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Toxic Economic Theory and Global Recession

In: Toxic Economic Theory, Fraudulent Accounting Standards, and the Bankruptcy of Economic Policy

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  • R. A. Rayman

Abstract

The financial crisis in the summer of 2007 should have come as no surprise. Short-termism and balance-sheet myopia had become endemic with the spread of the market-value delusion in the form of fair-value accounting. The dangers had been signalled well in advance: It can lead to a misallocation of resources and sub-optimal investment behaviour because, in an economic upturn, non-viable projects may get financed, while in a downturn even very promising projects may be rejected. In addition, systemic risk could increase, an illustration being the fuelling of an asset bubble during economic upturns through generous credit conditions and higher collateral values. The subsequent bursting of the bubble may result in a banking crisis and a credit crunch. [European Central Bank, Monthly Bulletin, February 2004, p.78]

Suggested Citation

  • R. A. Rayman, 2013. "Toxic Economic Theory and Global Recession," Palgrave Macmillan Books, in: Toxic Economic Theory, Fraudulent Accounting Standards, and the Bankruptcy of Economic Policy, chapter 19, pages 197-203, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-30450-6_19
    DOI: 10.1007/978-1-137-30450-6_19
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