Political Economic Analysis On The Financial Crisis In The U.S.

The purpose of this paper is to explore the political factors that influenced the financial crisis, a significant economic event, from 2007 to 2008. The financial crisis reflected that the financial liberalization policy which had been implemented since the 1980s in the U.S. was flawed. On one hand, this policy contributed to the financial development and economic growth in the U.S.; on the other hand, it also resulted in increased risk of U.S. economy while it deregulated financial industry. The risk factors include the concentration of the financial sector, inflation of financial derivatives, and over fictitious economy. Worse still, the integration of financial industry and real estate industry at the beginning of the 21st century contributed to the bubbles in the residential mortgage market, resulting in the vulnerability and leverage of the U.S. economy. In one word, these factors either increase the probability of financial crisis, or lead to more serious consequences after the crisis strikes. From the analytic perspective of historical institutionalism, this paper focuses on analyzing certain institutional structures, the relatively stable interaction between different actors in the state and market, which influence the financial liberalization policy. These actors include legislative institutions, administrative institutions, financial supervision institutions, financial institutions, real economy enterprises and consumers. The structural relations among them largely influence policy options of the U.S. and shape preferences of actors themselves. Thus, the financial crisis that broke out in the U.S. has an impressing institutional background from a long time horizon and a relatively macro perspective. The influence of the financial crisis spread rapidly to the real economy and the globe. Different actors in the state and society of the U.S. were faced with common survival crisis. In the context of the crisis, pressures from these actors were focused on the decision institutions of the government. These actors strongly required the government must make some adjustments of the economic policies. Thus, both relief measures that strengthen economic intervention and the reform of financial supervision institutions were adjustments by the U.S. government when they were faced with strong temporal pressures after the crisis stroke. It was the strong government intervention, a political factor, which rescued the U.S. from economic decline. After the crisis, we need to have a deeper political economic reflection on the causes and consequences of this financial crisis.