Edited by David Levi-Faur
Chapter 47: After the Fall: Regulatory Lessons from the Global Financial Crisis
John W. Cioffi 47.1 INTRODUCTION The global financial crisis of 2007–09 was the most devastating economic collapse since the Great Depression. The bursting of the American real estate bubble and a rising tide of defaults on subprime mortgages underlying complex debt securities triggered the rapid collapse of major American banks, a global run on the shadow banking system, and international market crashes and banking crises. The contagion of financial panic spread from the American financial sector through the international financial system and into the “real” economy with breathtaking speed. Only unprecedented governmental and central bank interventions around the world bailed out major financial institutions and averted an imminent second Great Depression. But the crisis crippled the international financial system and left the global economy mired in the Great Recession. Pervasive regulatory failures created the pre-conditions for the crisis and fueled its catastrophic depth and scope.1 The abject and multi-faceted failure of the American regulatory state was a product of the neoliberal turn in American economic and regulatory policy embraced by both the Republican and Democratic parties. During the past 25 years, political and financial elites increasingly embraced theories of regulatory pathologies and idealized self-regulating markets that denigrated government and law and lauded the market and private sector. This ideational dimension of neoliberalism eventually led erstwhile regulators to favor the policy preferences of large, internationalized financial institutions in pursuing policies of deregulation and self-regulation.2 The neoliberal policy trajectory frequently constrained, impaired, and eroded financial regulation, even as it privileged, enriched,...
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