Is the global financial crisis a reflection of capitalism’s systemic problems?

Introduction

One of the world’s leading capitalist economies the US are gripped with the fear of crisis that is caused due to the financial uncertainty. Financial markets during the crisis faced a liquidity crunch affecting the investors long with consumers. The financial problem in the year 2007 affected the international market on a large scale and it took a few characteristics that defined it as a systematic crisis of financial capitalism (Chandrasekhar, 2007). This systematic crisis completed its 38 years of presence in the year 2008. The crisis that affected the economy and the finances in the year 2007 gained the attention of media, corporate along with the policymakers. The intention of the paper is to determine the fact that whether the global financial crisis is a reflection of the capitalism systemic problems.

The essence of the Current Crisis

The global crisis impacted the economies and it started in the middle of the year 2007. The financial crisis was due to the macroeconomic imbalances along with the anomalies that affected the market. There are several factors that contributed to the financial crisis and one such aspect is based upon the ex-ante global saving glut that was due to the redistribution of wealth towards the Gulf States (Ramskogler, 2015). This gave rise to the oil prices and led to long term global depression and low levels of real rates of interest.

Another reason was the sudden increased demand for foreign exchange and financial portfolios, safe financial assets which were not being able to meet the increasing flow. This led to long term risk interest rates thus investors targeting the hurdle rates of return were unable to achieve it through the conventional safe instruments. Investors were seeking for alternatives thus impacting the financial investment opportunities that lead to aggregate failures (Ravenhill, 2017). There are several reasons that led to the current crisis across the globe. The entry of Vietnam and China into the economy which is labor intensive but capital scarce country lifted physical capital formation. Furthermore, it is vital to state that the collapse of the tech affected the economy as it was flooded with excess liquidity. This affected the financial position of the globe and the reason for excess liquidity was not known and the excess liquidity led to credit growth along with asset price (Braga, 2009). These aspects and the regulatory failures led to the financial crisis that impacted the US economy as well.

Global Financial Crisis is a Systemic Crisis of Capitalism

There are several arguments which are reflected upon the reasons and crisis aspects of the global finances. The financial crisis was initiated due to the subprime mortgages crisis in the US. This is one effective crisis that acted as an epicenter of capitalism as it originated in the US in the year 2007. This crisis was gaining attention because of its huge impact over the investors and the policymakers. The impact of the financial crisis has inappropriately fallen upon the poor living style of people in the European countries along with the US (Ramskogler, 2015). The impact of the crisis is severe upon the marginalized sections as it affects the livelihood, health, and food along with the business performances. The present crisis is even worse than the great depression of 1929 because the threat of survival was less along with the related issues. The impact of the environment was less but the degradation today has impacted the scenario. The environmental destruction is also part of the current economic situation that impacts the life of people (Lapavitsas, 2009).

It is argued by Dullien & et. al., (2010) that the ongoing crisis was not strictly restricted to the finances because it not only affected the banks, stock markets but also affected the real economy on a day to day basis. The social unrest was also part of the financial crisis that affected the government due to the social along with political unrest. The crisis created a scenario that impacted the people performances, business along with banks performances. It was critically stated and argued that the ongoing financial crisis was part of capitalism. This can be claimed as free-market policies, speculative instruments along with neoliberalism triggered the crisis but the main cause for the financial crunch is owing to the contradiction of present-day finance-led capitalism (Bresser-Pereira, 2009). The global crisis is created due to the political system allies with the business leading to collapse. The unethical practices and the frauds by the banks were also responsible for the crisis leading to social distress. From the crisis, it has been reflected that capitalism is unstable and is also prone to failure. Capitalism has the power to not only destroy the financial wealth but also the jobs, social security, the productiveness of the business and the real economy (Bartmann, 2017). The impact of the financial crisis was visible across the nation but the impact upon the developing nations such as India is noticeable on a regular basis. The business and MNC get affected and people tend to lose their jobs and the retail business show a negative trend on its sales due to the impact over the purchasing power of people. The savings of people are affected and the loss is more than 50% thus the ability to spend and purchase shows a sharp decline (Bresser-Pereira, 2010). The lending of loans declined due to the overall contradiction of the financial system and economy. The financial crisis impacted the business and government; therefore, the policies were modified to uplift the economy from the crisis. The Western government tried to restore financial stability by implementing policies in the economic financial market. Various bailout packages were initiated and short term stability in the market was part of the restoring actions through the help of the nationalization banks. The public money spent was used to recover the economy from the financial crisis (Braga, 2009). Subsequently, it is argued that the actions by the Western countries to meet the crisis situation is temporary because in these countries use the free market along with private enterprise policies might lead to crisis again.

Considering the global crisis and the capitalism’s systemic problem it can be closely examined that the plans and initiatives by the European countries and the US were to meet the crisis management for the short term and not long term (Ramskogler, 2015). The issue that was faced by the policies was that it was lacking vision along with strategies. It is noted that none of the strategies were effective enough to mitigate the issues related to the financial crisis. In this context, it is noted that various political establishment tried to shift their model from market capitalism to state capitalism model so that whenever a problem arises the solution can be identified from either of the models (Krippner, 2005). Considering upon the aspects of capitalism it is worthy to note that during the big crisis of 1929 the shift was seen from welfare capitalism with New Deal. The idea is to create discipline so that during crisis market is focussed towards the capitalism model so that the control over the resources is effective (Dullien & et. al., 2010).

In the present scenario as argued capitalism mode both private and state have the ability to control people and their resources for greater power. The issues that are faced by this model are regarding the democratic deficit. The main factor during the crisis is to take measures so that the destruction is minimized. The idea is to develop a better economy and market so that the movements are effective in the long run. The capitalism models are vital but it is also not always effective therefore the focus should be towards development. The crisis needs to mitigate by considering the real systematic change through ideas (Chandrasekhar, 2007). The world is changing because of innovation and innovative ideas. Thus the intellectual climate is changing and every policy is being reframed to meet the present market conditions to ensure growth.

Global crisis that was faced was not avoidable as noted by Bartmann (2017) because of the dominance based upon the neoliberal ideas along with the deregulations. The major factor that is witnessed is regarding the competition amid socialism or capitalism affecting the economic terms. Capitalism was losing its effectiveness thus leading to wider issues in the global financial crisis.

Needed Regulation and the Obstacles to Regulated Capitalism

It is witnessed across the globe that financial capitalism gave rise to the unregulated crisis in the year 2007 and 2008. The impact was over the high profile organizations that led to bankruptcies affecting the financial position. One such example is the Bank of America along with the actions taken up by the Central Banks needs to be demonstrated. Systematic risks were faced by the Fed and American Big Banks that involved various public resources leading to deregulations (Bartmann, 2017). There are various factors that impact the economy leading to falling interest rates, liquidity provisions and more. The aspects of capitalism are such that it was facing gold backed dollars along with floating exchange rates under the systematic pattern of capitalism. History has seen various instabilities and the crisis in the past that led to instability in the market and financial movement. It is argued that wealth appreciation has been jammed over the years that led to international depreciation for an uncertain period (Krippner, 2005). The financialization of capitalism created real variation and the structure of capitalism moved on the basis of crisis and share of responsibility. There were several financial factors that impacted the crisis of 2007/2008 thus creating obligation and issues in terms of market performances. According to the views of Braga (2009), over-the-counter markets (OTC) were used years ago to trade the financial derivatives so that the risks can be managed and interest rates are managed. The arbitration is high along with the level of speculation when it comes to financial crisis and capitalism. Banking system along with the shadow banking system affects the securities thus it is interpenetrated in the market. These aspects explain the Intermarket, interlayers along with international generalization that leads to the subprime crisis which acts as a problem. During the global financial crisis, depreciation was seen that is when Central; bank stepped in to make few actions which imply offering liquidity in the credit market. The banks were taking measures by converting convertibles for cash to mitigate the global crisis (Bresser-Pereira, 2010). Even though several measures are taken crisis does exist and the development is based upon the notion of capitalism. Contextually, reforms need to be implemented to limit the financial competitions that lead to wealth multiplication. The main factor is to limit the actions that lead to self-regulation in the markets, derivatives and high leveraging. The complexities of the international and national plans were being engendered by the crisis of capitalist financialization. It is argued that it is not possible to foresee the future outcome and some are of the opinion that capitalism has the dynamics to signal that the worst is being over (Buiter, 2009). The capitalism systemic problems are increasingly gaining support to focus upon the prudent regulations to minimize the credit risk that is embedded. The negative growth, public spending along with the fiscal policies might lead to effective growth but it is witnessed that dynamism of capitalism is facing a systemic crisis. The dynamic structural forms, social economy, and transitions are a few aspects that are dominating the financial wealth. The global crisis was a problem that was faced because financial institutions were insolvents and the federal programs were not offering a proper solid strategy that might positively influence the credit for consumers and business (Blankenburg & Palma, 2009). It is identified that injecting more capital in the system is not a way to meet the crisis situation.

The crisis is stated to be of financial capitalism which was being regulated for the version transactions-oriented model rather than relationship oriented model. The financial system is a combination of the two models thus it is dominant in the market but affects financial capitalism. It is important to state that the financial crisis led to investor loss and created a strong crisis that impacted every household. For effective global development, the models were to be implemented considering upon the market scenario. The systemic capitalism led to the crisis as it led to inequality and affected the reforms (Dullien & et. al., 2010). The capitalism is said to be a failed system because the inequality it creates diving the market into rich and poor with the unequal divisions along with related risks.

Conclusion

Global financial crisis affects the economy, people, business and other social aspects. The crisis leads to the loss of investor and market for the business. It is noted from the analysis that the financial crisis had a global impact and it faced issues due to non performances of banks and business issues. The crisis led to a decline in the interest rates thus impacting people, business and banking services. The impact of the crisis was huge as it changed the rules along with regulations leading to better developments. The relation amid the monetary policies and financial leverage affects the business. From the arguments, it can be clear that the global financial crisis is regarded as a reflection of capitalism systemic problems that are affecting the current situation. The main factor is to improve the market by minimizing the crisis through effective management for growth potential.

References

• Buiter, W.H., 2009. Lessons from the global financial crisis for regulators and supervisors. Discussion paper, 1-47.
• Blankenburg, S. & Palma, J.G., 2009. Introduction: the global financial crisis. Cambridge Journal of Economics, Volume 33, Issue 4, pp. 531-538.
• Bresser-Pereira, L.C., 2010. The Global Financial Crisis and a New Capitalism? Working Paper, No. 592, pp. 1-14.
• Braga, J.C., 2009. The systemic crisis of financial capitalism and the uncertainty of change. Estudos avançados, vol.23 no.65, pp. 1-14.
• Bartmann, R., 2017. Causes and effects of 2008 financial crisis. Academic Research and Writing, pp. 1-12.
• Chandrasekhar, C.P., 2007. Growth and Crises in Contemporary Capitalism. The Marxist, Vol. 23, No. 3, pp. 1-15.
• Dullien, S. & et. al., 2010. The Financial and economic crisis of 2008-2009 and developing countries. United Nations.
• Krippner, G.R., 2005. The Financialization of the American economy. Socio Economic Review, Vol. 3, pp. 173-208.
• Lapavitsas, C., 2009. Financialised Capitalism: Crisis and Financial Expropriation. Historical Materialism, Vol. 17, pp. 114-148.
• Ravenhill, J., 2017. Global Political Economy. Oxford University Press.
• Ramskogler, P., 2015. Tracing the origins of the financial crisis. Journal: Financial Market Trends, pp. 1-17.