The financial industry meltdown and government responsibility for bailouts

¶ … financial industry responsible for the economic meltdown? Should the government bailout economic institutions?

Both of the articles (Issue 6 and Issue 7 from Unit 2) discuss aspects of the financial crisis of 2008. Issue 6 discusses whether the financial industry was to blame for the economic meltdown, while Issue 7 examines whether the government should bail out economic institutions. Rather than advocating one position over the other, each of the chapters offers two antithetical perspectives on the issue. This paper summarizes each of the articles, and then offers opinions about the topics.

In the first article, Bogle argues that firms should make long-term investments, and that many of the problems that led to the financial crisis were due to firms that operated in the interests of making short-term gains. Additionally, Bogle connects the short-term focus to an ethical standpoint, asserting that by operating with an eye toward long-term success, firms reintroduce a culture of ethics that has been lacking. He asserts that market forces became unchecked and attributes the financial collapse to profound mismanagement by the banks themselves. Indeed, he argues that banks became agents of the owners and that because the managers did not have any risk (it was not their business, after all) this resulted in them operating with a blind eye toward the responsibilities of mismanagement. The managers did not have any interest in long-term responsibility: "self-interest got out of hand. It created a bottom-line society in which success is measured in monetary terms" (108). While it is unclear how success could not be measured in monetary terms (when dealing with businesses), the author clarifies his position, stating that "[M]anagers of other people's money [rarely] watch over it with the same anxious vigilance with which they watch over their own…they…very easily give themselves a dispensation" (109). Thus, Bogle argues that the financial crisis could have easily been avoided if the managers held more accountability for their actions.

In contrast with Bogle, Blankfein (the CEO for a global investment bank) asserts that the banks were not responsible for the crisis. His perspective is expressed through two governing arguments: that the banks are altruistic institutions (he states that his employees are "hardworking, diligent, [and] thoughtful," and that no one has been arrested for their role in the financial crisis) and that the financial crisis was an inevitable failure of the free market and not the result of mismanagement within the banks themselves (110). Blankfein also maintains an earnest tone throughout his argument and his rhetorical strategy is likely a result his needing to appear grateful for the government's financial assistance toward his company.

Bogle's stance is more persuasive because he delineates clear and relatable ways in which the banking industry caused the financial crisis, although his ethical discussion is irrelevant and does not affect whether the industry was responsible for the collapse. It was irresponsible for banks to operate from a position of absentee management, and the careless ownership enabled reckless conduct from their "agents" who ran the day-to-day operation. While some blame must be placed on the public for continuing to spend at outrageous rates, the bank itself promoted and enabled such activity. Blankfein's argument that no one had been arrested is irrelevant since the issue at hand is whether the financial industry was responsible, not whether bank officials should be arrested. Banks made profound miscalculations concerning interest rates and loans, and should have been aware that their business practices were not feasible toward long-term success (Murphy).

Issue 7 places the theories of authors Roger Lowenstein and Robert Samuelson against one another. Lowenstein contends that government should bail out economic institutions; however, he does not argue that bailouts are necessary in order to assist the careless companies, but instead asserts that bailouts must be issued in order to assist the millions of people who have lost their jobs. Accordingly, Lowenstein places great emphasis on the effects of the collapse, stating that 15 million families owed more than their houses were worth, that unemployment was at greater than 10%, and that 8 million people had lost their jobs.