Members of the Harrisburg faculty gathered on Thursday, October 30th for a roundtable discussion on the country’s ongoing financial crisis. Adjunct faculty member Mary Jane Forbes
joined Professors Juliet Moringiello
, Michael Hussey
, and Katherine Jones
as presenters, with each faculty member speaking about a specific aspect of the crisis.
Professor Moringiello spoke first, saying, “What really poisoned the system are these mortgage-backed securities.” She described the process that led to the proliferation of mortgage-backed securities, and how and why they created the financial risk and liquidity problems currently plaguing the banking industry in the United States. A back and forth discussion about oversight ensued, with Professor Moringiello noting, “Interest only loans were not supposed to be made to people who could barely afford a home.”
The conversation moved from oversight to risk assessment, prompting Professor Jones to ask who was responsible for doing risk assessment. Professor Forbes responded that independent risk assessment firms were usually responsible, but she wondered, “Where were the auditors? Where were the Boards of Directors?” She later pondered whether or not Boards would be held accountable for their questionable decision-making.
Professor Jones spoke next, describing some of the legislative history of banking regulation, focusing specifically on the Glass-Steagell Act of 1933, which mandated the separation of commercial banking from investment banking and created the Federal Deposit Insurance Corporation. The Gramm-Leach-Bliley Act passed on November 12, 1999, reversed Glass-Steagell and allowed financial services companies to offer commercial banking, investment banking, insurance underwriting and brokerage services. Unfortunately, the removal of the restrictions came with no new regulations.
The conversation turned eventually to the Emergency Economic Stabilization Act of 2008, and Professor Michael Hussey spoke about some of the provisions contained in the legislative package, focusing specifically on the Troubled Assets Relief Program, or TARP. The discussion also covered the issue of executive compensation. Professor Hussey noted that while companies that took money from TARP would have limitations placed on so-called golden parachutes, those limitations were deductions rather than an actual cap on executive compensation, and offered “no limit on performance-based compensation.”