4/4/22, 6:50 PM Topic: Week 10 Discussion: Banks, regulation and crisis – Canvas – CSU
https://colostate.instructure.com/courses/138100/discussion_topics/1321516 1/3
This is a graded discussion: 15 points possible
due Apr 4
208 208
For this week’s discussion post, we are going to debate the role of banks in the economy, why the
State regulates their activity and how that regulation can prevent or not the occurrence of crisis,
using the 2008 financial crisis as our historical example.
On 23 October 2008, a few weeks after the collapse of the US investment bank Lehman Brothers,
former US Federal Reserve chairman Alan Greenspan admitted that the accelerating financial
crisis had shown him ‘a flaw’ in his belief that free, competitive markets would ensure financial
stability. In a hearing of the US House of Representatives Committee on Oversight and
Government Reform (https://tinyco.re/7018961) , Greenspan was questioned by the chair of the
House Committee, Congressman Henry Waxman:
Chairman Waxman: Well, where did you make a mistake then?
Mr. Greenspan: I made a mistake in presuming that the self-interest of organizations, specifically
banks and others, were such that they were best capable of protecting their own shareholders
and their equity in the firms. And it’s been my experience, having worked both as a regulator for
18 years and similar quantities, in the private sector, especially, 10 years at a major international
bank, that the loan officers of those institutions knew far more about the risks involved and the
people to whom they lent money, than I saw even our best regulators at the Fed capable of doing.
So the problem here is something which looked to be a very solid edifice, and, indeed, a critical
pillar to market competition and free markets, did break down. And I think that, as I said, shocked
me. I still do not fully understand why it happened and, obviously, to the extent that I figure out
where it happened and why, I will change my views. If the facts change, I will change.
Chairman Waxman: Dr. Greenspan, Paul Krugman, the Princeton Professor of Economics who
just won a Nobel Prize, wrote a column in 2006 as the subprime mortgage crisis started to
emerge. He said, “If anyone is to blame for the current situation, it’s Mr. Greenspan, who poohpoohed warnings about an emerging bubble and did nothing to crack down on irresponsible
lending.” He obviously believes you deserve some of the blame for our current conditions.
10 Week 10 Discussion: Banks and regulation
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Faisal Alzneidi
4/4/22, 6:50 PM Topic: Week 10 Discussion: Banks, regulation and crisis – Canvas – CSU
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[…]
Mr. Greenspan: I found a flaw in the model that I perceived is the critical functioning structure that
defines how the world works, so to speak.
Chairman Waxman: In other words, you found that your view of the world, your ideology, was not
right, it was not working.
Mr. Greenspan: Precisely. That’s precisely the reason I was shocked, because I had been going
for 40 years or more with very considerable evidence that it was working exceptionally well.
In this video (https://youtu.be/g_W9SsstO9Y) , Nobel laurate economist Joseph Stiglitz talks
about the impacts of that “flaw in the model”, which caused a lack of regulation by the Federal
Reserve. Which model do you believe that Mr. Greenspan was talking about (relate with the
neoclassical, intermediate and Keynesian models of previous discussions)? Why does professor
Stiglitz argues that a lack of regulation incentivizes banks to “behave badly”? In the video, Stiglitz
talks about the major macroeconomic effects that such “bad behavior” causes; what are some of
these effects?
You are then free to comment/agree/disagree with fellow classmates’ posts. If you do disagree,
please make sure to clearly explain why, and provide all resources at the bottom of the post in
APA/MLA formatting.
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Read the prompt above carefully.
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spellcheck in a Word document first. Your post should be at least 4 sentences long
When you have finished entering your answer click on the “Submit” button.
You should participate in the discussion board every week.
Minimum requirement: You are expected to make your own post and comment on at least
one other student’s post.
In your communication with other students, please:
Expand on or clarify an important point.
Offer an additional argument to support a position taken in an answer.
Suggest ways in which an idea could be more clearly expressed.
Identify passages where you think the writer misunderstood a concept or applied it incorrectly.
Disagree with a point or position made in an answer.
If you disagree with the views of another student, please:
Be constructive and respectful.
Politely critique a position on an issue, but not the person.
Avoid sarcasm, swearing, or language that would be considered rude or argumentative.
4/4/22, 6:50 PM Topic: Week 10 Discussion: Banks, regulation and crisis – Canvas – CSU
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