Money and Banking

Paper #2

 

Motivation:

This writing assignment deals with chapter 6 of Yves Smith’s “Econned”.  The purpose of this reading is to give you a sense of how the financial crisis (dramatized in the Big Short) emerged out of a combination of increased competition and decreased regulation of the financial system.  These two factors both operated separately and in concert for decades to create the environment that led to the financial crisis of 2008.

Grading:

As with the second paper, the clarity of your writing is what matters.  You will be graded on how well you answer the question below in your own words.  The occasional direct quote is fine, but the purpose of this assignment if for you to read the chapter assigned, digest it, and then answer the questions below.  Do not bring in outside readings.

The paper should be 3-5 double spaced (12pt font) pages long.  The paper should be written in the “five paragraph” style where you have a clear introduction and a clear conclusion and you offer supporting evidence in between.

The question.

Smith paints a picture of the two decades before 2008 as one of rapid deregulation, growth and disruption in the financial industry.  She draws a fairly straight line from the deregulation/non-regulation of complex derivatives specifically and investment banking more generally to the eventual financial crisis in 2008.  Explain how increased competition, culture in the financial industry and regulatory attitudes all changed in the decades leading up to 2008.  You should pay special attention to the ways in which these things were intertwined (for example: how deregulation lead to increased competition).  You should use specific examples to illustrate your points.

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