Question

How did “free market fundamentalism” contribute to the US/global financial crisis of 2008? How do the makers of the film The Inside Job criticise public and private actors in this crisis? What role did the US state play (or refused to play) in this crisis? Why? Can you draw parallels between this crisis and the 1997-98 East Asian crisis?

Answer 1

Hi,

Free market fundamentalism caused US banks to offer cheap credit to borrowers, without any government regulations. So, the free market allowed the banks to carry risky activities without anyone questioning them, the film "Inside Job" exposed the systemic corruption of the US by the financial services industry, also it exposed how top executives of the insolvent companies walked away with their personal fortunes intact and the executives had hand-picked their boards of directors, which handed out billions in bonuses after the government bailout.  The movie showed villainous lineup includes bankers, politicians (many of whom were previously bankers), regulators, the credit ratings agencies and academics.

There are many parallels with the Asian crisis as the capitalist effects were visible in both situations.

Thailand's economy had developed into an economic bubble fueled by cheap money. The same type of situation happened in Malaysia and Indonesia, which had the added complication of what was called "crony capitalism".The short-term capital flow was expensive and often was used for a quick profit. The money for economic growth went in a largely uncontrolled manner to certain people only - not necessarily the best suited or most efficient, but those closest to the centers of power.