Derivatives traders at the Chicago Board of Trade
On October 15, 2008, Anthony Faiola, Ellen Nakashima, and Jill Drew wrote a lengthy article in the Washington Post titled, "What Went Wrong". In their investigation, the authors claim that former Federal Reserve Board Chairman Alan Greenspan, Treasury Secretary Robert Rubin, and SEC Chairman Arthur Levitt vehemently opposed any regulation of financial instruments known as derivatives. They further claim that Greenspan actively sought to undermine the office of the Commodity Futures Trading Commission, specifically under the leadership of Brooksley E. Born, when the Commission sought to initiate regulation of derivatives. Ultimately, it was the collapse of a specific kind of derivative, the mortgage-backed security, that triggered the economic crises of 2008.
On October 17, 2008, attorney Timothy D. Naegele, wrote an article in the American Banker entitled, "Greenspan's Fingerprints All Over Enduring Mess," which argues that Alan Greenspan's actions and inactions triggered the economic crises of 2008. The article discusses the economic tsunami that has been rolling worldwide with devastating effects; and the author asserts that Greenspan is the architect of the enormous economic "bubble" that burst globally. The author cites Giulio Tremonti, Italy's Minister of Economy and Finance, who said: "Greenspan was considered a master. Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most."
While Greenspan's role as Chairman of the Federal Reserve has been widely discussed (the main point of controversy remains the lowering of Federal funds rate at only 1% for more than a year which, according to the Austrian School of economics, allowed huge amounts of "easy" credit-based money to be injected into the financial system and thus create an unsustainable economic boom), there is also the argument that Greenspan actions in the years 2002-2004 were actually motivated by the need to take the U.S. economy out of the early 2000s recession caused by the bursting of dot-com bubble - although by doing so he did not help avert the crisis, but only postpone it.
Many libertarians, including Congressman and former 2008 Presidential candidate Ron Paul and Peter Schiff in his book Crash Proof, predicted the crisis prior to its occurrence. They are critical of theories that the free market caused the crisis and instead argue that the Federal Reserve's printing of money out of thin air and the Community Reinvestment Act are the primary causes of the crisis. However Alan Greenspan himself has conceded he was partially wrong to oppose regulation of the markets, and expressed "shocked disbelief" as the failure of the self interest of the markets, which according to neo-liberal economic theory should have protected shareholder equity.
It has also been argued that the root cause of the crisis is overproduction of goods caused by globalization. Professor Herman Daly suggests that it is not actually an economic crisis, but a crisis of overgrowth beyond sustainable ecological limits.
This guide is licensed under the GNU Free Documentation License. It uses material from the Wikipedia.
Video: Economic Crisis: Causes & Cures (1 of 7)
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