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Greed, financial innovation or laxity of regulation?

Author

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  • M. Imtiaz Mazumder
  • Nazneen Ahmad

Abstract

Purpose - The purpose of this paper is to shed light on the causes of the 2007‐2009 mortgage crisis, liquidity crisis, stock market volatility in the USA and their spillover effects on the global economy. Design/methodology/approach - The paper critically reviews the 2007‐2009 financial crisis from both academic and practitioners' viewpoints. Findings - The paper explores how the liquidity crisis has evolved with the advent of poorly supervised financial products, especially the credit default swaps and subprime mortgage loans. Further, it analyzes the laxity in regulations that encouraged high financial leverages, shadow banking system and excessive stock market volatility and worsened the recent financial crisis. Originality/value - The implication of this paper is to understand numerous policy reforms that will help the global capital markets to be more transparent and less vulnerable to systematic risks; the suggested policy reforms may also help to prevent such financial calamities in the future.

Suggested Citation

  • M. Imtiaz Mazumder & Nazneen Ahmad, 2010. "Greed, financial innovation or laxity of regulation?," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 27(2), pages 110-134, June.
    • Handle: RePEc:eme:sefpps:v:27:y:2010:i:2:p:110-134
    DOI: 10.1108/10867371011048616
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    References listed on IDEAS

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    Cited by:

    1. Clementi, Gian Luca & Cooley, Thomas F. & Wang, Cheng, 2006. "Stock grants as a commitment device," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 2191-2216, November.
    2. Kusi, Baah & Agbloyor, Elikplimi & Asongu, Simplice & Abor, Joshua, 2021. "Foreign Bank Assets and Presence on Banking Stability in Africa: Does Strong and Weak Corporate Governance Systems under different Regulatory Regimes Matter?," MPRA Paper 110136, University Library of Munich, Germany.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 US Sub-prime Financial Crisis So Different? An International Historical Comparison," American Economic Review, American Economic Association, vol. 98(2), pages 339-344, May.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 US Sub-Prime Financial Crisis So Different?: An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299.
    5. Nikolaos Sariannidis & Polyxeni Papadopoulou & Evangelos Drimbetas, 2015. "Investigation of the Greek Stock Exchange volatility and the impact of foreign markets from 2007 to 2012," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 8(2), pages 55-68, October.
    6. Kroeger, Frens, 2015. "The development, escalation and collapse of system trust: From the financial crisis to society at large," European Management Journal, Elsevier, vol. 33(6), pages 431-437.
    7. Douglas da Rosa München & Herbert Kimura, 2020. "Regulatory Banking Leverage: what do you know?," Working Papers Series 540, Central Bank of Brazil, Research Department.
    8. Meier, Samira & Rodriguez Gonzalez, Miguel & Kunze, Frederik, 2021. "The global financial crisis, the EMU sovereign debt crisis and international financial regulation: lessons from a systematic literature review," International Review of Law and Economics, Elsevier, vol. 65(C).

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