The global financial crisis and the shift to shadow banking

Yeva Nersisyan and L. Randall Wray
Additional contact information
Yeva Nersisyan: University of Missouri-Kansas City, USA

European Journal of Economics and Economic Policies: Intervention, 2010, vol. 7, issue 2, 377-400

Abstract: While most economists agree that the world is facing the worst economic crisis since the Great Depression, there is little agreement as to what caused it. Some have argued that the financial instability we are witnessing is due to irrational exuberance of market participants, fraud, greed, too much regulation, etc. However, some post-Keynesian economists following Minsky have argued that this is a systemic problem, a result of internal market processes that allowed fragility to build over time. In this paper we focus on the shift to the 'shadow banking system' and the creation of what Minsky called the Money Manager phase of capitalism. In this system, rapid growth of leverage and financial layering allows the financial sector to claim an ever rising proportion of national income – what is sometimes called 'financialization' – as the financial system evolved from hedge to speculative and finally to a Ponzi scheme. The policy response to the financial crisis in the US and elsewhere has largely been an attempt to rescue money manager capitalism. Moreover, in the case of the US the bailout policy has contributed to further concentration of the financial sector, increasing dangers. We believe that the policies directed at saving the system are doomed to fail – and that alternative policies should be adopted. The effective solution should come in the way of downsizing the fi - nancial sector by two-thirds or more, and effecting fundamental modifications.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.elgaronline.com/view/journals/ejeep/7-2/ejeep.2010.02.12.xml (application/pdf)

Related works:
Working Paper: The Global Financial Crisis and the Shift to Shadow Banking (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:elg:ejeepi:v:7:y:2010:i:2:p377-400

Access Statistics for this article

European Journal of Economics and Economic Policies: Intervention is currently edited by Torsten Niechoj

More articles in European Journal of Economics and Economic Policies: Intervention from Edward Elgar Publishing
Bibliographic data for series maintained by Phillip Thompson ().