A Financial Crisis Manual Causes, Consequences, and Lessons of the Financial Crisis
AbstractOn the fifth anniversary of the beginning of the Great Recession, there is still no consensus on the lessons to be gleaned from the lingering crisis. What provoked the largest financial and economic collapse in decades? While the housing bubble and subprime mortgage lending boom provide clear proximate causes, skewed financial sector incentives, errant economic assumptions, and inequitable socioeconomic structures laid the groundwork for crisis. The complex web of underlying factors extends from a 1960s-era economic hypothesis to the deregulation of interstate banking to a shift in how Wall Street CEOs are paid. This paper traces that causal web for a generalist audience, summarizes how the financial crisis morphed into an economy-wide recession, and synthesizes proposals for how to prevent its recurrence. Such proposals are not limited to efforts to rein in Wall Street, as exemplified by the sweeping Dodd-Frank financial reform law, but also include initiatives to harness Wall Street’s vast resources for the needs of the real economy. Meanwhile, the crisis amplified calls to address crisisprone disequilibria in the U.S. economy, and to alter the study of economics itself. As the country continues to grapple with the economic fallout of financial meltdown, such proposals merit continued discussion.
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Bibliographic InfoPaper provided by GDAE, Tufts University in its series GDAE Working Papers with number 12-06.
Date of creation: Dec 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
- NEP-HPE-2013-01-07 (History & Philosophy of Economics)
- NEP-PKE-2013-01-07 (Post Keynesian Economics)
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