Events Summary: The End of Normal; The Great Crisis after Six Years
James Galbraith started with the introduction of Henry George, one of the largest influencer of Chinese economics. According to the speaker, Henry George was an American political economist who inspired the economic philosophy Georgism. According to Henry George, all people should own anything they create and that everything possessed by nature, specifically the value of land should be owned equally by all humans. China fully adopted Georgism with the government being the sole beneficiary of land value levies.
Galbraith introduced the causes of the 2008 financial crisis that nearly crippled economies in America and Europe. Marking six years since start of the financial crisis, many countries are still feeling the negative effects of the economic crisis which was written down done by journalists across America. The negative effects of the financial ...view middle of the document...
Stock prices for many companies are falling indicating a change from the past. To the speaker, these astonishing events are occurring too often, even once every 18 months. The financial crisis represents the modern day financial bubble. The bubble expands gradually with every investment made by the growing number of unregulated investors. At this point the popping of the bubble is inevitable and when it happens, massive losses are felt.
The speaker begged the question of whether the bursting of the bubble is harmful. He quoted the Greenspan doctrine that promotes that financial markets should police themselves by dispersing risks into the market. The doctrine opposes market regulation and argues that risks resulting from financial bubbles are dispersed to investors and financial organizations that are well suited to absorb and manage them. The speaker analyzed the interference of the government and wondered whether the government caused the crisis. One of the disadvantages of government interference is that it can cause destabilization of the market.
The housing boom that caused the bust followed by massive mortgage defaults shows that the government action or inaction was a major reason for the prolonged crisis. Policy makers in the government downplayed the early signs that the bubble would finally burst. The speaker also examined the role of fraud in causing the financial crisis. The best example was Ameriquest which provided mortgages to people who could not pay. The company allowed people to state their income when borrowing mortgages without any system of verifying the information. The company used false records to make up inaccurate mortgages that were later sold to banks in order to make fast profits. This acts of fraud also led to the financial crisis.
After the analyzing the causes of the financial crisis, Galbraith affirmed that the effects of the crisis could still be felt and its eventual end must either come from the government or on its own. Government policies and efforts from the private sector are therefore important in ensuring that the crisis is controlled and financial bubbles are controlled before bursting and causing a financial crisis like in 2008.