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Blame Washington More Than Wall Street for the Financial Crisis

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Debate Details

The 2008 financial crisis threw the U.S. economy into recession, devastated its housing and stock markets, and lost 5.5 million American jobs. While Wall Street created destabilizing structured securities and investment banking firms over-leveraged their often illiquid assets, the Fed supplied far too much credit and Washington failed to provide the regulation and oversight that would have prevented crisis. Who’s to blame?

The Debaters

For the motion

Niall Ferguson

Laurence A. Tisch Professor of History at Harvard University, a senior research fellow of Jesus College, Oxford University, and a senior fellow of the Hoover Institution, Stanford University

The bestselling author of Paper and Iron, The House of Rothschild, The Pity of War, The Cash Nexus, Empire, Colossus (2002) and The War of the World... Read More

John Steele Gordon

Lifelong Author and Commentator on New York's Business and Financial History

Gordon's books include Hamilton's Blessing: the Extraordinary Life and Times of Our National Debt (1997), The Great Game: The Emergence of Wall Street... Read More

Nouriel Roubini

Professor, Economics and International Business, Stern School of Business, New York University.

Is a professor of economics and international business at the Stern School of Business, New York University, and co-founder and chairman of RGE Monitor... Read More

Against the motion

Alex Berenson

Investigative Reporter for the New York Times

Alex has been a business investigative reporter for the New York Times since 2000. Read More

Jim Chanos

Founder and Managing Partner of Kynikos Associates

As the largest exclusive short selling investment firm, Kynikos provides investment management services for both domestic and offshore clients. Chanos... Read More

Nell Minow

Editor and Co-Founder of The Corporate Library

Nell is the editor and co-founder of The Corporate Library, an independent corporate governance research firm. Previously, Minow was a Principal of... Read More

Where Do You Stand?

For The Motion
  • The Fed supplied far too much credit with too little supervision, allowing the banks to assume off-balance sheet liabilities and contingent obligations with no disclosure and with no capital requirements.
  • The Securities and Exchange Commission under Christopher Cox allowed leverage in the banking system to spiral out of control, particularly in the case of the big investment banks.
  • As Fannie Mae and Freddie Mac were leveraged 65-to-1, the White House challenged lenders to create 5.5 million new minority homeowners and George W. bush signed the American Dream Downpayment Initiative, thus laying the groundwork for the housing bubble.
Against The Motion
  • Regardless of shortcomings in government regulations, Wall Street cannot use the government as a scapegoat to deny responsibility for its own risky practices and policies, particularly given Wall Street lobbyist efforts to create policies favorable to large banks.
  • Financial companies were responsible for structured securities, a construct of the ratings agencies that turned subprime mortgages and other deceptive credits into Triple A securities.
  • The big five investment banking firms irresponsibly managed assets greater than the national budget; they were leveraged greater than 30 to 1, their assets were frequently risky and illiquid and they were financed with mostly liabilities payable on demand.

Results

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Post-Debate

The Research

The Research

Financial Innovation, Regulation, and Reform

Charles W. Calomiris February
March 1, 2016

Credit Crisis – The Essentials

New York Times March 3
March 1, 2016

Origins of the Economic Crisis? In One Chart!

The New York Times December 26
March 1, 2016
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