Description

Until Lehman Brothers' bankruptcy in Septem ber 2008, the conventional wisdom was that the crisis was the result of problems in the financial sector. However, after the dramatic falls in industrial production in countries su ch as Japan and Germany starting in the last quarter of 2008, it became clear that the origins of th e crisis were deeper . This paper argues that there was an economic crisis that was due to the bursting of a property and stock bubble in the US and a number of other countries. Just as in Ja pan in the 1990's, this greatly affected the real economy. The problems in the financial system were a symptom rather than a cause, but there was a strong feedback e ffect into the real ec onomy. The structure of the global financial system and the nature of banking regul ation have been severely inadequate. The paper suggests reforms in the structure of the IMF, the governance of central banks and the form of banking regulation.