The Time of Money in Financing and Society
Chapter 12: The Crisis – Evolution
12. The crisis – evolution In 2008 the crisis arrived, spectacularly yet stealthily. Appalling financial movements, with very unclear consequences on real wealth and on the overall arrangement of the economy, captured the attention of everyone. Misconducts, transgressions and gaps in regulation were immediately identified as the culprits. However, it was also apparent that many of the disasters resulted from a fair and rigorous use of the techniques and procedures of financial engineering. These were the most worrying cases. How is one to react to risks that are produced by the management of risk (section 1)? The problems that arose when it was discovered that miscalculations had been made spread unimpeded as a result of lack of confidence in the calculations. If the whole construction is based on risk management, and this management is shown to be unsafe, then there is nothing left on which to rely (section 2). The insolvency of sub-prime mortgages exemplified the serious problem by demonstrating that risk could show up in ways other than expected (and neutralized). The lost income of lenders had far greater consequences than the actual sums at stake, because it introduced the element of uncertainty into the pyramid of the insurance, management and sale of risks, which had been built with securitization and structured finance. Rather than economic, the crisis was a crisis of confidence, linked to the fear of having already gambled away the future and its possibilities. This fear was due to the fact that the financial techniques that were...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.