Annotated Bibliography

Questions: To what extent was the 2008 financial crisis the result of systematic flaws within modern capitalism, and how did economic policy and financial behavior contribute to its collapse? Annotated Bibliography Baker, Dean. Plunder and Blunder: The Rise and Fall of the Bubble Economy. San Francisco: Berrett-Koehler Publishers, 2009. Throughout this book, Baker argues that asset bubbles have been a pattern in the decades prior to the 2008 financial crisis. He says it is the same industries, millennium rhetoric, and crooked insider behavior that have caused them. Furthermore, he asserts that deflation bubbles must be one of the chief economic priorities in our regulatory system. He continues to argue that the government policy change in 1980 has forever changed our economic system, which has created instability. He also defends other economists who predicted the crash, claiming that they tried to warn us but were stopped by policymakers and the media. This book is useful as it provides historical context and how they tie into the events we saw in 2008. Additionally, this book conveys patterns that are used to identify crises and are helpful for the reader. Blinder, Alan S. “The Macroeconomic Policy Paradox: Failing by Succeeding.” The Annals of the American Academy of Political and Social Science 650 (2013): 26–46. https://doi.org/10.2307/24541675. In this article, Blinder asks why responding to the 2008 financial crisis using macroeconomic policy was successful but turned into a political failure. When Lehman Brothers, a major investment bank, blew up, the formerly passive government started to incorporate themselves by mobilizing resources to the public to alleviate economic stress then to fight the recession. Blinder argues that free markets failed us, government intervention helped mitigate the damage, and, in a form of guilt by association, policy activism took some of the blame for the horrors that followed. Instead of seeing the continued hardship as less than what could have been, the American public viewed it as unnecessary and a fault of policymakers. This article is of use as it presents public ideologies that affected political landscapes in the years following the 2008 financial crisis. Furthermore, this article conveys arguments that are helpful in understanding different political outcomes and systematic flaws within modern capitalism. Blinder, Alan S. After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead. London: Penguin Books, 2016. In this book, Blinder, a former Vice Chairman of the Federal Reserve, waited to gain a deep understanding of the 2008 financial crisis. Published in 2016, this book presents a comprehensive analysis of how the worst postwar economic crash happened. He argues that the U.S. financial system was too unregulated and complex for its own good, creating a “perfect storm” in the economy. Throughout the book, Blinder analyzes the key causes that led to the collapse, such as uninformed risk-taking and deregulation. Additionally, he looks at the government's response, including the Federal Reserve's actions that were largely effective in preventing a full recession. Furthermore, Blinder presents what we have learned from the crisis and what vulnerabilities remain. As a former Vice Chairman of the Federal Reserve, Blinder offers a comprehensive understanding of 2008, combining his academic and professional expertise into one book. This is great for a reader who wants a full understanding of what happened. Comiskey, Michael, and Pawan Madhogarhia. “Unraveling the Financial Crisis of 2008.” PS: Political Science and Politics 42, no. 2 (2009): 271–75. https://doi.org/10.2307/40647525. In this article, Comiskey and Madhogarhia argue that a key contributor to the 2008 financial crisis was the inadequacy of investment banks to grasp modern finance. Then they answer a set of FAQ’s ranging from: “Why did lenders issue mortgages to the uncreditworthy?” to “Who's to blame for this mess?” This article encapsulates the severity of the crisis through a set of questions and is useful for an everyday reader wanting to learn more about it. The article allows the reader to get a different perspective on how the crisis started, and highlights that it was the ignorance of the investors who could not grasp the ideas of modern finance. Furthermore, it has many FAQ’s that allow anyone to get a better understanding of how the crisis worked. Drezner, Daniel W., and Kathleen R. McNamara. “International Political Economy, Global Financial Orders and the 2008 Financial Crisis.” Perspectives on Politics 11, no. 1 (2013): 155–66. http://www.jstor.org/stable/43280694. In this article, Drenzer and McNamara discuss how the 2008 financial crisis triggered the worst economic downturn since the Great Depression. They argue that the study of IPE has transitioned too far away from studying the causes and consequences of the global economy. They further argue that IPE must focus on shifts in political power and economic ideas that shape the global financial order. They present an idea of a systemic approach to global finance that uses both the study of power and social logics to understand market probabilities. The article is useful as it highlights the severity of the 2008 financial crisis. Additionally, it allows the reader to understand the study of IPE and identify the possible transition the study has had over the years. Duffie, Darrell. “Prone to Fail: The Pre-Crisis Financial System.” The Journal of Economic Perspectives 33, no. 1 (2019): 81–106. https://www.jstor.org/stable/26566978. In this essay, Duffie argues that while the 2008 financial crisis was due to over-leveraged homeowners and a severe downturn in U.S. housing markets, it could have been prevented with a better-supervised financial system. He further argues that the core financial system failed to perform its intended functions, which, in turn, the shock to the overall economy was larger than it needed to be. He covers the key sources of fragility in an economic system, like weakly supervised balance sheets of the largest banks and financial firms, as well as regulators failing to safeguard financial stability, and many more. This essay is helpful as it provides specific examples of how economies can be fragile and how those fragilities played in the 2008 financial crisis. Additionally, he helps the reader understand how the crisis could have been avoided, which gives us insight into indicators of future downturns. Johnson, Simon, and James Kwak. 13 Bankers : The Wall Street Takeover and the next Financial Meltdown. New York: Vintage Books, 2011. In this book, Johnson and Kwak argue that the 2008 financial crisis was not a failure in the mortgage market or fragilities, but a result of a long term deterioration of modern democracy by a failing oligarchy. Furthermore, they present statistical evidence supporting their claim, identifying six banks that hold 60% of the United States GDP. Without being complete monopolies, these banks are able to stay under the radar and sell an illusion of choice. Throughout the book, they trace the dominance of these banks through American history and conclude that they are too powerful to be regulated. They ask to break up these institutions so that no one bank has the power to threaten an entire economy. Overall, this book is useful as sheds a new light on the financial crisis and presents evidence going back to the founding fathers. The book fosters a lot of insight and allows you to think critically about the matter. The book sparked a new question of my own: If a completely free market tends to produce concentrated economic power and oligarchies, which in turn threaten political and economic freedom, is it possible for a country to maintain true freedom, or is the balance between market freedom and regulation always a pendulum? Mazzucato, Mariana. “Who Really Creates Value in an Economy?” Project Syndicate, December 30, 2018. In this article, Mazzucatio examines the lasting impacts ten years after the 2008 financial crisis. She focuses on its effects on Europe and argues that countries have still not fully recovered. She says that too little reform took place when there should have been intervention, leading to continued weak investment. She argues that this is due to the state's timid policy response. She further argues that this failure reflects policy being influenced by neoliberalism ideology. She provides an example: The 2016 European financial-transaction tax, which in turn sends money put into the economy back to the bank. She continues to give more examples and provides a solution to fixing the weak investment sector in Europe. This article is useful as it presents statistical evidence ten years post the biggest financial collapse in living memory. Additionally, it provides a robust explanation of key influencers in Europe's weak investment district. McCraw, Thomas K. Creating Modern Capitalism: How Entrepreneurs, Companies and Countries Triumphed in Three Industrial Revolutions. Cambridge, Mass: Harvard University Press, 2000. In this book, McGraw opens up by giving a rich history of past economic stagnation until the seventeenth century. The idea of an industrial revolution would have been incomprehensible for them, and the per capita income grew at 0.11 percent per year. The book identifies when the change happened and shows us how different pillars of capitalism, entrepreneurs, companies, and national economic growth, are intertwined to create the economic world today. McGraw presents a comprehensive framework that analyzes how these ideas contributed to the success of countries like the United States, Great Britain, and Germany. McGraw provides case studies of entrepreneurial achievement to support his theories of capitalist success. This is useful to readers who want to understand the fundamental factors in modern capitalism and how the three pillars interact to drive capitalist economies Nielsen, Richard P. “HighLeverage Finance Capitalism, the Economic Crisis, Structurally Related Ethics Issues, and Potential Reforms.” Business Ethics Quarterly 20, no. 2 (2010): 299–330. https://doi.org/10.2307/25702400. In this article, Nielsen identifies a new form of capitalism, high-leverage financial capitalism, and its implications on the 2007-2009 financial crisis. High-leverage financial capitalism consists of hedge funds, private equity, leveraged buyouts, and subprime mortgage banking. He argues that these four financial strategies caused a perfect economic storm. He further states that this capitalist system facilitated the economic crash. This article is useful as it allows the reader to understand the building blocks of high-leverage financial capitalism and how those four pillars could cause a collapse in the economy. Furthermore, it helps highlight the different landscapes of economic systems and allows the reader to differentiate between them, for example, capitalism and communism. Piketty, Thomas, and Emmanuel Saez. “Income Inequality in the United States, 1913-1998.” The Quarterly Journal of Economics 118, no. 1 (2003): 1–39. https://www.jstor.org/stable/25053897. In this paper, Piketty and Saez analyze the economic disparities, from 1913-1998, in the United States using individual tax return data. They identify that the top earners display a U-shaped pattern over the century. They further mention that the shock to the economy during the Great Depression and World War II has left permanent damage on top capital incomes. Piketty and Saez argue that steep income and estate taxation during these periods has prevented large fortunes from fully recovering. Additionally, they mention that before World War II, top wages were stagnant, then dropped during the war, and did not start to recover until the late 1960s, but are now higher than before the war. Throughout the paper, they provide comprehensive details on why the taxation had a long-term effect on high earners. Furthermore, they provide theories that relate to the start of the U-curve that affect the rich, while they should have been affected by an inverse U-curve. This paper is useful to a reader wanting to learn more about wealth distribution and its fluctuation during the 20th century. As well, this paper provides a fundamental grasp of modern capitalism and allows the reader to craft their own opinions and theories. Reinhart, Carmen M, and Kenneth S Rogoff. This Time Is Different : Eight Centuries of Financial Folly. Princeton, N.J. Woodstock: Princeton University Press, 2009. In this book, Reinhart and Rogoff use quantitative and historical data to compare financial crises over the past 800 years. They argue that economic crashes have been recurring for the same basic reasons, no matter the year, country, or technology available. The book aims to disprove the idea that the economy is more advanced because we are in a different time, or that the markets are smarter. This book is useful as it presents ideas that the 2008 financial crisis was not unique but actually just one pin in a longer string. Additionally, it provides a broad historical framework as evidence for understanding why financial crises are not isolated events. Roubini, Nouriel, and Stephen Mihm. Crisis Economics: A Crash Course in the Future of Finance. New York, N.Y.: Penguin Press, 2011. In this book, Roubini and Mihm argue that financial crises are predictable, not random “black swans.” The book dives deep, highlighting predictable patterns that lead up to a crisis. This includes easy money, deregulation, euphoria in the markets, etc. Furthermore, they present ideas on how to prevent future crises. Roubini is famous for predicting the 2008 housing bubble. The early pages mention Roubini’s persistence in trying to convince the IMF and different banks that the bubble will pop and will send the country into a recession. Later on in the crisis, as the U.S. was hit, he tried to convince other countries that the "disease would soon spread overseas,” while other market watchers stated the opposite. This book is useful as it presents his own thought process and key identifiers of an economic collapse. Likewise, it explains how counties can prevent a crisis of this size in the future. Schiff, Peter D. The Real Crash: America’s Coming Bankruptcy - How to Save Yourself and Your Country. New York: St. Martin’s Press, 2016. In this book, Schiff argues that the 2008 economic crash was not the end but the beginning of a bigger economic problem rooted in the country. He continues to proclaim that the Fed needs to start retracting money from the economy to stop the fuel that causes inflation. Throughout the books, he describes the problems with the economy and then presents solutions for prevention going forward. Additionally, he argues that America is built on imaginary wealth that will soon collapse. To prevent this, he says, America must start making things again, and the government needs to stop taking. This book is useful as it presents a fundamental problem with the pillars of the U.S. As well, it helps the reader identify key problems that lead to economic downturn. Stiglitz, Joseph E. “How to Restore Equitable and Sustainable Economic Growth in the United States.” The American Economic Review 106, no. 5 (2016): 43–47. https://doi.org/10.2307/43860984. In this paper, Stiglitz mentions the declining American economy and gives examples: Low GDP, an increased working age population, median household income that is less than one percent higher than it was in 1989. He argues that the underlying problem supporting these problems is the lack of aggregate demand, with some fundamental supply-side problems along with it. Stiglitz then presents evidence supporting his claims, asserting that before the financial crisis in 2008, the level of aggregate demand and supply was in balance. This paper is helpful for a reader who wants to understand how the 2008 financial crisis started and its long-term effects are seen today. He examines problems with modern capitalism and its effects on people. Additionally, it is useful as it presents clear statistical evidence backing Stiglitz’s claims. Stiglitz, Joseph E. “Risk and Global Economic Architecture: Why Full Financial Integration May Be Undesirable.” The American Economic Review 100, no. 2 (2010): 388–92. https://doi.org/10.2307/27805025. In this article, Stiglitz argues that full financial integration is not what we want. The idea that global financial markets should have given stability since risk was more evenly distributed throughout the world was disproven through the 2008 economic collapse. The paper provides an analytical framework for the optimal degree of financial integration. Within this model, full integration does not work. Specifically, the model suggests that financial autarky may be superior to full integration. Furthermore, he says that in a self-sufficient economy, “blackouts” would be contained to a certain geographical landscape, instead of spreading through the global economy. This risk of one instability-cousin downturn for the entire world has been overlooked by the International Monetary Fund. This paper is useful as it presents a detailed explanation of the global economy and how its connection between domestic economies may present problems. The paper lays out a framework that suggests an autarky financial system is more beneficial as it hosts less risk. Tooze, Adam. Crashed: How a Decade of Financial Crises Changed the World. Great Britain: Penguin Books, 2018. In this book, Tooze provides a comprehensive history of the 2008 financial crisis and its lasting impact worldwide. It provides data that connects the crisis to the European debt crisis and analyzes how the global response reformed political climates. The book argues that the crisis exposed fragility within the global financial system and political power. Additionally, the book states that the 2008 financial crisis led to historical events like Brexit and the rise of political figures such as Donald Trump. The book is useful as it examines the long-term impacts of an economic crash of this size and the “Decade of financial crisis” that was left in its wake. Furthermore, the book is helpful as it connects economic downturn to significant political shifts. This book is a pillar of understanding the sheer influence the 2008 financial crisis had on the world. Varoufakis, Yanis. The Global Minotaur: America, Europe and the Future of the Global Economy. London: Zed Books, 2015. In this book, Varoufakis uses the Greek myth of a Minotaur, acting as America, to understand the post-1971 global economy, where the U.S. economy absorbed capital from countries like Germany and China. The process visibly showed growth, but it was a financial labyrinth that ultimately failed, as seen in 2008. Additionally, he argues that the 2008 financial crisis was unlike any other prior in living memory due to its complete impact globally and effect on the upper class. While the book explores the origins of the crash and the possible root of economic failure in America, it also presents a new economic model aimed at avoiding future instability and inequality. This book is resourceful to a reader looking to understand the 2008 economic collapse's global impact and the possible root of economic instability leading up to it. Furthermore, the early paragraphs provide six explanations for why it happened.