Research proposal on global financial crisis

The Global Financial Crisis - MIT

there is an urge to speculate and it is translated into effective demand for goods or financial assets.” it is my contention that there is ample empirical evidence to upgrade the “financial instability hypothesis” to the status of “theory. two of these are very pertinent to the evolution of the 2007 global financial crisis. the proposal will formulate a specific research question that will guide the proposed study, as well as formulate an explanatory hypothesis regarding the crisis.] central banks are busy bolting crude analyses of financial markets onto their workhorse models. the salience of the theory is well expressed by janet yellen, president and ceo of the federal reserve bank of san francisco:“… with the financial world in turmoil, minsky’s work has become required reading. although a real estate bubble precipitated the crisis, it was a preceded by a credit bubble. 2007 global financial crisis is a phenomenon that occurred within the world’s system of resource allocation. this research proposal will explain the background, historical context and importance of the 2007 global financial crisis.[8] minsky referred to his thesis as the “financial instability hypothesis.


four will analyze the 2007 global financial crisis by using the minsky-kindleberger financial instability theory. cohen (2008:79-80) defines globalization as follows:“… globalization is equated with an increasingly close integration of national markets – a fundamental transformation of economic geography. a surge in the libor has implications for the availability and cost of credit throughout the global economy. financial historian, niall ferguson (2008:3) considers the evolution of credit and debt as important as any technological innovation during the rise of civilization:“banks and the bond market provided the material basis for the splendours of the italian renaissance. the spectre at the feast – capitalist crisis and the politics of. however, the proposed study will not be a comparative analysis of the 2007 global financial crisis and financial crises of the past. much criticism is expressed about the failure of economics to predict the global financial crisis, and in hindsight, the shortcomings of contemporary economic theory (the economist, 2009:11-12). the validity of the theory as an explanatory framework for the crisis will be discussed. mentioned above, the 2007 global financial crisis commenced with a sudden and unprecedented surge in medium-term interbank rates in the world’s money markets on august 9, 2007. factors leading to this global credit bubble are, inter alia, the following:• the expansion of the global capitalist system after the fall of the berlin wall led to greater competition in global manufacturing and services, which reduced real wages globally, lowering inflationary expectations, which resulted in declining long-term interest rates.

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Impact of the financial crisis on primary schools, teachers and parents

trying to stem the tide of the crisis, governments and central banks have taken unprecedented steps, fundamentally changing the global political economy. factors, and others, led to an unprecedented increase in global credit which was searching for yield in a low yield environment, finding its way into mortgage related securities, and causing a fundamental mispricing of mortgage related risk. credit contraction, or deleveraging, rapidly spread through the global financial system. importance of the issue to be addressed by the proposed study is highlighted by the argument that the 2007 global financial crisis is part of a larger crisis within capitalism itself that has been brewing for many years (gamble, 2009). central banks and governments were key players, especially in the us where the crisis originated, thus, it is essential to understand the critical political decisions that factored into the unfolding of the crisis. structure of global capitalism has evolved from disparate regional, relatively autonomous markets for goods and services, to single interdependent markets for goods and services, which integrates nearly the entire world in a system of resource allocation that is characterized by complex interdependence. in place of territorially distinct economies, we are said to be moving toward a more unified model, a truly global marketplace. financial instability theory sees capitalism as dynamic; therefore, no definitive solution exists for government management of the economy. global financial integration is an important aspect of what has come to be known as globalization. research proposal will outline the theoretical framework for the proposed study.

Financial crisis and fragile states — Global Economic Symposium

The Global Financial Crisis: Analysis and Policy Implications

(1992) characterizes the current dominant economic system as a capitalist economy with expensive capital assets and a complex, sophisticated financial structure. is against this background that the 2007 global financial crisis must be analyzed. in terms of the credit expansion mispricing of mortgage risk hypothesis, the key causal variable precipitating the crisis is credit expansion. the world is curved – hidden dangers to the global economy. flow is important to understand since it explains the linkage between the creation and ownership of capital assets on the one hand, and the structure of financial relations and changes in this structure on the other. global finance was in the grip of a liquidity crisis, which eventually resulted in worldwide economic contraction and recession, accompanied by bank failures, the implosion of the real estate markets in many countries, specifically the us, and rising unemployment. second chapter will provide a thorough analysis of minsky’s financial instability theory, and kindleberger’s expansion of the theory. finally settled on hyman minsky’s (1975; 1986; 1992; kindleberger, 2000; cooper, 2008) financial instability theory. observers believe that the reason a very small segment of the global financial system had such a severe credit inhibiting impact is related to the extent of global financial integration, specifically through the process of securitization (ferguson, 2008; morris, 2008; smick, 2009). kindleberger (2000:207) argues that a lender of last resort seems to shorten the business depression or recession that follows a financial crisis.

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Research Proposal for Graduate Thesis – The 2007 Global

crisis reignited a debate about the role of the state in markets. it sought to expand credit, not restrict it, and to enlist the financial sector as the most important driver of growth and competition in the economy. the 2007 global financial crisis is challenging decades-old political economic orthodoxies, and is redefining the role of the state in markets. the fifth chapter i will offer tentative observations about the utility of the financial instability theory in “managing” global financial crises. in the global economy the supply of credit is influenced by the london interbank offered rate (libor), a daily reference rate of interbank loans contracted in the london wholesale money market.) i refer to the study of the global system of resource allocation as political economy (upper case) – and the global system of resource allocation, itself, as political economy (lower case). financial instability theory attempts to explain the impact of debt on system behavior. the first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. elements of many theories do apply to how the crisis unfolded, but were ultimately unsatisfactory as an explanatory framework for the study’s hypothesis. through an integrated global financial market securitization linked lenders to borrowers all over the world.

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based on the application of the financial instability theory, this chapter will aim to identify the causal factors resulting in the crisis. process of securitization played an important role in the ever-increasing financial integration evolving within the capitalist system. the origin of financial crises – central banks, credit bubbles and. since the 2007 global financial crisis is a very recent phenomenon that is still unfolding, there is very limited academic literature on the topic. the proposed study will illustrate that mispricing was largely caused by global credit expansion. answer to this question i am postulating the following hypothesis: within the structural evolution of capitalism there occurred an unprecedented expansion of credit in the years preceding the 2007 global financial crisis, which caused a fundamental distortion in the price of mortgage risk. three-month libor overnight index swap (ois)[2] for this period dramatically illustrates the extent of the developing crisis. a lender of last resort that steps in to stabilize a crisis is usually a government, or a central bank. proposal for graduate thesis – the 2007 global financial crisis – a political economic analysis. money is connected with financing through time, with banks and financial intermediaries as the central players.

The Confiscation of Bank Savings to “Save the Banks”: The

the panic and confusion surrounding the correct price of mortage risk caused global deleveraging, resulting in a global recession. proposed study’s importance lies in its explanation of how credit expansion within a globalized financial system moved investments into real estate loans in many parts of the world through the securitization of mortgage debt, causing a significant increase in the price of real estate, which subsequently collapsed. [perhaps the 2007 global financial crisis will help bridge the gap between economics and political science? this chapter will also conclude on the validity of the credit expansion mispricing of mortgage risk hypothesis to explain the 2007 global financial crisis. the crisis will be described from the perspective of political economy.• financial globalization and financial innovation increased the velocity of investment capital gushing through the global financial system. ultimately, the importance of this study lies in making a small contribution to the way the crisis is perceived. [what are the proper roles of government and government institutions in managing systemic crisis?• unstable debt regimes evolved during the so-called great moderation of the 90’s and 2000’s, characterized by financial institutions creating off-balance sheet financial vehicles to circumvent the basel standards, leading to irresponsible levels of leverage. issues of subjectivity in describing the crisis will be discussed in this chapter.

The Regulatory Responses to the Global Financial Crisis: Some

an important component of the credit crisis was the housing bubble – that is, the unprecedented run-up in the price of real estate, particularly residential real estate, in many parts of the world. it led to the rise of the investment banks and the rating agencies to their commanding position in the global economy at the beginning of the twenty-first century, and the proliferation of new financial vehicles and instruments, a readiness to ‘leverage’ every asset whether in the public or private sector, and to make all citizens and organizations ‘financial subjects'” (gamble, 2009:15).[8] the proposed study will provide an in-depth discussion of the theory, including the empirical evidence as provided by kindleberger’s (2000) seminal application and expansion of the theory in studying historical financial crises. will be the argument of the proposed study that the financial instability theory is a political economic theory, covering both dimensions of global resource allocation. mere fact that mortgage loans were securitized and sold throughout an integrated global financial system could not in and of itself cause the credit crisis. it is my contention that credit expansion and the pricing mechanism of risk are to be best understood within a political economic context, since both the power-authority dimension and the production-distribution dimension of the system of resource allocation were in play in expanding credit in the global financial system. smick (2009) and many others, were confounded as to why, at the onset of the crisis, losses and potential losses of at most 0 billion in a global market of hundreds of trillions of dollars had such a severe credit impact. this chapter will also define political economy, and the justification for analyzing the 2007 global financial crisis as a political economic event. the proposal will end with a chapter outline and a time frame for the proposed study. central problem of my proposed study will be to answer the following research question: what caused the 2007 global financial crisis?

The Global Financial Crisis - MIT

Impact of the Economic Crisis on Social, Economic and Territorial

final chapter will summarize the findings of the study, and conclude with the validity of the financial instability theory as an explanatory model of financial crises. surge in interbank medium-term rates was the onset of unprecedented deleveraging throughout the global economy. four: the application of the financial instability theory – the contextual discussion. answering the second research question only tentative observations on government policy related to financial crises will be made in the proposed study. it is outside the study’s purview to explore these debates in depth; however, i share the current criticism of contemporary economic theories relative to the financial crisis, and the proposed study will argue that part of the problem is the shortage of political economic theory – requiring moving away from the narrow focus on the modes of production and distribution only. the proposed study will also make use of journalistic coverage of the crisis in describing the chronology. proposed study will be limited to applying minsky’s financial instability theory, as well as kindleberger’s expansion of the theory, to the 2007 global financial crisis in answering the research question. production processes and financial markets are becoming more international, transcending space. government or central bank decisions to act as lenders of last resort to defuse a crisis are essentially political questions. gamble (2009) aptly describes the rise of the so-called “financial growth model” starting in the 1980s, specifically under the reagan and thatcher governments:“this new financial growth model used tax cuts to stimulate the economy, and it promoted privatization of public assets and deregulation of the private sector, particularly the financial sector.

there is the role of cross-border capital flows – bubbles are more likely to occur when financial capital flows freely from country to country. the study will suffice with highlighting the important factors relevant to government policy gleaned from an understanding of the fundamental causes of the crisis within the theoretical framework to be applied. as gamble (2009:65) argues, the way we perceive a crisis is always a political act, since it authorizes certain courses of action to resolve the crisis and restore stability or create a new order. the second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system. understanding the crisis is critical to the current discussion on the restructuring of global finance. data is scarce regarding the human impact, but it is estimated that there will be 90 million more people living in extreme poverty by the end of 2010 due to the global contraction (alexander, 2009). have been absent posting on the blog due to focusing on the finalization for my research proposal for my graduate thesis.” for instance kindleberger’s application of minsky’s model to many historical financial crises, and his expansion of the model (kindleberger, 2000). the ascent of money – a financial history of the world. in describing the chronology of the crisis, the proposed study will review and include, where applicable, primary data related to the crisis, and conduct interviews with some key individuals affiliated with financial firms that experienced the unfolding of the financial crisis first hand.

the global savings glut was caused by a shifting of investments away from asian countries in the aftermath of the 1997 asian financial crisis; by the accelerated increase in the price of oil, creating massive surpluses of petrodollars; and by the currency management system of some countries, specifically china, creating dollar surpluses in an effort by “currency pegging” countries to keep the value of their currencies artificially low vis-à-vis the us dollar. one takes the entire world as one spatial entity, the global system of resource allocation is characterized by the existence of fragmented sub-systems of power and authority – the nation states[5]; and the increasing integration of the production and distribution of resources spanning national boundaries. securitization is a financial innovation whereby individual debts, like mortgages, are tranched and then bundled together. thursday, august 9, 2007, traders in the international money markets in new york, london and other prominent financial centers experienced a sudden and dramatic surge in interest rates for medium-term interbank loans relative to interest rates for overnight interbank loans (taylor & williams, 2008:1). this chapter will also discuss the event-specific hypothesis of the study, how it fits within the theory, and the hypothesis’ validity in explaining the 2007 global financial crisis. bankers (the generic term minsky uses to depict all financial intermediaries) are key players in his theory as merchants and innovators of debt. (2000) uses minsky’s model and broadens it in his model of financial crisis. minsky conference on the state of the us and world economies – “meeting the challenges of the financial crisis. the proposed study will utilize the broadened kindleberger model in applying the five phases of a financial crisis to the 2007 global financial crisis. is the aim of my proposed study to explain the causes of this financial crisis.