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Main and Contributory Causes of the Recent Financial Crisis and Economic Policy Implications

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Emerging Economies During and After the Great Recession

Part of the book series: International Papers in Political Economy Series ((IPPE))

Abstract

We locate the main causes of the recent financial crisis on three factors. The first two of these were financial liberalization and its associated distributional effects (redistribution from wage earners to the financial sector) in the US and elsewhere. Both of these factors gave substantial impetus to the development and extension of new forms of securitization and the use of derivatives. This financial engineering practice, the third main factor, led to the growth of the instruments labelled as collateralized debt obligations (CDOs), particularly in the form of collateralized mortgages. There were also three contributory factors, which exacerbated the process of the main causes: the international imbalances, mainly as a result of the growth of China; the monetary policy pursued by countries over the period leading to the crisis; and the role played by the credit rating agencies. We discuss the economic policy implications of the financial crisis before we summarize and conclude.

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  1. University of Cambridge, UK

    Philip Arestis

  2. University of the Basque Country, Spain

    Philip Arestis

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  1. Cambridge Centre for Economic and Public Policy, University of Cambridge, UK

    Philip Arestis (Director of Research and Professor of Economics) (Director of Research and Professor of Economics)

  2. University of the Basque Country, Spain

    Philip Arestis (Director of Research and Professor of Economics) (Director of Research and Professor of Economics)

  3. University of Leeds, UK

    Malcolm Sawyer (Emeritus Professor of Economics) (Emeritus Professor of Economics)

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Arestis, P. (2016). Main and Contributory Causes of the Recent Financial Crisis and Economic Policy Implications. In: Arestis, P., Sawyer, M. (eds) Emerging Economies During and After the Great Recession. International Papers in Political Economy Series. Palgrave Macmillan, London. https://doi.org/10.1057/9781137485557_1

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