The document discusses different perspectives on the global financial crisis. It first asks where the money went, noting trillions of dollars disappeared from the global financial system. Low interest rates fueled a credit and housing boom until rates rose in 2004, causing defaults. This led to a downward spiral. It then defines a crisis as a critical turning point that leads to change and matters which explanation becomes dominant. Four perspectives are outlined: 1) market fundamentalism blaming government intervention, 2) social democratic regulation arguing neoliberalism went too far, 3) corruption stories of bad actors, and 4) structuralism seeing contradictions in global capitalism as the root cause.

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.