About

Twitter

Facebook

CUP Web site

RSS Feed

New Books

Author Interviews

Author Events

Keep track of new CUP book releases:
e-newsletters

For media inquiries, please contact our
publicity department

CUP Authors Blogs and Sites

American Society of Magazine Editors

Leonard Cassuto

Mike Chasar / Poetry and Popular Culture

Erica Chenoweth / "Rational Insurgent"

Juan Cole

Jenny Davidson / "Light Reading"

Faisal Devji

William Duggan

James Fleming / Atmosphere: Air, Weather, and Climate History Blog

David Harvey

Paul Harvey / "Religion in American History"

Bruce Hoffman

Alexander Huang

David K. Hurst / The New Ecology of Leadership

Jameel Jaffer and Amrit Singh

Geoffrey Kabat / "Hyping Health Risks"

Grzegorz W. Kolodko / "Truth, Errors, and Lies"

Jerelle Kraus

Julia Kristeva

Michael LaSala / Gay and Lesbian Well-Being (Psychology Today)

David Leibow / The College Shrink

Marc Lynch / "Abu Aardvark"

S. J. Marshall

Michael Mauboussin

Noelle McAfee

The Measure of America

Philip Napoli / Audience Evolution

Paul Offit

Frederick Douglass Opie / Food as a Lens

Jeffrey Perry

Mari Ruti / The Juicy Bits

Marian Ronan

Michael Sledge

Jacqueline Stevens / States without Nations

Ted Striphas / The Late Age of Print

Charles Strozier / 9/11 after Ten Years

Hervé This

Alan Wallace

James Igoe Walsh / Back Channels

Xiaoming Wang

Santiago Zabala

Press Blogs

AAUP

University of Akron

University of Alberta

American Management Association

Baylor University

Beacon Broadside

University of California

Cambridge University Press

University of Chicago

Cork University

Duke University

University of Florida

Fordham University Press

Georgetown University

University of Georgia

Harvard University

Harvard Educational Publishing Group

University of Hawaii

Hyperbole Books

University of Illinois

Island Press

Indiana University

Johns Hopkins University

University of Kentucky

Louisiana State University

McGill-Queens University Press

Mercer University

University of Michigan

University of Minnesota

Minnesota Historical Society

University of Mississippi

University of Missouri

MIT

University of Nebraska

University Press of New England

University of North Carolina

University Press of North Georgia

NYU / From the Square

University of Oklahoma

Oregon State University

University of Ottawa

Oxford University

Penn State University

University of Pennsylvania

Princeton University

Stanford University

University of Sydney

University of Syracuse

Temple University

University of Texas

Texas A&M University

University of Toronto

University of Virginia

Wilfrid Laurier University

Yale University

February 8th, 2012 at 10:07 am

William K. Tabb on the Great Recession and the Lessons Learned and Not Learned

The Restructuring of Capitalism in Our Time

“What the decision-makers at the Fed and Treasury appear not to have learned is the most important lesson of all: that the financial sector has grown too large, too dangerous, and too parasitic.”—William K. Tabb

In the concluding chapter to The Restructuring of Capitalism in Our Time, William K. Tabb examines some of the lessons learned in the wake of the Great Recession and those not learned, at least among those making decisions. Here is an excerpt from the chapter:

What the decision-makers at the Fed and Treasury appear not to have learned is the most important lesson of all: that the financial sector has grown too large, too dangerous, and too parasitic. To prevent new and even more costly financial crises, it needs to be shrunk and restructured to fulfill its central purpose of mediating between savers and those who can use capital to increase the productive capacity of the economy. They did not learn that the unregulated reliance by major financial institutions on the short-term repo markets is too dangerous to be tolerated. Their failures stem from the difficulty of relinquishing the core of mainstream financial economic theories that have reigned for the previous three or four decades.

Some lessons have been learned. For one thing, we are less naïve concerning systemic safety and the benefits of presumed portfolio diversification. It has become clear that if asset holdings are diversified similarly, the system as a whole lacks diversification, and that financial institutions following similar strategies take on similar risk and render the entire system vulnerable. Second, as Minsky leads us to expect, the system is subject to tipping points where there is a sudden discontinuity and reversal in Keynes’s animal spirits. Third, focusing on the importance of financialization to the global neoliberal SSA makes clear the role of credit overextension in causing such crises. Fourth, the complex networks of counterparty exposure are better understood, as is the recognition that reregulation requires a global perspective.

The global financial crisis should force a reassessment of misguided certainties central to neoliberalism: that self-regulation provided by the discipline of the market guarantees efficient allocation of financial resources; that modest capital requirements provide protection against random shocks from outside the financial system; that bankers have every incentive to preserve their institutions and so will not act in ways to endanger them; that government intervention in financial markets, however well intentioned, impedes the innovation and risk taking that promote economic growth; and that mathematical models can accurately predict risk in the face of uncertainty. All these assumptions came to be widely questioned with the Great Recession.

Financial markets turned out to be neither efficient in allocating capital nor self-correcting. As the discussion of the Minsky-Keynes financial approaches in chapter 3 argues, a period of low default rates, strong bank profitability, and seeming stability (or “great moderation”) should not be taken as evidence that all is well. Increased leverage rationalized by the rising value of collateral-backed loans can instead indicate growing financial fragility. Unless regulators understand these things and are willing to take the punch bowl away even though everyone is happily enjoying the party—and to face the dissatisfaction earned by their preemptive actions —we are looking at a future of continuing asset bubbles and financial collapses. Moreover, the impacts of the global financial crisis, despite official optimism, are hardly behind us, as is made clear by continuing painful austerity measures imposed by governments.

2 Comments

  1. Barbara Epstein says:

    Insightful and persuasive. I look forward to reading the book.

  2. electra ruby says:

    What is left out of this equation is the finite nature of the natural resources that underpin the markets. Yes – all of them are resting on the earth’s dwindling resources. To tranlate everything into market terms is the worm eating away the structures of our civilised life. You can’t eat money and you can’t eat numbers on a computer Wake up!

Post a comment