Investigating the Real but the Least Talked Reasons for the Global Financial Crisis

Investigating the Real but the Least Talked Reasons for the Global Financial Crisis

ÖZSOY, İsmail
GÖRMEZ, Birol

The Global Financial Crisis of September 2008 is triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States. With its destructive consequences for financial markets and institutions around the globe, it has exposed pervasive weaknesses in the current global financial system. The US housing collapse is often cited as having caused the crisis and the loose U.S. monetary policy is criticized for making the cost of credit negligible, thus encouraging high levels of leverage and causing a hypertrophy and bubbles in the financial sector. What is clear from the crisis is that the current global financial system is vulnerable because of intricate and highly-leveraged financial contracts and operations mainly based on derivatives and interest rates. Rating the reasons for the crisis and dealing with the financialization process of the economy, this paper argues that the main reason for the crisis is interest based transactions of derivatives; mostly being a zero-sum game, thus not producing any economic value, rather than being a result of win-win action. It then suggests that financial operations be based on real assets, producing real values, not on illusory ones.

Conference or Workshop Item
PeerReviewed

2009-06

137