FINANCIAL MELTDOWN

The impact of economical/financial meltdown on consumers spending behaviour in uk: case study of Tesco, Asda and Argos costomers

The impact of economical/financial meltdown on consumers spending behaviour in uk: case study of Tesco, Asda and Argos costomers

Introduction

The large and far reaching global financial crisis has naturally given rise to a wide variety of responses and reflections. The causes, consequences and implications have all been extensively debated and many authors have made recommendations as to future policy. The status quo in both the academic and practical approaches to economics and finance is rightly up for debate in a way that has not occurred for many decades. As one would expect, there is not complete consensus on either the diagnosis of the underlying problems or their solution. However, given the magnitude of the crisis a range of views can only be welcomed. Informed commentators have advocated actions ranging across a spectrum from making some modest reforms to the financial regulatory system to fundamentally reassessing our entire approach to politics, economics and ethics.

The recent special issue of this journal dealing with the crisis included articles containing a wide spectrum of opinions and this paper initially seeks to draw out the main themes of the debate and then place them in the context of subsequent events and consider what conclusions can be drawn both for future policy and for the conduct of future academic research related to these issues. In the next section of the article we give some background to the crisis and in the subsequent sections we review some of the different perspectives on the crisis, consider the implications for academic research and finally present conclusions.

Background

It is generally accepted that the present financial meltdown, originating in the USA, primarily stems from excessive risk-taking in the financial system. Homeowners took out risky loans that were pushed by greedy loan brokers and lenders who cared little about the riskiness of these loans as they would be packaged and sold off as residential mortgage-backed securities (RMBS) not allowing their buyers to know exactly what default risk was attached to them. So those who issued the mortgages (and had done the risk assessment) passed on the risks to others - mostly sophisticated investors like financial institutions whose eventual losses due to mortgage defaults created systemic risks for other participants in the financial markets. Unlike the 1929 crisis, this is not a liquidity crisis, but a solvency crisis due to a lack of faith in the ability of borrowers to repay their debts, the inability of the market to value the toxic assets and hence the lack of credibility of balance sheets.

However a number of myths have grown up around the crisis. One myth that has to be demolished is that the state was a passive spectator to the events. As Aalbers (2008) argues, the state enabled both securitization and subprime lending. Gotham (2006) analyses the deregulation of the mortgage market and shows that the federal government, for example, through the Financial Institutions Reform, ...