Chapter 2: Anatomy of Financial Crisis
INTRODUCTION Politics has been described as being the ‘art of the possible’ with the emphasis on art, which would suggest that policy making is more about judgement than science. The art of the possible would also point to the power of persuasion in term of how the government makes its case and also reflects what is possible and the process of compromise. Policy making becomes the study of constraints and autonomy. Constraints can be described as events that, at least in the short term, seem to be beyond the control of government. However, policy makers need to be seen as giving direction to policy rather than responding to events. In dealing with the recent financial crisis, policy makers needed to show that they had the institutional capacities to respond and to stabilize a very uncertain financial context. Institutions of the financial industry, including investment banks, were not transparent about their losses, levels of leverage and financial exposure. Very often key regulators found they did not have the legal authority to intervene. Government responses appeared to be piecemeal and disjointed, yet during those times of turbulence, policy conviction was needed to restore confidence in a climate of uncertainty. The art of the possible represents a dynamic between the dual processes of events that are perceived to be outside the immediate control of government and political autonomy that describes the process of political choices that defines the spaces and the room to manoeuvre. Governments are neither prisoners of events nor do they...
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