Globalization: Social & Geographic Perspectives

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Blog Post#2: The Hidden History of the Financial System

March 27th, 2011 · 1 Comment
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Blog Post for 3/29 Deadline.

In “The Hidden History of the Financial System”, Bethany McLean focuses on the Wall Street financial crisis.  One of her points is that the people in charge of Wall Street were delusional and unwilling to accept the truth about what was going on.  Furthermore, huge conflicts of interest were able to arise between companies and credit rating agencies, which effectively allowed these delusions to go on and, in turn, gave the average person a false hope of what to expect out of these companies.  The credit rating companies were not required to ensure the truthfulness of any information they received even though they were trusted to maintain transparency and asymmetry in the financial system.  The blatant deception that caused the financial crisis stemmed from those making money off of deceptive lending practices and it was upheld by a lack of regulation, or at least, a lack of actual regulation.

In “Why isn’t Wall Street in Jail”, Matt Taibbi focuses on a similar point; the fact that Wall Street criminals are not being stopped by anyone.  Taibbi speaks on some individuals who were able to blatantly get away with deceptive practices, some of which were downright illegal, and yet they were never penalized for their actions.  One such case deals with John Mack and Art Samberg who were both left alone by the SEC even after the SEC had proof that they were conducting illegal activities.  In smaller cases of less serious crimes, the criminals were prosecuted, yet these individuals who carelessly robbed “Main Street” are allowed to continue with their lavish lifestyles because the regulatory agencies are too afraid of politics to actually attempt to fix the problem. The revolving door between Wall Street and the regulating bodies is obviously a conflict of interest and yet it’s the same system at work today.

As globalization continues to spread throughout the world, I believe a potential problem is growing. Multinational organizations are able to work across borders and therefore strategically avoid regulations all around the world.  If Wall Street was able to get away reckless practices in a country with a strong government and regulating agencies standing by, how can we be sure that huge multinational companies will act ethically when their revenues eclipse the economies of poor countries all over the world?  As the world becomes more interconnected, I see a growing agency problem as those who benefit from large organizations and those who are threatened by large organizations are pushed farther away from each other.

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1 response so far ↓

  • 1    Prof. Hala // Mar 29, 2011 at 1:07 pm

    Excellent presentation and analysis. You put your finger on perhaps the fundamental caused by economic globalization in a world beset by asymmetries in power and information.

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