James Fisher, Jim Gilsinan, Muhammed Islam and Neil Seitz
– This paper aims to address the question of who gained and who lost in the financial crisis of 2008.
Abstract
Purpose
This paper aims to address the question of who gained and who lost in the financial crisis of 2008.
Design/methodology/approach
Gains and losses were identified by groups ranging from bankers to homeowners to taxpayers.
Findings
Gains and losses are not neatly split by a main street/Wall street dichotomy. Major financial institutions and their chief executive officers made huge gains followed by bigger losses, a substantial portion of which were shared by taxpayers. Homeowners and taxpayers consistently lost. Workers and real estate developers experienced a mixture of gains and losses.
Practical implications
Financial legislation is affected by questions of who won and who lost. The complex mixture of gains and losses must be fully grasped if winners and losers are an important consideration in the design of legislation.
Originality/value
The detailed analysis and model of winners and losers provide important lessons for legislators and regulators in all countries.
Details
Keywords
Muhammad Islam, Neil Seitz, James Millar, James Fisher and James Gilsinan
The desirability of financial reform to avoid another financial melt‐down is widely accepted, but the likelihood of reform is uncertain. The purpose of this paper is to present a…
Abstract
Purpose
The desirability of financial reform to avoid another financial melt‐down is widely accepted, but the likelihood of reform is uncertain. The purpose of this paper is to present a case study of evolution and reform attempts at US mortgage giants Fannie Mae and Freddie Mac and provides an instructive model of the likely long‐term success of attempts to reform the financial system.
Design/methodology/approach
A model of the legislative and regulatory change process is first developed, considering the range of influences that arise. The history of reform attempts for US government sponsored mortgage giants Fannie Mae and Freddie Mac are examined in the context of this model.
Findings
The model predicts that reform will often be thwarted. US government sponsored mortgage giants Fannie Mae and Freddie Mac helped fuel the housing bubble and required a government bail‐out. Sentiment for reform was high, but what happened next was – nothing. Fannie Mae and Freddie Mac have a long history of successful lobbying, and they succeeded again. They did not need to stop legislation. They needed only to see it delayed long enough for attention to turn elsewhere. Five years after the bubble broke, their market dominance and the implied guarantees continue. Reform is not on the legislative agenda. This outcome does not bode well for financial market reform or stability.
Originality/value
An understanding of the process, influences, and likelihood of reform is important for governments, businesses, and individuals. While the picture this paper paints is not optimistic, it is important.