In this paper, an analysis of how the failures in financial engineering and Corporate Governance have been closely related with the recent Global Financial Crisis is carried out.
The Real Estate Bubble in 2006 leaded to the Subprime Mortgage Crisis in 2007 which expanded from the United States to the whole world generating the biggest financial crisis since the Great Depression of the 1930s. There are multiple factors that originate a crisis like this, and will be explained and analysed later, but in order to understand the global economic situation it is necessary to understand how the changes in the Corporate Governance have been one of the reasons of this and how this changes have been motivated by the Financial Globalization.
It was not until the 1973 Oil Crisis that the Monetarism became the paradigm for economy given its overall positive effects on the recover, even when the Keynesian approach had been dominant since the Great Depression. That change is generally regarded as the inception of economic Neoliberalism. However, that term had been already used long time before by Charles Gide in 1898.
Both the Neoliberalism and Free-Market are based in principles that can tagged as questionable since can be seen as based in the wrong economic policies from an ethical point of view. The development of both leaded to the Financial Globalization that has been described above as one of the reasons for the changes in the Corporate Governance.
The main reason for this is that the Financial Globalization brought both a reduction in the regulation of the banking system and more liberalization of the economy than the one the system was able to accept in the long-term.
Regarding the reduction in the regulation of the bank...
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...ivities that focuses on adding value and generating tangible products instead that a Financialized economy.
The second one is rebuilding the capitalism based in the principles of sustainability to ensure a right balance between the growth of the economy and its stability.
The third one involves having an increased focus on the ethical implications of the actions of all the stakeholders involved in the financial activities. Understanding the need to improve the society as a whole is a required step to ensure the success of any reform, preferably involving all sectors of the society like local communities worldwide, technological centres, universities, banks, companies and governments.
Whenever those principles are taken into account, even if that meant modifying some axioms of the global economy, a more stable, sustainable and ethical could be constructed.
Shahrokhi, M. (2011). The global financial crises of 2007-2010 and the future of capitalism. Global Finance Journal, 22, 193-210. doi: 10.1016/j.gfj.2011.10.010.
It can be assumed that there are two primary tenets of neoliberalism, namely, a theory of income distribution and a theory of aggregate employment determination. Neoliberalism holds true that labour and capital are given value to their true worth, this being determined through the supply and demand process where a supplies ‘relative scarcity’ and productivity are the determinant which regulates both demand and value of capital. In terms of aggregate employment determination, neoliberalism asserts that the free market will regulate all valuable factors of production and the value of capital will adjust ensuring demand. These ideals stem from the Chicago school of monetarism where economies are seen to self-adjust to full employment under a truly free market and belief that the implementation of fiscal policy to reduce unemployment will only generate inflation. . (Palley,
This was an era of what some have called the first true capitalist age of globalization, which saw intensified integration and interdependence between societies. But in spite of the economical boom not everybody was euphoric because of inequality. Great surpluses were produced, but they were very unevenly distributed within societies and between societies. Was fear that some of these economics crises could produce political ones. John Maynard Keynes worried about the precarious nature of things.
Public policy is enormously impacted by the importance of economic beliefs about the political world. Throughout history, there have been two prominent models of economic policy; Keynesianism and Neoliberalism. The increase of authoritarianism intermingled with the rise of communism essentially started World War 2. After this, the government instituted Keynesianism until the late 1970’s. After the stagflation of the late 1970’s, the political and economic movement of Neoliberalism began.
According to investopedia, Neoliberalism draws from the principles of neoclassical economics and suggests that government should cut deficit spending, reform tax laws so the tax base can be broadened, limit on subsidies, limit protectionism by opening markets, encourage privatization and deregulation in order to allow private property. Neoliberalism is a system in which the economic factors that are controlled by the public sector move to the control of the private sector. To sum it up, neoliberal policies deregulate and expand the market economy.
...issue. In this case, neoliberalism not only helps states to make a more rational decision, but also gives a birth of the institution forming the norms for the states’ solving crisis in the future. To conclude, both of them are important, while they are not contradictory, but complementary.
The first is greed. This greed is what drives the bankers and the executives within the Wall Street. It is because of such greed that there was a form of irresponsible risk taking within the markets. The second cause of market change is the advancement of market values and norms into aspect so life where they are not needed. An example of such advancement is the use of markets in order to provide services, which can be considered as basic needs, such as; schools hospitals, environmental protection, criminal justice, procreation, recreation and national security. Allocation of such public goods using market mechanisms is a resent development, within the last few decades. The final cause of such changes is the cold war, which saw most of the countries adopt market mechanisms in order to attempt improving on development and
Evans, T. L. (2011). Neoliberalism: deepening enforced dependency. Retrieved April 05, 2014, from The Foundation for the Economics of Sustainability website: http://www.feasta.org/documents/enforced_dependency/neoliberalism.html
Neo-liberalism is a mixture of free-market policies and global-market-liberalism. The neoliberal model consists of reducing the state intervention in the economy. Franko describes “New political economy suggests that people make their own best choices” (Franko 2007 page 151). The model gives each individual the opportunity to make the most adequate choices for the economy without the interference of the government. It is believe that the state intervention will distort the market signals required to make the most precise decision making (pg. 151 Franko 2007).
In their essay “What is Neoliberalism?” Dag Einar Thorsen and Amund Lie believe that “neoliberalism as ‘the dominant ideology shaping our world today’”. But what exactly is neoliberalism? In his article titled “What is Neoliberalism” Philoguy defines Neoliberalism as a “free market economic philosophy that favors the deregulation of markets and industries, the diminution of taxes and tariffs, and the privatization of government functions, passing them over to private business.”. In this type of ideology was based on the ideas that: the economy would be self regulating, the government would be inefficient and therefore our problems would be instead solved by private businesses, and that wealth would trickle down from the wealthy to the poor. What I want to emphasize is Neoliberalisms ideology that our problems can be solved by private businesses as the main subject for now. Neoliberal Consumerism is the embodiment of this
As Neoliberalism grew to be a favored political economic system, it let to the worldwide development of four other concepts: globalization, privatization, financialization, and inequality. Each concept is connected to and has a direct influence over the others. It is largely through these related concepts that the average individual with feel the influence of neoliberalism in their businesses as well as personal lives.
Neoliberalism is an updated version of the classical liberal economic idea that was predominant in the United States and the Great Britain prior to the Great Depression of the 1930s. “Interventionist” approach came into in the middle of 1930s to 1970s and replaced the classical liberalism; where to be viable, capitalism is believed to require a substantial state regulation. Corporate enterprises had assisted in creating wealthy class in society after the World War II, which enjoyed excessive political influence on their government in the United States and Europe. These wealthy elites supported neoliberalism as a base in order to counteract post-war policies that favored the working class and the welfare state.
Our lives are greatly affected by our culture, ecological environment, political environment and our economic structure. The overarching method of organizing a complex modern society relies heavily on the founding economic theories regarding method of production, method of organization, and the distribution of wealth among the members of. This paper, specifically deals with the views and theoretical backgrounds of two dominant theories of the past century, Keynesianism and Neo-liberalism. Our social economic order is product of the two theories and has evolved through many stages to come to where it is today. The two ideologies rely on different foundations for their economic outcomes but both encourage capitalism and claim it to be the superior form of economic organization. Within the last quarter of the 20th century, neo-liberalism has become the dominant ideology driving political and economic decisions of most developed nations. This dominant ideology creates disparities in wealth and creates inequality through the promotion of competitive markets free from regulation. Neo-liberal’s ability to reduce national government’s size limits the powers and capabilities of elected representatives and allows corporations to become much larger and exert far greater force on national and provincial governments to act in their favour. Hence, it is extremely important at this time to learn about the underlying power relations in our economy and how the two ideologies compare on important aspects of political economy. In comparing the two theories with respect to managing the level of unemployment, funding the welfare sates, and pursuing national or international objectives, I will argue that Keynesianism provides far greater stability, equ...
The Asian Financial Crisis which exposed the corporate governance weaknesses was a wake-up call for all the policymakers, standard setters as well as the companies (OECD, 2014). The parties that involved and affected from the crisis started to realize the importance of having strong corporate governance practices in their countries. Consequently, the Asian economies along with the OECD established the Asian Roundtable on Corporate Governance in 1999, in order to support the enhancement of corporate governance rules and practices (OECD, 2014).
Neoliberalism is a policy model of social studies and economics that transfers control of economic factors to the private sector from the public sector. ... Neoliberal policies aim for a laissez-faire approach to economic