The crisis of 2008 and financial reform
AbstractPurpose – The purpose of this paper is to discuss the financial turmoil of 2008 that followed the collapse of the housing bubble in the USA which was the starting point of a global economic crisis. Huge costs are borne by every part of society. Much wealth has been destroyed. Millions of jobs have been lost. The crisis has tarnished faith in free enterprise, in the financial system, and in financial theory. Likely, the era of laissez-faire capitalism that started during the Reagan-Thatcher years is ending. We are entering a period of profound uncertainty. It is imperative that the moral dimension of capitalism be restored. Design/methodology/approach – The paper is based on a review of theory and historical evidence relating to financial bubbles and financial regulation. Findings – The author offers suggestions on how to rebuild the global financial system. We need: a systemic risk regulator, independent from business and political influence; higher capital requirements for all systemically significant financial service firms; restrictions on proprietary trading in commercial banks; transparency in derivatives; new ways to compensate bankers that reduce the incentive to take excessive risks; consumer protection against defective financial products; and the re-establishment of the principle of fiduciary duty. Practical implications – The paper lists practical suggestions on how to reform the global financial system. Social implications – Economic success is based on trust. After the 2008 crisis, regulatory reform is the best way to rebuild trust in the financial system. Originality/value – The paper offers a unique perspective based in part on insights drawn from behavioral finance.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Qualitative Research in Financial Markets.
Volume (Year): 2 (2010)
Issue (Month): 3 (October)
Pages: 137 - 156
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:fip:fedlps:y:2008:x:3 is not listed on IDEAS
- Calomiris,Charles W., 2006.
"U.S. Bank Deregulation in Historical Perspective,"
Cambridge University Press, number 9780521028387, November.
- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-19, June.
- Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't The US Have a European-Style Welfare State?," Harvard Institute of Economic Research Working Papers 1933, Harvard - Institute of Economic Research.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, May.
- Posner, Richard A., 2010. "The Crisis of Capitalist Democracy," Economics Books, Harvard University Press, number 9780674062191, December.
- Charles W. Calomiris, 2006. "The Regulatory Record of the Greenspan Fed," American Economic Review, American Economic Association, vol. 96(2), pages 170-173, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Harris).
If references are entirely missing, you can add them using this form.