Was the Financial Industry Responsible for the Economic Meltdown of Essay

Was the Financial Industry Responsible for the Economic Meltdown of 2008 - Essay Example Instead, their poor risk management practices are to blame. He however, argues this from the perspective of his financial firm. From this discussion, it will be clear that apart from financial institutions, policy makers also contributed to the financial crisis. It is true that the root cause of this problem was the decline of the housing market, as Bogle and Blankfein note. Bogle is right when he figures out that this problem has roots in the past events, and so its growth was gradual. The most important factor was the Glass-Steagall Act. When the major elements of this act were repealed, the negative consequences started to unfold. This law was enacted in 1933 as a solution to the collapsed banking institutions, after the 1929 financial breakdown. The main act of this law was to protect the deposits of bank customers from investment risks. Separation of investment banks and commercial depository banks during this period also had overwhelming results in the subsequent years. On the negative, this turned banks into financial institutions working for â€Å"agents.† Therefore, since the bank owners were not exposed to any risk, they exercised little caution in their management. Although Blankfein does not directly put the blame on financial bodies for the 2008 financial crisis, he points out that some of their practices were responsible for the economic meltdown. For instance, some financial institutions engaged in too much lending, which in return cheapened credit. In the housing market, this resulted in its growth before plunging into decline. When lending exceeded the appropriate levels, the lending risks became more pronounced and complex. This complexity of instruments made it impossible for them to be sold or bought, hence increasing the effects of the meltdown. This to date remains the causal factor of the financial crisis, and the US government greatly influenced