Philip Allison Assignment 16

Philip Allison

Mr. Logsdon

AP Language and Composition

11 December 2016

1.2 million households were lost. 7 million Americans became homeless. And the national debt tripled from 5 trillion dollars to 15 trillion dollars. These were results of the stock market crash of 2008. Several big banks on Wall Street had the power to affect and destroy lives across the country; after this catastrophe, people expected Wall Street’s power to be heavily reduced so innocent people weren’t thrown out of their homes while the culprit CEOs only had to pay small percentages of their earnings to be able to walk free. But this has not changed. Yes, the government has maybe made enough changes to hint at a safer world for the American public, and persuade them to think that they are getting their small but sweet revenge on the bank bullies, but the truth is these menaces are hardly fazed. The fact remains that, in the words of Greg Smith at Time Magazine, gains are privatized to an elite few, while losses are socialized to everyone in America. This is how it was before the crash of 2008, and how it is after. Wall Street should be more regulated by the government, shown by the crash of 2008 and its effects, Wall Street itself, and the U.S. government. If it isn’t, and another crash becomes inevitable, the American debt will grow and so will the pockets of the banks. The crash in 2008 was a metaphor of exactly what can and will if the government doesn’t tame Wall Street.

The pockets of the banks grew leading up to the crash of 2008, as well as afterwards. The crash was a mixture of many factors, a majority of which should have been prevented in the beginning. The fundamental reason for total collapse was the banking industry’s inherent greed, explained in the book and movie The Big Short: Inside the Doomsday Machine: a trader named Lew Ranieri came up with the idea to package the mortgages of others, and sell these packages on the market. They were a huge success. In the meantime, houses were being sold left and right. But the mortgages on these houses had a catch. Families were buying expensive houses, houses they could not afford. In the tedious housing contracts, a mortgage rate was displayed. It appealed to buyers. But what the buyers didn’t know, and the sellers did, is that the favorable, low mortgage rate, was only the case for say, two months. Then it went up. Skyrocketed. Past the point buyers could actually pay off. So of course these mortgages were not paid. Now, back to the packages of mortgages. Banks continued to sell them, and buy them. They were circulated, and then they were gone. Families couldn’t pay their mortgages, so the packages containing these mortgages became worthless. The combination of families losing their homes, and more losing their investments on these packages was a lethal duo, created and fed by none other than the bank.

          But not as much so for executives on Wall Street. The young workers, brokers, and tillers not yet reaching their dreams of big money banking, lost their jobs, possibly their homes as well. Richard Fuld, CEO of Lehman Brothers when they went bankrupt as a result of the market downfall, can vouch for the aforementioned lack of losses for executives. According to ABC News, Fuld earned no less than $484 million over the 8 years of working at the fallen Goliath of a bank. After the collapse of the bank, his earnings decreased to only $350 million. He personally lost $134 million dollars, bankrupted his bank, and cost on looking families their jobs and homes, yet still made out with $350 million dollars, a mansion in Greenwich, Connecticut, an oceanfront estate on Jupiter Island, Florida, a home in Idaho to ski, as well as an apartment in Manhattan. ABC News also outlines Fuld’s first Congressional hearing, when Chairman Henry Waxman asked “Is this fair?” Jamie Dimon, CEO to JP Morgan, one of the few banks not dismantled by the crisis, certainly didn’t think so as he asked William Cohan of Vanity Fair, “How do I feel about [the] C.E.O.’s who walked away with …$150 million and their company blew up? It’s outrageous.” These high end executives are not just greedy, but open about it. Jimmy Caine, CEO of Bear Stearns, a company forced to sell itself to JPMorgan, told William Cohan of Vanity Fair, “The only people [who] are going to suffer are my heirs, not me. Because when you have a billion six and you lose a billion, you’re not exactly, like, crippled, right?”

As well as these executives, sour because they didn’t earn quite as much as another executive, the government thinks this is outrageous too, or at least they should. Some officials do attempt to combat the power of the financial giants, such as John Mica during the hearing of Fuld, telling him “If you haven’t discovered your role, you’re the villain today.” But the government was also a major factor of the 2008 crash. According to Robert Lenzner of Forbes Magazine, the Fed chairman of the time Alan Greenspan and former Treasury Secretary Lawrence Summers lobbied to pass a bill prohibiting regulation of derivatives – the most complicated and diluted financial product. As a result of the chaos, on September 16, 2008, AIG, the largest insurance fund in the world, revealed it was running out of money. A day later, General Electric called Hank Paulson, the Secretary of the Treasury, to say they wouldn’t be able to pay any short term loans. The U.S. government issued loans to bail out Wall Street, which accumulated to about $7 trillion. A catalyst of the crisis came from inside the government, causing the whole country to pay dearly. The documentary Inside Job shows this side of the disaster, the hidden side of the trusted government and its obvious failures. Through the passage of the Dodds-Frank bill, intended to prevent risk taking by banks, financial institutions were supposed to be in check. More recently, however, this has been proven untrue. Over the last five years, bankers at Wells Fargo have been opened more than two million bank accounts for customers without them knowing, according to Huffington Post. The financial industry should be checked with the firmness displayed by Senator Elizabeth Warren when telling Wells Fargo CEO John Schrumpf that “he should resign. [He] should give back the money you took while this scam was going on and you should be criminally investigated.” The government as a whole is at fault again for this scheme, as the government was completely unaware for five years, until discovered recently.

Banks are known to be sleazy. Banks make money, and any way it can, apparently. For banks to constantly make money for themselves and take money from everyone else is cruel but not unprecedented. After all this time, we should be disappointed but not surprised. It is the government's job to check each bank, follow every one of its actions closely, and to protect the people of America from its wrath. Through description and explanation of the crash of 2008, the bank, and the government, Wall Street and its ongoings should be more heavily regulated and overseen by the government.

Works Cited

Lenzner, Robert. "The 2008 Meltdown And Where The Blame Falls."Forbes. Forbes Magazine, 2 June 2012. Web. 30 June 2016.

Cohan, William D. "Wall Street Executives from the Financial Crisis of 2008: Where Are They    Now?" The Hive. Vanity Fair, Apr. 2015. Web. 30 June 2016.

Lewis, Michael. The Big Short: Inside the Doomsday Machine. New York: W.W. Norton, 2010.                                                Print.

Inside Job. Dir. Charles Ferguson. Sony Pictures Home Entertainment, 2011.

Ross, Brian, and Alice Gomstyn. "Lehman Brothers Boss Defends $484 Million in Salary, Bonus." ABC News. ABC News Network, 06 Oct. 2008. Web. 11 Dec. 2016.

"Elizabeth Warren Hammers Wells Fargo CEO: ‘You Should Be Criminally Investigated’." The Huffington Post. The Huffington Post, 21 Sept. 2016. Web. 11 Dec. 2016.

Smith, Greg. "Viewpoint: How Wall Street Rigs the Game | TIME.com." Time. Time, 22 Oct. 2012. Web. 11 Dec. 2016. <http://business.time.com/2012/10/22/viewpoint-how-wall-street-rigs-the-game/>.