In the years leading up to the Great Recession, it should have been obvious that the massive debt Americans were accumulating was not sustainable. However prior to 2008, nearly everyone was blind to their impending doom; investors, bankers, government regulators, the general population, and even the chairman of the Federal Reserve, Alan Greenspan, a man who was considered the economic guru, was fooled into believing the prosperity America had been enjoying would last for the foreseeable future (“Rethinking” 20). By this time there had been only mild economic downturns or, at most, short periods of turmoil. Financial institutions and large corporations had grown accustomed to the decades of economic prosperity resulting from the ...
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...several new financial products and allowed financial firms to bet that certain mortgage loans would fail, even going as far as to bet against their own loans (Sherman and Meeropol 193). This increasing lack of government oversight allowed large banks and financial institutions to make riskier financial decisions with their customers’ money which destabilized the global economy, pushing it closer to a collapse.
The new era of deregulation began what is today known as the shadow banking system due to the prevalence of many nonbank financial institutions such as the insurance company AIG, the world’s largest insurance company prior to the 2008 economic collapse (Sherman and Meeropol 193). These financial institutions did none of the things traditional banks did so they could legally remain completely unregulated by the government (Sherman and Meeropol 193).
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