Structural Causes to the Financial Crisis and their Discontents

James Crotty has argued that the crisis of 2007–8 was cause by structural issues in the economy, mainly derived from the deregulation in financial markets that came into being during the Reagan and Thatcher years which were given rhetorical firepower and ideological backing from economics theorists like Milton Friedman and Eugene Fama. In both “The Realism of Assumptions Does Matter: Why Keynes-Minsky Theory Must Replace Efficient Market Theory as the Guide to Financial Regulation Policy” (2011) and Crotty an earlier 2008 paper, “Structural Causes of the Global Financial Crisis: A Critical Assessment of the ‘New Financial Architecture,” Crotty develops these arguments. In 2008, Crotty wrote “Central banks and other regulatory bodies will be forced to take whatever interventions are required to stop the financial and possible economic collapse — no matter how high the cost” (53). In the next sentence he says, “the dynamic of deregulation leading to financial booms that eventuate in crisis that lead to bailouts and thus to yet larger booms roll on.” Here we find the root of the argument that he makes in the papers. The ideology surrounding finance is such that architecture leads to people working in the margins, doing what they can to generate more cash for themselves. And then periodically it will blow up. The playbook then is not to use the crisis as an impetus to reform the system, but instead to shovel more money at the very system that just failed in order to paper over the real problems and to let the rot continue.