Finanzmarktkrise: Marktversagen oder Staatsversagen? / Financial crisis: Failure of markets or politics?

Michler Albrecht F. and Thieme H. Jörg

ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, 2009, vol. 60, issue 1, 185-222

Abstract: In the first six month of 2009 the worldwide economic situation is characterised by a double burden: On the one hand the financial crisis is still on-going with limit signs of any recovery. The crisis which arose in the subprime segment of the US mortgage market extended due to the international integration of financial markets. On the other hand signs of increasing inflation, with the potential for more to come in the USA since middle of 2004 and later in Europe and Asia, have forced central banks to introduce a phase of very restrictive monetary policy. With time lags the monetary policy has caused significant negative real economic effects. Both developments overlap.In this paper the different escalation stages of the financial crises are initially indicated and - against the background criteria of a functioning financial system - are followed by an analysis of the ordinal-political and process-political undesirable developments in the financial markets over the past decades. They are identified as the most important causes of the monetary and real economic undesirable trends: Varied state regulations have created deficits of the basic regulatory framework of the finance markets by which competitive processes were hindered and ineffective evasive reactions of the participants at the financial markets were rewarded. Moreover wrong liability rules of the decision makers in the financial institution have substantially contributed to these behaviours. The financial policy of many countries and in particular short-term process interventions of the monetary policy of central banks have put massive false incentive in place for the market participants and have caused mismatching within the loan market players.In a critical analysis numerous proposals are suggested for overcoming the current financial crisis and possible options for the improvement of the long-term regulatory framework are indicated. Whilst they cannot fully remove the risks of future financial crisis, they can help reduce them.

Date: 2009
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DOI: 10.1515/ordo-2009-0111

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