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Cambridge Journal of Economics 2009 33(4):563-580; doi:10.1093/cje/bep023
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© The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

This article appears in the following Cambridge Journal of Economics issue: Special Issue: The Global Financial Crisis [View the issue table of contents]

Structural causes of the global financial crisis: a critical assessment of the ‘new financial architecture’

James Crotty*

* University of Massachusetts, Amherst

Address for correspondence: James Crotty, Department of Economics and Political Economy Research Institute (PERI), University of Massachusetts, Amherst MA 01003; email: jrcrotty{at}comcast.net

We are 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 process culminated in the current global financial crisis, which is so deeply rooted that even unprecedented interventions by affected governments have, thus far, failed to contain it. In this paper we analyse the structural flaws in the financial system that helped bring on the current crisis and discuss prospects for financial reform.

Key Words: Financial crisis • Causes of financial crisis • Global financial system • Financial deregulation

JEL classifications: G20, G28, E44, E12

Manuscript received March 20, 2009; final version received April 30, 2009.


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