Collapse. The story of the international financial crisis, its causes and policy consequences

Stellenbosch Working Paper Series No. WP02/2011
 
Publication date: 2011
 
Author(s):
[protected email address] (Department of Economics, University of Stellenbosch)
 
Abstract:

This paper is the story of success and failure in the financial markets, the markets for goods and services and in politics. It is a difficult story to tell because the crisis had many causes, but the focus here is on three main factors. First, the incentives that contributed to a credit-fuelled bubble, especially in property markets. Monetary and regulatory policies feature prominently in this part of the story. Second, because the housing bubble alone cannot explain the magnitude of the subsequent events, gearing in the financial sector, which affected asset markets unrelated to sub-prime mortgages will be examined. These developments are explained by reference to private financial sector decisions, including the role of the shadow-banking sector, and their regulatory backdrop. Finally, an answer will be sought to the question of how highly geared banks first became fragile and then failed with such dire consequences for the economy that massive policy intervention had become essential. The consequences of these large policy interventions and the international tensions caused by them are also explored.

 
JEL Classification:

G01, G20, G28, E58

Keywords:

Financial crisis, Banks, Financial regulation, Monetary policy, Fiscal policy, Currency wars

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27 September 2021
Besides the escalating woes at leading Chinese property group Evergrande, global and domestic financial markets were focused on a slew of central bank policy meetings last week. ...

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BER Weekly

27 September 2021
Besides the escalating woes at leading Chinese property group Evergrande, global and domestic financial markets were focused on a slew of central bank policy meetings last week. ...

Read the full issue