The Demise of Finance-dominated Capitalism

The Demise of Finance-dominated Capitalism

Explaining the Financial and Economic Crises

New Directions in Modern Economics series

Edited by Eckhard Hein, Daniel Detzer and Nina Dodig

This book provides an overview of different theoretical perspectives on the long-run transition towards finance-dominated capitalism, on the implications for macroeconomic and financial stability, and ultimately on the recent global financial and economic crisis. In the first part, the macroeconomics of finance-dominated capitalism, the theories of financial crisis and important past crises are reviewed. The second part deals with the 2007-09 financial and economic crisis in particular. The special focus is on the long-run problems and inconsistencies of finance-dominated capitalism which played a key role in the crisis and its level of severity.

Chapter 8: Financial deregulation and the 2007–08 US financial crisis

Özgür Orhangazi

Subjects: economics and finance, financial economics and regulation, post-keynesian economics


Following the Great Depression of the 1930s, a series of financial regulations were introduced in the United States. The main aims of these regulations were to ensure the stability of the financial sector and enhance its role in supporting investment and production by the non-financial corporate sector. In addition to these regulations, the state’s involvement in active macroeconomic management increased, especially after the Second World War, and international trade and finance regulations were introduced following the Bretton Woods conference. Keynesian policies were used to generate demand and to tackle business cycles, while the state carried out heavy infrastructural investment and regulated key industries. Social expenditure programmes were established, together with a redistributive taxation system. This configuration provided high rates of economic growth, and hence the era is usually referred to as the ‘golden age’ of capitalism. While, on the labour side, membership ratios in unions were increasing and real wages were going up in this period, corporations were taking advantage of an environment in which domestic product markets had an oligopolistic character and foreign competition was limited. However, a serious crisis emerged in the 1970s.

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