Chapter 1: Did anyone notice the global financial crisis of 2007–2008?
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On November 4, 2008, at the dedication of a new building, Queen Elizabeth of Great Britain visited the London School of Economics (LSE). While there she was given a briefing by academics at the LSE on the origins and effects of the global financial crisis and its resulting turmoil in international financial markets. The Queen is reported to have asked, “Why did nobody notice it developing?” The director of research at LSE told her, “At every stage someone was relying on somebody else and everyone thought they were doing the right thing.” How is it possible that the many intelligent investors, bankers, brokers, fund managers and other financial market participants thought they were doing the right thing, when it is clear in hindsight that market activity was creating a situation that ultimately caused global financial markets to collapse? The answer lies in the fact that, for at least four decades, the economic theory that has dominated academic teaching has not been applicable to our economic system. This theory’s teachings affected the economic reasoning of economic students who then became bankers, entrepreneurs, politicians, government regulators and so on. This theory is a fairy tale fable that has no descriptive relationship with the operations of our market oriented, money using, capitalist economy. Consequently, what was seen as a way of doing good in this fairy tale economy, created destructive economic forces in the world in which we live.