Late-2000s Financial Crisis - Background - Systemic Crisis

Systemic Crisis

Another analysis, different from the mainstream explanation, is that the financial crisis is merely a symptom of another, deeper crisis, which is a systemic crisis of capitalism itself.

Ravi Batra's theory is that growing inequality of financial capitalism produces speculative bubbles that burst and result in depression and major political changes. He has also suggested that a "demand gap" related to differing wage and productivity growth explains deficit and debt dynamics important to stock market developments.

John Bellamy Foster, a political economy analyst and editor of the Monthly Review, believes that the decrease in GDP growth rates since the early 1970s is due to increasing market saturation.

John C. Bogle wrote during 2005 that a series of unresolved challenges face capitalism that have contributed to past financial crises and have not been sufficiently addressed:

Corporate America went astray largely because the power of managers went virtually unchecked by our gatekeepers for far too long... They failed to 'keep an eye on these geniuses' to whom they had entrusted the responsibility of the management of America's great corporations.

Echoing the central thesis of James Burnham's 1941 seminal book, The Managerial Revolution, Bolge cites particular issues, including:

• that "Manager's capitalism" has replaced "owner's capitalism", meaning management runs the firm for its benefit rather than for the shareholders, a variation on the principal–agent problem;
• the burgeoning executive compensation;
• the management of earnings, mainly a focus on share price rather than the creation of genuine value; and
• the failure of gatekeepers, including auditors, boards of directors, Wall Street analysts, and career politicians.

An analysis conducted by Mark Roeder, a former executive at the Swiss-based UBS Bank, suggested that large-scale momentum, or The Big Mo "played a pivotal role" in the 2008–09 global financial crisis. Roeder suggested that "recent technological advances, such as computer-driven trading programs, together with the increasingly interconnected nature of markets, has magnified the momentum effect. This has made the financial sector inherently unstable."

Robert Reich has attributed the current economic downturn to the stagnation of wages in the United States, particularly those of the hourly workers who comprise 80% of the workforce. His claim is that this stagnation forced the population to borrow in order to meet the cost of living.