Understanding The Financial Crisis - Andrew Baker
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Understanding The Financial Crisis - Andrew Baker






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Understanding The Financial Crisis - Andrew Baker Presentation Transcript

  • 1. Andrew Baker Reader in Political Economy School of Politics, International Studies and Philosophy Queen’s University Belfast
  • 2. Three questions
    • Where did all the money go to?
    • What does it actually mean to talk of a crisis?
    • What main interpretations of the crisis have been advanced and what are the intellectual foundations?
  • 3. Where did all the money go?
    • A $2 trillion -$11 trillion hole in the global financial system
    • A starting point is the 9/11 attacks which created climate for low interest rates world wide and consumer/ credit boom in the US and other Anglophone economies
    • Banks borrow cheaply by issuing ABCP and investing in high yield but potentially high risk securities – MBS, CDOs and CDS
    • Supersized rentierism on steroids?
  • 4. Where did all the money go?
    • Price of world oil goes up from 2004, central banks raise interest rates – Fed, BoE, ECB
    • Heavily indebted consumers and householder default on loans – a glut of credit becomes a trickle – herding and a downward spiral
    • The case of the REPO market in the United States and the small problem of 500 million handguns
    • The paradox of credit – it is most plentiful, when it is least needed and scarce and almost non existent when it is most needed – ‘procyclicality’
    • The private debt disaster has become a public debt problem – banks - ‘bank on the state’ – but what about round 2?
  • 5. What is a crisis?
    • A medical term referring to the critical turning point in a disease or condition (is the patient going to die?)
    • Financial crises can be conceived of as critical turning points that lead to change
    • A crisis is a political moment in which there is a competition over the meaning of the event and the type of change that necessitates
    • It therefore matters which explanation of the crisis become dominant
  • 6. 4 Perspectives
    • 1. The market fundamentalist libertarian perspective
    • The market as a spontaneous morally superior social order
    • Government intervention creates moral hazard
    • Governments should not put a floor under a crash
    • Governments should focus on enforcing contracts and sound money
    • The crash caused by government intervention politicizing the housing market in the United States
  • 7. 4 perspectives
    • 2. The Social Democratic Regulatory perspective
    • Neoliberalism and free markets have gone too far – efficient market theories are the problem
    • Financial markets are prone to myopia and herding and go to extremes
    • Governments need to regulate them through counter cyclical policy and to need to simplify the system – simple systems are more stable than complex ones.
    • The need for a new growth model based on different political and social relationships – different to the Anglo Liberal financialised growth model
    • Current problem is a lack of demand. Austerity is designed to fuel the old model.
  • 8. 4 perspectives
    • 3. The Corruption or bad apple story
    • Greed drives criminal or corrupt behaviour
    • Ponzi schemes and mis-selling of products
    • Too simple – misses the point?
  • 9. 4 perspectives
    • 4. The structuralist or anti-capitalist perspective
    • Contradictions and structures of global capitalism are at fault – global circuits of capital, surplus countries recycling to debtor states brought about the crisis
    • A nice cycle until western consumers start defaulting on their loans
    • Cheap consumer goods dry up – inflation and prices rise – rising prices + stagnant wages + cuts in services (austerity) = social unrest and class politics
    • Banks need to be nationalised and used as a public utility rather than private profit machines
    • Alternative forms of economic organization not for profit companies, mutuals, trusts, community ownership – small scale local economies that are environmentally sustainable.