Action against individuals and companies responsible

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action against individuals and companies Responsible for regulating Stock market Companies whose securities traded on them Brokers and dealers who conducted the trading
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Savings and Loan Crisis
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Savings and Loan Crisis Savings and loan association: A financial institution that specializes in accepting savings deposits and making mortgage and other loans Over the course of the 1980s about 747 out of the 3,234 S&Ls failed 50 – 80% of failed S&Ls involved in criminal activity or fraud
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Deregulation Restrictions on the amount that could be loaned without financial backing and who the money could be loaned to were loosened/eliminated At the same time, deregulators convinced congress to bailout the FSLIC if needed and increased the insurable amount from 40k to 100k Spoiler alert: It was needed
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Incentive for Crime Criminogenic structure Huge financial incentive for taking risks Bonuses, large profits, reputation If the risk fails, it’s not your money AND IT’S INSURED Taking risk is not necessarily illegal Misrepresentation of the actual risk involved to investors or taking excessive risk is
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Failure To prevent going under, S&Ls had to offer incredibly interest rates to attract investors Now allowable under deregulation The problem came when they could not take in enough money to cover the interest Many S&Ls became insolvent requiring a bailout Overall, failures resulted in loss of $250 billion Still being paid off, may cost up to 1 trillion after interest
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Collective Embezzlement In addition to the fraudulent practices and high risk investment, embezzlement on a grand scale was also occurring Investors were siphoning off money from their own banks for own gain Usually with implicit or explicit approval from management Essentially crime by the corporation against the corporation
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Prosecution of Perpetrators Following the S&L crisis, the SEC and DOJ criminally prosecuted many top executives Reagan specifically signed law that enabled the government to go after the executives responsible Resulted in 5,490 investigations, 1,100 prosecutions, and 830 convictions Roughly 830 more than the 2008 crisis
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2008 Financial Crisis
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The 2008 Financial Crisis AKA the sub-prime mortgage crisis, AKA the housing crisis Stems from the bundling of sub-prime mortgages as securities that were then used as investments The investments failed to produce returns when it became difficult for borrowers to pay their mortgages As mortgage defaults increased the investments began to collapse
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Deregulation The Glass-Steagall Act (1933) was repealed in 1999 Allowed commercial banks to also engage in investment banking activities This allowed banks to realign and marge Also allowed commercial banks to sell mortgages to investment banks, who then bundled and sold them as a security
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The 2008 Financial Crisis Two key factors contributed: The ratings agencies continued to give
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