The power and instability of the financial system, fuelled by decades of deregulation
and liberalization, have been demonstrated impressively by the current financial
crisis. Some commentators see in this system a disembedding of society and markets, predicting a new Polanyian ‘double movement’ that returns power to the state. However, the idea of the ‘powerless state’ is not applicable, as states consciously embedded their citizens in the financial markets in order to shift social welfare responsibilities to individual asset-owners. This gave financial markets control over financial dynamics, which was used to create profits through innovation and disproportionate risk-taking. As a consequence, small changes in financial variables caused the international financial crisis, and governments felt compelled to bailout overleveraged financial institutions deemed ‘too big to fail’. Hyman Minsky described many of these developments in his ‘financial instability hypothesis’. As bailouts are only temporary measures to uphold the status quo, he calls for increased state control over the financial markets in order to prevent excessive speculation in the future. Many regulatory proposals created following the onset of the crisis echoed this demand, envisioning a paradigmatic shift that could reverse the trend of deregulation in pre-crisis years. However, the reliance of the state on the financial
sector to support the system of ‘asset-based welfare’ proved to be resilient enough to withstand the initial crisis. Now, signs of recovery create new priorities that displace demands for financial regulation. The financial markets thus retain their central position, albeit with a few self-regulatory obligations, and a change in state/market relations is unlikely to occur.
Inhaltsverzeichnis (Table of Contents)
- Abstract
- Introduction
- Deregulation, embedding and systemic risk
- From systemic risk to state intervention
- Regulatory proposals and the return of the state?
- Resilience of the financial system and the new status quo
- Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This essay examines the role of state/market relations throughout the financial crisis. It argues that the financial crisis was a consequence of decades of deregulation and liberalization, which led to an increased reliance on the financial sector for social welfare. The essay analyzes how the state, through its policies, consciously embedded society in the financial markets, thereby creating systemic risk and ultimately contributing to the crisis.
- The impact of deregulation and liberalization on the financial system
- The role of the state in embedding society in the financial markets
- The consequences of systemic risk and the rise of financial instability
- The response of the state to the financial crisis, including bailouts and regulatory proposals
- The resilience of the financial system and the challenges to achieving meaningful regulatory reform
Zusammenfassung der Kapitel (Chapter Summaries)
The essay begins by analyzing the consequences of deregulation and liberalization in the financial sector, highlighting the role of the state in creating a "financial society" where individuals are deeply embedded in financial markets. Chapter two examines the systemic risks created by this reliance on financial markets and how these risks contributed to the onset of the financial crisis. The essay then discusses the state's response to the crisis, including massive public bailouts, and the emergence of regulatory proposals aimed at increasing state control over the financial sector. Finally, the essay analyzes the resilience of the financial system and the challenges to achieving a significant change in state/market relations, arguing that the financial markets retain their central position despite the crisis.
Schlüsselwörter (Keywords)
This essay explores the complex relationship between the state and financial markets, focusing on key concepts such as deregulation, liberalization, systemic risk, financial instability, bailouts, regulatory proposals, and state/market relations. The essay draws upon the work of prominent economists like Hyman Minsky and the "financial instability hypothesis" to analyze the causes and consequences of the financial crisis.
- Quote paper
- Matthias Baumgarten (Author), 2011, Banks, Bailouts and Liberal Markets, Munich, GRIN Verlag, https://www.grin.com/document/187924
