Global Financial Crisis

Global Financial Crisis



Global Financial Crisis

Understanding the discursive nature of the crisis diagnosis is critical as it determines the ways in which constituents respond to the crisis and address necessary steps to fix the problem. Mainstream neoclassical/institutional economics and Marxist economics differ substantially in terms of both their understanding of the crisis and their spatial and temporal implications. Mainstream economists attribute crisis to temporal failures in the localized system or to partial malfunction of the financial system (for instance, the credit crunch and failures of financial institutions due to defaulting of subprime loans in the U.S. housing sector). Resolution of the crisis, thus, would involve either reform of the localized system or reinforcement of supervision in the failing segments of the economic system so that natural market mechanisms could be restored. Ironically, mainstream resolution of crises has been more dependent on the workings of the state, including nationalization of failing financial firms or injection of public funds into failing financial firms, than on self-restoring market mechanisms.

The recession began in the American housing market but in this case the cause was not tight monetary policy. Rather, it was the collapse of the housing bubble of the financial crisis. Investment growth in residential housing slowed to near zero in late 2005, before turning negative in the first quarter of 2006. The first quarter of 2006 saw a 3.6% decline, and another 16.6% drop in the second quarter. This double-digit negative slide has yet to come to an end. Residential investment posted a 22.8% decline in the fourth quarter of 2008 and a 32.8% decline in the first quarter of 2009. This acceleration is ominous as most recoveries begin where they started in the housing market of United States. It is hard to see a sustained recovery occurring until the housing market ...