Chapter 10: Conclusions: Lessons of the Financial Crisis
The financial crisis confirmed the absence of the notion of a public interest. Financial institutions and financial markets did not necessarily always manufacture instruments that were good for the wider economy. Indeed, derivatives and credit default swaps amplified the financial crisis. Policy makers have increasingly been influenced and guided by the narrow selfinterest of financial institutions so that the policy process has reflected narrow vested interests as opposed to the public interest. Decisions on tax revenues and public expenditure became contestable terrain, resembling the politics of the pig trough with those with big snouts having the bulk share of public goods. Corporate welfare in terms of tax breaks, tax loopholes engineered by lawyers and accountants, and subsidies to industry are the invisible dimensions of public provision. The sudden declines in GDP and the shrinkage in tax revenues resulted in major deteriorations in public finances. Some governments saw the crisis as an opportunity to redefine the balance between public and private provision. The response was therefore not a response to a short-term problem but has become an ideological issue about the role of government and expectations in terms of social provision. Regulators, often assumed to be guardians of the public interest, became involved in conflicts of interests between their organization and the public good. The Credit Rating Agencies (CRAs), entrusted with providing accurate ratings of bonds and securities, found it difficult to walk away from a rating, worried as they were about retaining market share. The CRAs rated some $4.3 trillion...
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