Markets, States and Bubbles

With the onset of FinCR in 2007–08, the relationship between the official authorities and the financial markets entered a new era. In large parts of the western world, regulators and financial institutions had failed to take measures to cool the boom in time to avoid the bust. (Those countries that did weather the storm relatively well, such as Australia and many emerging markets, did so mainly because they had suffered crises of their own in the recent past and had strict regulation, and followed conservative fiscal and monetary policies; there had not been time for memories to fade and defences to be lowered.) Because governments and central bankers held inadequate regulation to be responsible, and because the state could not afford to bail out banks again, the pendulum swung towards much tighter state control. Thus the next stage in the evolution of the GFS could easily mark a return to what economists call ‘financial repression’, that is, state dominance of the financial system with forcible channeling of funds to the state’s coffers. That would suit governments in the short term — they needed the money.