IDEAS home Printed from https://ideas.repec.org/a/eme/qrfmpp/v2y2010i3p137-156.html
   My bibliography  Save this article

The crisis of 2008 and financial reform

Author

Listed:
  • Werner De Bondt

Abstract

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.

Suggested Citation

  • Werner De Bondt, 2010. "The crisis of 2008 and financial reform," Qualitative Research in Financial Markets, Emerald Group Publishing, vol. 2(3), pages 137-156, October.
  • Handle: RePEc:eme:qrfmpp:v:2:y:2010:i:3:p:137-156
    as

    Download full text from publisher

    File URL: http://www.emeraldinsight.com/10.1108/17554171011091728?utm_campaign=RePEc&WT.mc_id=RePEc
    Download Restriction: Access to full text is restricted to subscribers

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Calomiris,Charles W., 2006. "U.S. Bank Deregulation in Historical Perspective," Cambridge Books, Cambridge University Press, number 9780521028387, April.
    2. 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.
    3. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    5. Charles W. Calomiris, 2006. "The Regulatory Record of the Greenspan Fed," American Economic Review, American Economic Association, vol. 96(2), pages 170-173, May.
    6. Posner, Richard A., 2010. "The Crisis of Capitalist Democracy," Economics Books, Harvard University Press, number 9780674062191, December.
    7. 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.
    8. 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.
    9. Michael D. Bordo & John H. Cochrane (ed.), 2018. "The Structural Foundations of Monetary Policy," Books, Hoover Institution, Stanford University, number 3, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
    2. Kornai, János, 2014. "Bevezetés A puha költségvetési korlát című kötethez
      [Introduction to the author s volume entitled Soft Budget Constraint]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 845-897.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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). General contact details of provider: http://www.emeraldinsight.com .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.