01 May 2009
About This Issue
In hindsight, the bubble in the U.S. housing market, the first indication of what would become a global financial crisis in the fall of 2008, should have been obvious. The prices of houses had risen beyond the salaries of many ordinary Americans, but the availability of new, riskier mortgage products fueled the rush to home ownership. What’s more, the inflation in their real estate values had many homeowners feeling wealthy. Historically in the United States, housing prices had always gone up. So what went wrong?
And how did the failure of one sector of the U.S. economy help trigger what many have seen as the greatest worldwide economic crisis since the Great Depression of the 1930s? For this issue of eJournal USA, we asked six financial experts to offer their opinions on how the global crisis came about and some of the ways the world will react to this shared problem.
Political scientist Mark Blyth begins by listing six events that had a role in causing the crisis. John Judis, a senior editor with the New Republic, then clarifies international currency by examining agreements from the Bretton Woods conference in 1944 to the present-day negotiations among nations.
Charles Geisst, a financial historian, writes that improved computing, 24/7 trading around the globe, and the ease of trading contributed to the problem. “Customers were able to obtain executions for their stock trades with a speed unimaginable in the mid-1990s. The volumes and the appetite for transactions appeared endless.” Once asset values began to collapse, the banking and insurance crises occurred within months.
Famed investor George Soros contends that regulation is necessary to limit the growth of asset bubbles. But Soros also warns against going too far: “Regulations should be kept to the minimum necessary to maintain stability.” Law professor Joel Trachtman seconds the call for more regulation as well as improved corporate governance. In conclusion, economics professor Richard Vedder describes the history of various international trade agreements and organizations and their role today.
There is no shortage in the world of experts with opinions about the causes of the current crisis and prescriptions for getting out of it, and it’s true that a different group of experts might well offer a different set of views from those presented here. What is surprising, perhaps, is how often certain common ideas emerge in these articles: that the nature of markets is cyclical, that global trade relationships are interdependent, and that a modicum of market regulation is a good thing.
— The Editors
