A Political-Economy of the U.S. Subprime Meltdown

Shalendra D. Sharma*

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

2 Citations (Scopus)

Abstract

What began as a downturn in the U.S. housing sector in mid-2007 soon mushroomed into a global financial crisis by September 2008. Why was the crisis triggered in the United States renowned for its resilient and innovative economic system? Why the crisis, which began with the implosion of a relatively small part of the U.S. housing market (the subprime mortgages) quickly morphed into a credit crunch, plunging the world economy in the worst financial crisis since the Great Depression? And, what explains the failure of both the market participants and public authorities to anticipate (at least initially) the depth and gravity of the crisis? In contrast to conventional explanations that see the crisis rooted in the procyclicality of the financial system, or the result of Wall Street greed and incompetence, this article provides a political-economy analysis of the complex series of events that lead to U.S. subprime meltdown. Specifically, the paper illustrates that the subprime crisis is fundamentally the result of massive regulatory failure in the United States. Although both market actors and regulators failed to properly assess the risks of complex assets, powerful lawmakers (both Republicans and Democrats) and regulators whose responsibility was to maintain due diligence against potentially destructive market failure, clearly failed in their responsibility.

Original languageEnglish
Pages (from-to)171-190
Number of pages20
JournalEconomic Analysis and Policy
Volume39
Issue number2
DOIs
Publication statusPublished - 1 Jan 2009
Externally publishedYes

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Subprime
Political economy
Responsibility
Assets
Financial system
Economic systems
Gravity
Credit crunch
Global financial crisis
Subprime crisis
World economy
Housing market
Market failure
Authority
Great Depression
Subprime mortgages
Procyclicality
Greed
Due diligence
Financial crisis

Cite this

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A Political-Economy of the U.S. Subprime Meltdown. / Sharma, Shalendra D.

In: Economic Analysis and Policy, Vol. 39, No. 2, 01.01.2009, p. 171-190.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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