ThE FINANcIAl AND EcONOmIc crISISfour 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.
The Regulatory Responses to the Global Financial Crisis: Somean 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). 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?
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; 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.