Debt, Deregulation and Financial Crises
Chapter 5: An overview of financial restructuring and its consequences
The scale of intervention to shore up a collapsing financial system revealed the problems that had caused the crisis: the interconnectedness of institutions and markets; lack of transparency surrounding institutions, markets, financial activities, and assets; rising leverage and innovations that made institutions more profitable and added more risk. Particularly notable deregulatory actions that compounded these problems included the exemption of mortgage-backed securities from registration, the repeal of Glass-Steagall and authorization of multipurpose financial holding companies. Lack of oversight and failure to acknowledge the changes brought about by pro-cyclical market forces left regulatory authorities unprepared and groping for ways to make the systemic response required when AIG and Lehman Brothers began to fail. They had ignored the dissolution of the old system without creating a coherent framework of regulation and oversight for the system that replaced it.
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