ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Profound Structural Flaws in the US Financial System That Helped Cause the Financial Crisis

We are now in the midst of the worst financial crisis since the Great Depression. This crisis is the latest phase of the evolution of financial markets under the radical financial deregulation process that began in the late 1970s. This evolution has taken the form of cycles in which deregulation accompanied by rapid financial innovation stimulates powerful financial booms that end in crises. Governments respond to crises with bailouts that allow new expansions to begin. As a result, financial markets have become ever larger and financial crises have become more threatening to society, which forces governments to enact ever larger bailouts. This paper analyses the structural flaws in the current United States financial system that helped bring on the current crisis.

Regulating the US Financial System to Avoid Another Meltdown

There is broad agreement that lax financial regulation, especially in the United States and United Kingdom, contributed in a big way to the current global financial mess. In recent months, there have been widespread calls for a regulatory overhaul of financial markets regulation. But there is little agreement on what those specific changes should be. If the power and influence of private finance is not reined in, we will return to the destructive deregulation/bailout dynamic that has characterised the last several decades. This paper lays out a nine-point plan for regulatory reform, specifically tailored to address the structural flaws in the us financial system.
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