Paved with good intentions: Misdirected idealism in the lead-up to 2008’s GFC

Abstract

Irresponsible lending practices on the part of financial institutions and proliferation of tradable derivatives were key causal agents of the 2008 financial crisis. However, it is less clear why, historically, loose credit arrangements were so widespread. Somewhat misleadingly, much conjecture has laid blame at the feet of financial institutions themselves. While it is true that duplicitous and even corrupt lending practices were consequential antecedents of the crisis, a legacy commitment to certain – laudable – elements of New-Dealism created context for these elements to become established. To understand really what went wrong, it is necessary to look back before the 2000s and appreciate the interaction that was occurring between a long-term policy commitment to neoliberalism and piecemeal/fragmented application of approaches that aimed to assist financially disadvantaged people. Using the analogy of heart-attack pathology to guide some of its analysis, this essay argues for better policy-integration.

JEL Codes: G01, G2, F66, H12, J52

Keywords

Business cycle collective bargaining economic stimulus employment conditions global financial crisis globalisation industrial relations Keynesian economics/theory labour markets

Get full access to this article

View all access options for this article.

References

Acharya

Richardson

(2009) Causes of the financial crisis. Critical Review 21(2–3): 195–210.

Austrade (2008) Australian trade commission annual report 2007–08. Sydney: Austrade.

Basso

Calabrese

Corrado

et al . (2001) Postmortem diagnosis in sudden cardiac death victims: macroscopic, microscopic and molecular findings. Cardiovascular Research 50(2): 290–300.

Bhagat

Bolton

(2014) Financial crisis and bank executive incentive compensation. Journal of Corporate Finance 25: 313–341.

Booth

Beenstock

Butler

(2009) Verdict on the Crash: Causes and Policy Implications. London: Institute of Economic Affairs.

Bordo

Landon-Lane

(2010) The global financial crisis of 2007–08: is it unprecedented? Working paper 16589, December. New York: National Bureau of Economic Research (NBER).

Boyer

(2009) La crise économique et ses conséquences sur l’emploi. Les cahiers de l’institut économique de Montréal, Montreal, QC, Canada, December. Available at: http://www.iedm.org/files/cahier1209_fr_0.pdf (accessed 10 October 2018).

Braedley

Luxton

(2010) Neoliberalism and Everyday Life. Montreal: McGill-Queens University Press.

Campbell

(2012) America the undertaxed: U.S. Fiscal policy in perspective. Foreign Affairs 91(5): 99–112.

10.

Case

Coates

(2017) Fear and despair: consequences of inequity. In: Plough

(ed.) Knowledge to Action: Accelerating Progress in Health, Well-being and Equity. New York, NY: Oxford University Press, 9–20.

11.

Case

Deaton

(2017) Suicide, age, and wellbeing: an empirical investigation. In: NBER (ed.) Insights in the Economics of Aging, NBER working paper 21279. Chicago, IL: University of Chicago Press, 307–334.

12.

Case

Quigley

(2008) How housing booms unwind: income effects, wealth effects, and feedback through financial markets. International Journal of Housing Policy 8(2): 161–180.

13.

Case

Quigley

Shiller

(2012) Wealth effects revisited 1975–2012. IDEAS Working Paper Series from RePEc, St. Louis, MO. Available at: http://ideas.repec.org/p/cwl/cwldpp/1884.html

14.

Chapman

(1998) Proposition 13: some unintended consequences. Paper, Public Policy Institute of California. Available at: http://www.ppic.org/content/pubs/op/OP_998JCOP.pdf (accessed 10 October 2018).

15.

Coibion

Gorodnichenko

(2011) Monetary policy, trend inflation, and the great moderation: an alternative interpretation. American Economic Review 101(1): 341–370.

16.

Combe

(1996) Précis d’économie. Paris: Presses universitaires de France.

17.

Community Reinvestment Act (1977) Public law 95-128, Title VIII, Sec. 802, Oct. 12, 1977, 91 Stat. 1147.

18.

Connell

(2010) Understanding neoliberalism. In: Braedley

Luxton

(eds) Neoliberalism and Everyday Life. Montreal: McGill Queens Press, 22–36.

19.

Crawford

(2011) The repeal of the Glass-Steagall Act and the current financial crisis. Journal of Business and Economics Research 9(1): 127–133.

20.

Crotty

(2000) Slow growth, destructive competition, and low road labor relations: a Keynes-Marx-Schumpeter analysis of neoliberal globalization. In: KDEA-KSESA joint international conference on the future of the Korean economy in the context of globalizing capital, Suanbo, Korea, 22 June, 1–54. Amherst, MA: Political Economy Research Institute.

21.

Crotty

(2008) Structural causes of the global financial crisis: a critical assessment of the new financial architecture. Cambridge Journal of Economics 33(4): 563–580.

22.

Davis

(2011) Regulatory reform post the global financial crisis: an overview. Report for the Melbourne APEC Finance Centre and the APEC Study Centre Regional Symposium: Enhancing Financial Policy and Regulatory Cooperation Responses to the Global Financial Crisis, Melbourne, VIC, Australia, 8–9 March.

23.

Demyanyk

Van Hemert

(2009) Understanding the subprime mortgage crisis. The Review of Financial Studies 24(6): 1848–1880.

24.

Essenburg

(2014) The New Faces of American Poverty: A Reference Guide to the Great Recession. Goleta, CA: ABC-CLIO.

25.

Fairbrother

Rainnie

(2006) Globalisation, State and Labour. London: Routledge.

26.

Genter

(1983) Structure mapping: a theoretical framework for analogy. Cognitive Science 7(2): 155–170.

27.

Getter

(2015) The effectiveness of the Community Reinvestment Act. CRS Report for Congress, 7 January. Washington, DC: Congressional Research Service.

28.

Gould

(2014) Le travail et l’emploi après la crise globale financière: émergence d’un nouveau agenda de recherche dans un monde en état de choc [Work and employment relations after the global financial crisis: emergence of a new research agenda in a shell-shocked world]. In: Thwaites

(ed.) La Mondialisation: origines, développement et effets. Québec: Les Presses de l’Université Laval, 300–314.

29.

Gould

Lokrou

(2012) The global financial crisis providing a new normal in an already globalised world: a time to refurbish employment relations theory. In: 49th annual conference of the Canadian Industrial Relations Association, Calgary, AB, Canada, 29–31 May.

30.

Gramm-Leach-Bliley Act (1999) Public Law 106-102, 113 Stat. 1338.

31.

Haughwout

Okah

(2009) Below the line: estimates of negative equity among nonprime mortgage borrowers. Federal Reserve Bank of New York: Economic Policy Review, July. Available at: https://www.newyorkfed.org/medialibrary/media/research/epr/09v15n1/0907haug.pdf (accessed 10 October 2018).

32.

Holmes

Horvitz

(1994) Mortgage redlining: race, risk, and demand. The Journal of Finance 49(1): 81–99.

33.

Issawi

(1979) The 1973 oil crisis and after. Journal of Post Keynesian Economics 1(2): 3–26.

34.

Kauder

Potrafke

(2015) Globalization and social justice in OECD countries. Review of World Economics 151(2): 353–376.

35.

Kemp

Conte

(2012) The pathophysiology of heart failure. Cardiovascular Pathology 21(5): 365–371.

36.

Kolm

(1977) La grande crise de 1974. Annales. Économies, Sociétés, Civilisations 32(4): 815–823.

37.

Krieger

(2008) Proximal, distal, and the politics of causation: what’s level got to do with it? American Journal of Public Health 98(2): 221–230.

38.

Kroszner

(2008) The Community Reinvestment Act and the recent mortgage crisis. Board of Governors of the Federal Reserve System. Available at: https://www.frbsf.org/community-development/files/cra_recent_mortgage_crisis1.pdf (accessed 10 October 2018).

39.

Labonte

(2018) Monetary policy and the Federal Reserve: current policy and conditions. CRS Report for Congress, Congressional Research Service, Washington, DC, 9 January.

40.

LeQueux

Peetz

(2013) Between ‘too big to fail’ and ‘too small to matter’: the borderless financial crisis and unions. International Journal of Manpower 34(3): 198–212.

41.

LoDuca

Stracca

(2014) The effect of G20 summits on global financial markets. Working Paper Series No. 1668, April. European Central Bank. Available at: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1668.pdf (accessed 10 October 2018).

42.

Lokrou

Gould

(2014) Sunny days, rainy days and hurricanes: the consequences of catastrophic economic events for work and employment relations. In: 51st annual conference of the Canadian Industrial Relations Association, St. Catharines, ON, Canada, 29–31 May.

43.

Mayer

(1975) The Bankers. New York, NY: Weybright and Talley.

44.

Mayer

(2009) On credit default swaps. Comment at American Institute of Economic Research, 25 June. Available at: https://ritholtz.com/2009/07/martin-mayer-on-credit-default-swaps-comments-at-aier-june-25-2009 (accessed 5 November 2018).

45.

McDonnell

Burgess

(2013) The impact of the global financial crisis on managing employees. International Journal of Manpower 34(3): 184–197.

46.

Mishel

Bivens

Gould

et al . (2012) The State of Working America. Ithaca, NY: Cornell University Press.

47.

Moody

(2007) US Labor in Trouble and Transition: The Failure of Reform from Above, the Promise of Revival from below. London: Verso Books.

48.

Park

Gould

(2017) The overlooked influence of personality, idiosyncrasy and eccentricity in corporate mergers and acquisitions: 120 years and six distinct waves. Journal of Management History 23(1): 7–31.

49.

Piketty

(2014) Capital in the 21st Century. Cambridge, MA: Harvard University Press.

50.

Putnam

(2001) Social capital: measurement and consequences. Canadian Journal of Policy Research 2(1): 41–51.

51.

Schularick

Taylor

(2012) Credit booms gone bust: monetary policy, leverage cycles, and financial crises, 1870–2008. American Economic Review 102(2): 1029–1061.

52.

Schwartz

(2009) Origins of the financial market crisis of 2008. In: Booth

Alexander

Beenstock

et al . (eds) Verdict on the Crash: Causes and Policy Implications. London: Institute of Economic Affairs, 45–50.

53.

Simkovic

(2013) Competition and crisis in mortgage securitization. Indiana Law Journal 88(1): 213–272.

54.

Strickland

(2004) The proposed regulatory changes to Fannie Mae and Freddie Mac: an analysis. North Carolina Banking Institute 8(1): 267–288.

55.

Tarr

(2010) The political, regulatory, and market failures that caused the US financial crisis: what are the lessons? Journal of Financial Economic Policy 2(2): 163–186.

56.

Tickell

Peck

(2003) Making global rules: globalization or neoliberalisation. In: Peck

Yeung

(eds) Remaking the Global Economy. London: SAGE, 163–182.

57.

Torres

(2010) Incomplete crisis responses: socio-economic costs and policy implications. International Labour Review 149(2): 127–137.

58.

Weisbrot

Ray

(2011) The scorecard on development, 1960–2010: closing the gap? Working paper no. 106. New York, NY: Department of Economic and Social Affairs.

59.

Wilkinson

Pickett

(2010) The Spirit Level: Why Equality Is Better for Everyone. London: Penguin Books.

60.

Wilmarth

Jr (2002) The transformation of the U.S. financial services industry, 1975–2000: competition, consolidation, and increased risks. University of Illinois Law Review 2002(2): 215–476.