The Global Financial Crisis (GFC) has had a negative on the average American, which is why this the recent historical event that this paper will examine. Prior to engaging with the academic discussion, I would like to provide some anecdotal evidence. Prior to the GFC, my father’s small pharmacy business was successful; however gradually the impact of the GFC caused his business to fail. Thus, I would like to provide an examination on how the abuse of the mortgage markets in America resulted in risks, which caused financial meltdown and resulted in the contraction of the economy. The contraction of the economy created instability, which resulted in job losses for the average American and caused small businesses (like my father’s to close). Thus, the thesis of this paper is:

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The closing of my father’s pharmacy was due to the job losses and economic instability that was caused by the GFC. The GFC, in turn, was caused by undue risk taking by banking, in order to bring large (and unstainable) gains to themselves and shareholders.

The GFC has affected everyone lives, which illustrates that individual greed can unfairly affect the lives of hardworking Americans. The political power that the banking industry holds has meant that there have been limited sanctions, even by Obama who argues that he is an advocate of the people (Denning, “Big Banks and Derivatives: Why Another Financial Crisis is Inevitable”). The implication is that these entrenched institutions can commit immoral acts and still hold their position of prestige. There seems to be a lack of remorse from the banking industry, because the indication is that some players will find ‘legal’ manipulations to avoid liability on any regulation that is imposed (Denning, “Big Banks and Derivatives: Why Another Financial Crisis is Inevitable”). Thus, if the state does not attempt to control these players adequately then a future crisis is inevitable (and another Mom & Pop pharmacy or small business will be put out of business). The evidence from the GFC illustrates this.

The GFC illustrates that bankers were readily engaged with moral risks, which were considered smart business, but had the potential of undermining the financial institution (Dowd, 143). However, risk-taking was identified to be an expectation from the most talented bankers (Dowd, 143). Thus, there are two factors at play, which resulted in the GFC. These are: i) an ethos that risk-taking without considering the long-term stability of the effects was prevalent in the US banking system (Block, 293); and ii) the failure of the government to adequately regulate corporate governance in the US (Block, 293-4).

There have been attempts to regulate the banks, in the wake of the GFC, but the problem present is that the nature of the sanctions have been too weak (Block, 294). In addition, governmental programs to bring stability to the banking industry, such as the nationalization of Fanny Mae and Freddie Mac, have failed. This is because there has not been adequate monitoring of the banking industry. This is seen in the recent Federal Housing Finance Agency (FHFA) actions (Mogielnicki, 82; FHFA v Goldman Sachs & Co et al 11 Civ. 6198 (DLC) (2012); FHFA v JP Morgan Chase 11 Civ. 6188 (DLC) (2012)).

The FHFA cases illustrate that, even after the GFC, bankers were engaging in immoral decisions. This is because they were selling failing mortgages to Fannie Mae and Freddie Mac, which did not meet the required stability criteria (Mogielnicki, 82). The consequence of this is that the US economy was destabilised further, which threatened the homes and business of average Americans as the economy continued to decline. It is fine that there are legal actions being taken against these institutions, but this is too little too late. The failure of the banking industry to act in a responsible manner has had a devastating effect on the economy, which is harming the average Americans. The effects include the loss of jobs, homes and small businesses.

Although the economy is arguably on the road to recovery now, the same problems are present. These problems are that: i) bankers’ attitudes have not changed, in regards to risk (Denning, “Big Banks and Derivatives: Why Another Financial Crisis is Inevitable”); and ii) the government still has not created adequate legislation to police the actions and ethos of the banking industry. It is as if the cause and effects of the risks, which have been taken by the bankers and resulted in the GFC, have not provided a learning exercise. Consequently, it seems that it will be inevitable that another GFC will occur.

If I return to my initial anecdote, it is clear that there needs to be further action taken to prevent a repeat of the GFC. It is a dark feeling that there may be a repeat of this scenario, which will result in the failure of other small businesses. It is time for banks to learn from their mistakes and start making sustainable decisions. It seems inconceivable how such an obvious cause and effect is not being heeded by the banks and the government. Nevertheless, it seems that the power of the banking industry is trumping the average American. Thus, not only is the average American paying for the actions of the banking industry; but he/she is threatened by a reoccurrence of the same events, because the causes are still present.

  • Block, CD “A Continuum Approach to Systemic Risk and Too-Big-Too-Fail” Brooklyn Journal of Corporate Financial & Commercial Law Vol 6, 289-366. 2012. Print.
  • Denning, “Big Banks and Derivatives: Why Another Financial Crisis is Inevitable” Forbes January 8, 2013. Retrieved from:
  • Dowd K. “Moral Hazard and the Financial Crisis” Cato Journal Vol 29 iss. 1, 141-166, 2009. Print
  • FHFA v Goldman Sachs & Co et al 11 Civ. 6198 (DLC) (2012)
  • FHFA v JP Morgan Chase 11 Civ. 6188 (DLC) (2012)
  • Mogielnicki, MS “FHFA Lawsuits on Behalf of Fanny and Freddie: The Nature of Conflict of Interests in the Vertically Integrated Banking System” International Journal of Business Research Vol 12 Iss 1 pp. 79. 2012