Mira ThekdiAndrew MansonPOSC 1207 December 2017An Analysis of the Global Financial CrisisIn late 2007 and throughout 2008, the world economy suffered through a horrific period of financial destruction, commonly known as what was the Global Financial Crisis of 2008. Though its effects are still echoing in today’s economy, at its core the Global Financial Crisis was catastrophic to the global market, causing problems in economies around the world. Stock markets began falling and businesses both large and small were forced to be bought out. To put things in perspective, Bloomberg says that United States taxpayers paid (and continue to pay) close to 10 trillion dollars in bailout packages that the government was obliged to spend. Numerous countries around the world spent hundreds of millions of dollars doing the same.United States economists were first warned of the trouble that would soon follow when housing prices began falling in 2006. Some say that the crisis officially began in July of 2007 because of an economic condition known as “credit crunch” in which “investment capital is difficult to obtain, making it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults, resulting in higher rates” (Investopedia). An issue that initially began in the U.S., the crisis’ effects quickly reverberated on a global scale because of the economic interdependency between nations. What would hurt one nation’s economy would instantaneously become part of a domino effect, causing issues around the globe. Governments everywhere grappled with solutions to save their financial institutions, though many were deemed unsuccessful. As a result of the crisis, unemployment and homelessness rates skyrocketed. Global citizens began investing in gold and bonds as opposed to the disastrous stock market. Other consequences of the Global Financial Crisis include inequality, social tensions, and pressure for economic reform. Looking at the Global Financial Crisis from a liberal point of view first requires an adequate amount of knowledge on the roots of liberalism. Liberalism, at its core, is based around the importance of the freedom of the individual (Art and Jervis). According to Nye, “the economic strand of liberalism focuses heavily on trade” and “liberals argue that trade is important, not because it prevents states from going to war, but because it may lead states to define their interests in a way that makes war less important to them.” On a global scale, says Art and Jervis, “the basic postulate of liberal international theory holds that states have the right to be free from foreign intervention.” The United States has consistently been a fairly free market, with private companies controlling most of the economy. The U.S. also engages in free trade with many nations around the globe. These two characteristics of the country’s market point to the idea that, when it comes to the economy, the U.S. is mainly liberal. Since a liberal economy has limited government interference, it can be said that liberalism was the cause of the Global Financial Crisis as a whole. Had the U.S. government been more involved in its country’s economy, it would have been able to keep tabs on its financial institutions. The government was forced to bail out many businesses and institutions after the financial crisis, so had it been able to do so prior, the crisis could have been dodged. From a short-term point of view, liberalism seems to be a positive theory to apply to a nation’s economy. When placed in a long term situation, however, a liberal market can lead to tax cuts and decreased government interference, which were two of the largest contributors to the financial crisis. With a liberal eye, one can also see the heightened consequences of the Global Financial Crisis. As mentioned earlier, one of the largest consequences of the crisis was inequality between the rich and the poor. Equality amongst citizens is an essential aspect of liberalism, so the 2008 financial crisis cast doubt on the effectiveness of the liberal market. When it comes down to it, the Global Financial Crisis brought to light some of the largest issues of free market economies. When seen from a realist perspective, the Global Financial Crisis seems quite different. As explained by Nye, for the realist, “the central problem of international politics is war and the use of force, and the central actors are states” and “in an anarchic system of states, the survival of the state is always at least potentially threatened by other states.” Realism is centered around national interest and the idea that states only want to do what is best for them. This idea shines through in a realist nation’s economy, where their economic actions are purely self-serving. The idea also contributes to the fact that realists do not believe strongly in economic interdependency between nations. Realism also argues that government interference is more beneficial than detrimental. Realists say that taxes and tariffs help cushion burgeoning industries in the time between they are born and are ready to hit the world market. Interdependency between nations, or the lack thereof, is crucial in analyzing the 2008 Global Financial Crisis from a realist perspective. In a study by Professor Filip Iorgulescu, it was revealed that the “global financial markets exhibited a high degree of integration before the occurrence of the crisis.” That being said, interdependency amongst states definitely heightened the effects of the crisis. When the economy of the United States fell, it caused major problems in countless other countries that depended on the U.S., such as the United Kingdom. Therefore, from a realist perspective, the 2008 crisis was not a result of realist ideals, but rather liberal ones. If it were up to realists, nations would not be as connected economically, and the domino effect could have been avoided as a result. Not only this, but realists believe in stricter government regulations and a large governmental role in a nation’s market. In this crisis specifically, earlier government interference could have helped alleviate some of the fallout of the event. Therefore, from a realist point of view, it was a lack of government interference combined with overly interdependent nations that led to the Global Financial Crisis. Though it does not fully explain the Global Financial Crisis, a constructivist viewpoint can also be applied to the situation. Constructivists believe that structures “include not just the number or configuration of units, but also the ‘intersubjective meanings’ — the shared discourses, ideas, practices, norms, and rules— that help make them who they are and enable them to interact in an intelligible way” (Nye). As the crisis began in the United States, it is important to examine the nation’s ideals and how they related to the problem as a whole. When it comes to the economy, people around the world commonly use one word to describe Americans: greedy. In an article by the American Psychological Association, Dr. Tim Kasser said that “America’s form of capitalism encourages materialistic values.” In a 2016 poll by the Pew Research Center, it was found that over half of people in countries surveyed associated greed with Americans. In terms of the Global Financial Crisis, greed was one of the earliest contributors. It all started when American homeowners began flipping real estate in order to get more money. What started as a greedy practice blew up into a housing crisis, soon becoming a massive financial crisis that spread around the world. Another ideal that some say contributed to the crisis was American ignorance. The Global Financial Crisis of 2008 was not the first crisis of the sort in the United States. Americans have gone through many economic crises, and financiers are frequently blamed for not learning from the past. After the 2008 crisis, it was FDIC Chairman Irving Sprague that said, “Unburdened with the experience of the past, each generation of bankers believes it knows best, and each new generation produces some who have to the learn the hard way.” Though liberal and realist viewpoints can explain bits and pieces of the Global Financial Crisis, they certainly do not explain it all. Both liberal and realist theories account for the impact of government interference in the crisis. Liberals place a larger focus on how the free market structure of the United States contributed to the crisis, while realists tend to concentrate on the role of interdependency in the situation. Nonetheless, other leading causes such as societal greed and historical ignorance would perhaps better be analyzed from a constructivist point of view. The Global Financial Crisis as a whole is best explained by the liberal nature of the market. Liberalism accounts for the lack of government regulation in the U.S. economy, which is considered one of the largest contributing factors of the 2008 crisis. Additionally, one of the biggest results of the crisis was financial inequality between the nation’s rich and poor. This was especially brutal for liberals since they believe strongly in equality for all citizens.