Thursday, September 25, 2008

Anatomy of the financial crisis

Anatomy of the financial crisis - Views - livemint.com

This is a very well written article that shows how some key policy decisions taken around 3 decades ago in the US have lead to the current financial crisis. The first was to deregulate the fixed commissions for stock trading in the 1970s and the second was of eliminating Glass-Steagall restrictions on mixig commercial and investment banking. A fixed commission meant that the investment banks made a comfortable living. deregulating of commission meant greater competition and thinner margins. The latter led to eating up of investment bank's share by commercial banks. Another key factor was the policies that gave rise to global imbalance. The federal reserve cut interest rase in response to the 2001 recession.