Different approaches to the causes and consequences of the financial crisis
Unquestionably the behavior of the financial institutes caused the US financial crisis which became a worldwide phenomenon. It is too easy but not enough to blame greedy banker (though not superfluous). The subprime crisis was the consequence of the profit-seeking activity of the different financial institutions (which belongs to the logic of the market). What happened was not against the market but according to the logic of the market. There were some mistakes in functioning of the market institution which must be corrected. These distortions were caused mainly by the intervention of the states. Competitiveness in the sector was confused by the belief that some big institutions will be saved by the state because they are too big to fail. (And at the end they were not disappointed, that was what happened.) According to Raghuram Rajan the fault lines causing the crises lay in the income situation of the society and in the government interventions. According to him too much state in business should be reduced. Financial institutions should take the responsibility of their activity, state should not rescue them, and probably only the very small institutions should have even deposit insurance. The customers of the financial institutions should learn to make differences between correct and too much risk-taking institutions. Another famous American expert, Richard Portes doesn’t share his views about too much state. He says the deregulation process which started in the early seventies has the main responsibility. There is much more state regulation necessary within and between states, maybe not in the midst of the crises but soon afterwards. Both scientists agree that the remuneration system of the financial sector employees should be changed and bound to the long term effect of their activity.
|Date of creation:||2012|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:40334. 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: (Joachim Winter)
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.