by A.W. Berry

Created on: October 11, 2008   Last Updated: January 12, 2011

The 2008 Wall street financial meltdown was caused in part by lobbying by the financial sector. The financial problems began in a nexus of lobby supported pro-banking legislation, lack of oversight, and developments within the mortgage industry and mortgage backed derivatives markets. These circumstances took place in the wake of the Savings and Loans crisis of the 1980's and in the midst of one of the most prosperous decades the United States has ever seen. During the 1990's the financial scenario(s) and economic picture didn't look so bleak for Wall Street, however new developments in the securities industry pointed heavily to economic thought that grouped banking deregulation with risk and wide-eyed political decision making.

In the years preceding the 2008 Wall street melt down, a flurry of lobbying activity by the Banking industry led to a loosening of mortgage lending practices according to Lisa Lerer of 'Politco' magazine. Specifically she states, " During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages." This is further verified by opensecrets.org's lobbying totals from 1998-2008 in which the Finance, Insurance and Real Estate industries are recorded as being the largest lobbying group in terms of a dollar amount over $3.2 Billion.

The connection between financial lobbying and the Wall street crisis is also present in the case of Senator Phil Gramm of Texas who is stated by Lerer, as being a former banking lobbyist turned politician and co-author of the Financial Services Modernization Act of 1999. The relationship between the Financial Services Modernization Act and the Wall street meltdown of 2008 is in the lack of regulatory fail safes within the act. Moreover, to exacerbate things, little was done by congress to limit the massive risky mortgage derivative spending by large banks in regard to complex leveraged derivatives and as insured by mortgage default swaps. This was in part because of more lobbying.

In the book 'Infectious Greed' by Frank Partnoy, Partnoy illustrates the presence of the International Swaps and Derivatives Association (ISDA) in Washington D.C. politics. Moreover, Derivatives lobbyists successfully influenced key law makers to abort legislation against unregulated 'off balance sheet' derivatives assets. Eventually, the combination of loosely enacted banking deregulation laws,

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