Calls for more government regulation and intervention are common during crises. But once the crises subside, pressures to reform quickly evaporate and the government is told to withdraw. New financial fads and opportunities are then touted, instead of long needed reforms.
Global financial crisis
The 2007-2009 global financial crisis (GFC) began in the US housing market. Collateralised debt obligations (CDOs), credit default swaps (CDSs) and other related contracts, many quite “novel”, spread the risk worldwide, far beyond the US mortgage markets.
Transnational financial “neural-like” networks ensured vulnerability quickly spread to other economies and sectors, despite government efforts to limit contagion. As these were only partially successful, deleveraging — reducing the debt level by hastily selling assets — became inevitable, with all its dire consequences.
The GFC also exposed massive resource misallocations due to…