both stable and reliable. This would have superficially worked in the eyes of many Americans. However, separating the two places the economy at a greater risk since banks will only be able to raise low profits leading to a lower return to the depositors and ultimately unavailability of funds in industries. Preserving the separation in the two banking systems stands at the way of making American financial structures more modernized. It will rather pose a great barrier to the financial reforms. The wall between investment and commercial banking was fay much porous: even under the act, banks still managed to carry out some actions forbidden by the act such as managing mutual funds and executing customer requested security trades. The only main thing that the banks would not execute was to underwrite corporate bonds and stocks.
Essentially, the Glass-Steagall Act would create more financial crises in the 21st century. Its repeal led to the rescue of large financial institutions which would have drowned. This way, its absence helped to minimize the perceived severity of the financial crisis. When Merrill Lynch and Bear Stearns were in serious trouble, they were immediately acquired by Bank of America and JPMorgan Chase respectively by federal assistance. Such rescues would only happen in events where banks can own full-service broker-dealers. Owing to the globalization of many financial markets, it would be risky to deter US banks from getting involved in securities activities which are popular among all global competitors.
It is also close to impossible to make an international agreement for nations to impose the restrictions stated in the Glass-Steagall Act at the local level. Furthermore, the act only guarded securities activities within the USA and never extended the restrictions to the activities carried out by US banks outside its borders. Precisely, reinstating the act will not prevent the US from suffering other financial crisis. Contrastingly, it will increase the severity attached to those crises by limiting any possible options to help banking institutions once liquidity crunches. Additionally, the restrictions will put US banks at a tremendous disadvantage compared to the foreign competitors. Too much regulation, which is encouraged by the Glass-Steagall Act will only increase risk in the banking system. Self-regulation ought to be adopted to avoid the dangers brought forth by federal regulators and other third parties. The market participants should be allowed to investigate and monitor their activities. All non-bank firms and government agencies should resist from overseeing banks given the failures that have been witnessed before in their oversight.
While government bailouts could harm the taxpayers, they are more than necessary I keeping financial institutions afloat. The government bailouts saved major financial institutions at the beginning of the 21st century. Without the federal government’s intervention, most of these banks would have drowned, and this would have had major economic consequences in America. Recovery of these banks without these bailouts and creating equally stable institutions would take quite long. Ideally, allowing banks to give more credit will boost the American economy. I think it is the high time that the US policymakers start to scrap the stiff regulatory measures on large financial institutions. After scrapping these regulations, the banks should clearly state how they would recuperate in the event of a crisis. In this sense, the regulations will be more aligned towards risk management as opposed to the typical regulation. Regulations in this direction will lead to desirable changes and outcomes stabilizing the United States’ financial system. PLAGIARIZED SAMPLE ORDER YOUR PAPER NOW
Arguably, it is improper for commercial banks to be involved in investment banking. Commercial banks are engaging in investment usually use guaranteed funds to enter into speculative investments with private companies. In an event when the investments do not pay returns, the taxpayers’ money is placed at risk. The commercial banks may end up experiencing huge losses following these speculations. Essentially, there is nothing wrong with doing an investment banking business. However, risk takers should use their own money to risky investments rather than risking the money of the depositors. It is the taxpayers who ultimately end up in a bigger crisis as they are forced to pay money that they were hardly consulted on its investment.