The crisis of 2008 and financial reform
Purpose - 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.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 2 (2010)
Issue (Month): 3 (October)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=qrfm Email:
References listed on IDEAS
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.:
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Charles W. Calomiris, 2006. "The Regulatory Record of the Greenspan Fed," American Economic Review, American Economic Association, vol. 96(2), pages 170-173, May.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009.
"This Time Is Different: Eight Centuries of Financial Folly,"
Princeton University Press,
edition 1, number 8973.
- 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.
- Calomiris,Charles W., 2006.
"U.S. Bank Deregulation in Historical Perspective,"
Cambridge University Press, number 9780521028387, December.
- Saez, Emmanuel, 2009. "Striking it Richer: The Evolution of Top Incomes in the United States (Update with 2007 estimates)," Institute for Research on Labor and Employment, Working Paper Series qt8dp1f91x, Institute of Industrial Relations, UC Berkeley.
- John B. Taylor, 2009. "Getting Off Track - How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis," Books, Hoover Institution, Stanford University, number 3.
- George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
- Posner, Richard A., 2010. "The Crisis of Capitalist Democracy," Economics Books, Harvard University Press, number 9780674062191.
When requesting a correction, please mention this item's handle: RePEc:eme:qrfmpp:v:2:y:2010:i:3:p:137-156. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.