Question

How did deregulation in the US banking industry impact the global economy. Please explain the impact not only in the US, but on a global level (the documentary specifically talks about China and Singapore). How did expectations play a role in this situation?

From the movie Inside Job?

Answer 1

Impact of deregulation :-

2008 US Financial crisis hit all the economies of the world . The documentary " Inside Job " showed how this recession which costed around $20 trillion costed people their jobs and homes .

The main cause of financial crisis were deregulation of Financial Institutions like banks , insurance companies and credit rating agencies in 1980's . As a result of deregulation :-

1) Financial institutions started playing in their own ways to get maximum personal benefits.

2) Deregulation of three main banks in Iceland created a bubble which busted in end of 2008.

A) On US markets :-

1) The financial crisis in US was led by systematic corruption in financial services industry .

2) The financial system in US supported Internet companies creating a stock bubble .

3) There was a dominance of few leaders in the financial sector

4) Complex CDO's were created and dubious ratings were given to them

5) This led to massive unemployment in the US economy . A large chunk of people could not repay the loans which costed them their houses

6) It led to collapse of US financial sector

B ) On global economy

1) It severally the world trade

2) It created loss of confidence in global economy .

3) It severally effected GDP of Japanese economy.

4) Led to major slowdown in Latin America and Caribbean

5) Massive unemployment in Asian factories

6).Indian stock market crashed

7) Led to high interest rate depreciation

8).Export oriented sectors crashed

9).Real estate sector faced a slump

Role of expectations in such crisis :-

​​​​​​1) Investment banks preffered subprime loans because of higher interest rates .

2) This led to massive predatory lending even to those who cannot repay them .

3) The real estate started to boomed at the highest in the history.

4) Expectations of higher earning and profits created a boom ,however inability to repay such loans created a big crash which resulted in economic crisis.