Did the financial crisis stem from market failure or government failure? Anti-capitalists argue the market spectacularly failed while conversely capitalists contend that the regulatory framework was responsible for the collapse in financial markets.
Both opinions falsely assumes the so called regulatory framework exists to control the market. In reality this could not be further from the truth.
Increasingly the ‘regulatory framework’ has been about promoting deregulation: the ‘big bang’ in the UK that liberalised financial markets in the mid 1980s; removal of exchange rate controls in the 1990; privatisations of the 1980s and 1990s; and the Basel banking accords encouraging riskier banking models and the promotion lose controls or ‘market discipline’.
There is little doubt the market failed – banks stopped lending even though that’s their primary purpose or raison detre. To deny this is just dogmatic – no matter how elaborate the reasoning. This market failure was not due to government regulation but because of an absence of government regulation. The poachers became the gamekeepers.
This has wider implications for western democratic societies and their ability to look after the interests of all thier citizens over an above those of the capitalist elites who dominate business, government and policymaking.
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