Recurring Financial Crises—The Causes

Hossein Askari () and Abbas Mirakhor
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Abbas Mirakhor: International Centre for Education in Islamic Finance (INCEIF)

Chapter 2 in The Next Financial Crisis and How to Save Capitalism, 2015, pp 16-34 from Palgrave Macmillan

Abstract: Abstract A financial crisis is manifested as a crash in any number of asset prices or as a banking crisis and a freezing of credit. These crises have serious economic fallout—sharp and prolonged decline in economic output and a spike in unemployment—as an impaired financial system spares no sector of the economy and deleveraging takes time. There is no shortage of explanations for financial crises: moral failure, fraud, Ponzi schemes, lax regulations, supervision and enforcement, prolonged period of low interest rates, government bailouts of “too big to fail” institutions enabling excessive risk taking, economic shocks, animal spirits, rapid rise in debt, and the list goes on. To our mind, the real culprits of financial crises are (i) preeminence of interest-rate-based debt contracts and (ii) fractional reserve banking.

Keywords: asset bubbles; contagion; debt; financial crises; interest; leverage (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-54437-7_2

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DOI: 10.1057/9781137544377_2

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