Freefall by Joseph Stiglitz Essay

Introduction

In the book, Freefall: America, Free Markets, and the Sinking of the World Economy, Joseph Stiglitz discusses the key factors that caused the financial crisis of 2008 that led to the global recession. Throughout the book, Stiglitz points out the mistakes made prior to the crisis and proposes changes that he feels must be made in order to prevent a similar financial crisis from reoccurring. He discusses the need to overhaul and regulate the financial sector. In addition, Stiglitz a former economic advisor during the Clinton Administration is sharply critical of the Bush and Obama Administration’s subsequent handling of the crisis.

The Clinton Administration

While I would definitely say that I agree with almost all of Stiglitz’ criticisms and proposals in the book, my main issue with Stiglitz is that he curiously does not criticize the Clinton Administration enough for its role in the crisis. After all, it was President Clinton who signed the Gramm-Leach-Bliley Act into law repealing the Glass-Steagall Act of 1933 (1). This action effectively set the course for disaster by allowing banks to merge and create the “too big to fail” institutions that played a pivotal role in causing the crisis.

As I read the book, I did a bit of research into President Clinton and his economic team’s position on deregulation during the time they were in office in the 1990’s. It becomes apparent that Clinton played a very important role in setting the stage for the crisis. Several pieces of legislation he enacted such as the Commodity Futures Modernization Act which exempted credit default swaps from regulation (2) and the Community Re-Investment Act (3), I believe definitely contributed to create an environment for crisis.

Whether it was just bad advice from his advisors, of which Stiglitz was one at the time, or whether they just got caught up in “boom time” euphoria of the 1990’s, it is obvious that Bill Clinton should shoulder an equal share if not more of...