Deregulation and The 2007-2008 Housing/Debt Crisis Analysis of the Housing/Debt Crisis of 2007-2008 and its impact on the Financial Strength and Vulnerability of the United States and Global Economy

One looming question has persisted in the minds of economists the world over in the aftermath of the 2007-2008 American Housing and Debt Crisis: How did it begin and who is responsible for making this happen? Another two-part question is: What measures were implemented to help end the crisis and what changes are being implemented to ensure that it will never happen again? Many speculate that the major contributing factor was the repeal of the Glass-Steagall Act in 1999 that prompted a virtual feeding frenzy among the banking community when new calls from Capitol Hill encouraged home ownership in America as well as the secondary mortgage market which skyrocketed thereafter. The Glass-Steagall Act will be among many of the topics explored in this paper along with the events leading up to the 2007-2008 housing/debt crisis as well as the aftermath.

The global financial crisis and after: a new capitalism?

The 2008 global financial crisis was the consequence of the process of financialization, or the creation of massive fictitious financial wealth, that began in the 1980s, and of the hegemony of a reactionary ideology, namely, neoliberalism, based on selfregulated and efficient markets. Although capitalism is intrinsically unstable, the lessons from the stock-market crash of 1929 and the Great Depression of the 1930s were transformed into theories and institutions or regulations that led to the “30 glorious years of capitalism” (1948–77) and that could have avoided a financial crisis as profound as the present one. It did not because a coalition of rentiers and “financists” achieved hegemony and, while deregulating the existing financial operations, refused to regulate the financial innovations that made these markets even more risky. Neoclassical economics played the role of a meta-ideology as it legitimized, mathematically and “scientifically”, neoliberal ideology and deregulation. From this crisis a new capitalism will emerge, though its character is difficult to predict. It will not be financialized but the tendencies present in the 30 glorious years toward global and knowledge-based capitalism, where professionals will have more say than rentier capitalists, as well as the tendency to improve democracy by making it more social and participative, will be resumed.

A note on financial regulation and the brazilian response to the 2008‐09 financial crisis

Brazil was frequently criticized for its interventionist and heavy financial regulation up until the 2008‐09 world financial crisis.  According to the neo‐liberal or pro‐market view that predominated in academic and financial circles during the early 2000s, economic development came together with financial deepening, which in its turn could only be achieved through financial liberalization and deregulation. The currency crises of the 1990s notwithstanding, by the mid‐2000s Brazil’s segmented financial market and its restrictive reserve and capital requirements were seen as a symbol of inefficiency and backwardness by most financial specialists.  To the luck of the Brazilian population, most of the advices of such specialists were ignored by the Brazilian authorities, so that, when the 2008 financial crisis hit the world economy, Brazil still had powerful and efficient instruments to deal with the problem.  The objective of this note is to present the mains aspects of the Brazilian financial regulation and how they helped the economy to deal with the consequences of 2008‐09 financial meltdown.