The Cause of the Global Financial Crisis

Topics: Capitalism, Financial crisis, Economics Pages: 10 (3426 words) Published: May 11, 2013
Noticeably, the recent Global Financial Crisis of 2008 was one of the worse financial crises the world has seen since the Great Depression during the 1930s. The recent crisis has led to stock market collapses around the world, large financial institutions have collapsed or have been bought out whilst unemployment has increased, people fell into deep credit problems which left many households encountering financial difficulties. Whilst the impacts of the crisis remains severe and still has a major impact on society today and the causes of the crisis are explicit, the question of who to blame for the recent crisis remains a matter of dispute. Braithwaite believes that during the recent crisis, we were living under a system of Regulatory Capitalism and thus, flawed regulatory procedures is the main cause of the recent GFC. However in recent years, there have also being compelling evidence that suggest we were living under a Neoliberalism Capitalism society during the recent GFC and thus, the blame should be placed on the deregulation process. This paper will be in light of Braithwaite’s argument and will thus argue that flawed regulatory decisions and procedures are to blame for the recent crisis. Although the recent GFC was caused by actions that are considered typical of an unregulated Capitalist society, the economy only has become severely deregulated during the recent years because of weak regulations and policies, failure of regulatory agencies to monitor and govern financial institutions in a considerable manner, lack of regulatory response and most importantly, regulators favour the interests of financial institutions for personal reasons. While the opposing argument that deregulation is to blame for the crisis will also be critically analysed, the essay will demonstrate how such deregulation is a result of flawed regulatory procedures during the past 30 years and thus, the blame will bounce back to regulatory failure. This essay will commence by a critically analysis of Braithwaite’s argument with reference to a range of examples and evidence. Subsequently, the opposing argument will be critically analysed with examples and evidence and it will be seen that the blame for the crisis shifts back to regulatory failure which is thus, the concluding viewpoint.

There are many academics who are on the same line as Braithwaite in regards to the recent 2008 GFC and thus, provides viewpoints and examples that simply enhance his argument that “we live in an era of regulatory capitalism and thus, flawed regulation and flawed governing of regulations is responsible for the most recent financial crisis of 2008”. The existence of regulatory agencies like FED, SEC and the Treasury who are responsible for regulating and monitoring the actions of Corporations suggest that we live under a system of Regulatory Capitalism. Therefore as will be seen below, certain regulations and regulators are responsible for the crisis in many ways. Levine (2012) blames the crisis on a lack of regulatory responses to the actions of financial institutions. Prior to the GFC, regulatory agencies preserved certain policies even after knowing that such policies could potentially destroy the economy in a destructive manner, such as the loose monetary policy which allowed for pricing inflations. By turning our attention to CDSs in particular, FED was very well informed of the increasing danger of banks using CDSs to reduce Capital Reserves. In fact the FBI issued a public warning in 2004 about the likelihood of a widespread fraud in the subprime lending market because of the CDSs however FED failed to amend policies in response to such warnings. While it is valid to argue that JP Morgan had freedom to create CDSs as the banking system was unregulated at the time in which FED had no responsibility in regulating financial systems, FED is regarded as a regulatory agency and their job is to maintain the stability of the financial system and...
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