POSC 335: A Case Study: Dodd-Frank Financial Reform
POSC 335 Final Exam: A Case Study
Following the financial crisis in 2008, the Dodd-Frank financial reform was passed in 2010 to help prevent giant banks from engaging in speculative trading activity. While speculative trading activity is not considered to be the cause of the financial collapse, many economists believe it was one of the contributing factors. While it is important for banks to support the economy by lending to consumers and businesses, they often become involved with proprietary trading. By making bets in exotic financial markets, proprietary trading, they are not really doing anything to support the economy but instead focusing on their own accounts. This habit tends to be risky and could lead to future government bailouts for these businesses deemed “too large to fail.” Ultimately, this Dodd-Frank reform was established to show that large corporations could either speculate on financial markets or have a government safety net; however, they …show more content…
Our group found that the takeover of the Chicago School of thought was accompanied by the “free-rider opportunism” mentality. This mentality is distinguished by the belief that lies and deception to gain economic advantage is acceptable, and the strategy to privatize profit (to the private of public enterprise) but socialize costs (to the broader society). Similarly the “too big to fail” concept also came about with the Chicago School of thought which is the mindset that if an entity is big enough to effect the entire economy in its absence, then the government will have to bail them out if the entity was to fail. These notions incentivized risky investing practices, as there are few negative repercussions for those making speculative trades, which, in turn, led to inflammation and banking
Following the financial crisis in 2008, the Dodd-Frank financial reform was passed in 2010 to help prevent giant banks from engaging in speculative trading activity. While speculative trading activity is not considered to be the cause of the financial collapse, many economists believe it was one of the contributing factors. While it is important for banks to support the economy by lending to consumers and businesses, they often become involved with proprietary trading. By making bets in exotic financial markets, proprietary trading, they are not really doing anything to support the economy but instead focusing on their own accounts. This habit tends to be risky and could lead to future government bailouts for these businesses deemed “too large to fail.” Ultimately, this Dodd-Frank reform was established to show that large corporations could either speculate on financial markets or have a government safety net; however, they …show more content…
Our group found that the takeover of the Chicago School of thought was accompanied by the “free-rider opportunism” mentality. This mentality is distinguished by the belief that lies and deception to gain economic advantage is acceptable, and the strategy to privatize profit (to the private of public enterprise) but socialize costs (to the broader society). Similarly the “too big to fail” concept also came about with the Chicago School of thought which is the mindset that if an entity is big enough to effect the entire economy in its absence, then the government will have to bail them out if the entity was to fail. These notions incentivized risky investing practices, as there are few negative repercussions for those making speculative trades, which, in turn, led to inflammation and banking