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Title: An investigation of the recent financial crisis : causes, implications and directions
Author: Ahmad, Wiqar
Awarding Body: University of Liverpool
Current Institution: University of Liverpool
Date of Award: 2013
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Occurrences of financial crises can be termed as 'legacy'. They have protracted history and each time occur with increasing vengeance and dangerous inflationary implications for the future. The problem lies deep in the structure of capitalist economies; both developed and developing. Despite their apparent variety however a common pattern regarding the occurrence of financial crises can be identified in major financial crises. This common pattern is exhibited in the cyclical deterioration of financial structures due to endogenous forces that lie mostly in the financial system. A state of tranquil economic activity (sustained economic activity) reigns for a considerable length of time before it is endogenously converted to investment boom (booming economic activity). Such an investment boom is then particularized in a single sector and is mostly financed by substandard credit. Myriad stimuli, mostly within the financial system, are at work during both of these stages, derailing the economy into unsustainable 'booming economic activity'. The economy, upon rupture of the credit bubble, experiences a big confidence shock, failure of financial institutions, credit freeze and/or debt deflation (burst of the bubble sector). Investigation of such cyclicality as a cause of recession is the core of this study. Endogenous forces in central banking that relate to monetary policy and in commercial banking that relate to supply and quality of credit make the economy behave cyclically. The scale and nature of any research problem however are proportionate to the methodology and effort that are required for its solution. Occurrence of financial crises is a large scale multidimensional problem i.e. monetary policy and its sub dimensions (interest rates, money quantity, inflation targets etc.) and commercial banking and its sub dimensions (level of agency, nature of their balance sheet) in the pre and post crises times. Quantitative models and secondary data research are powerful only under certain, albeit stringent, assumptions and - for research settings - dealing with simple linear problems. Keeping in view the nature and scale of the problem this study therefore employs questionnaire methodology to investigate the three-staged cyclicality and the instability role of central and commercial banking. Questionnaire findings are strengthened by semistructured interviews from fmancial institutions' personnel. Findings of the study support the three-staged cyclicality and the instability role of the financial system in such cyclicality. Remedial implications of the study are quite rich. The study provides consensus from the financial markets of the United Kingdom about the nature of credit crunches and instability. The solution of the financial crisis lies either in keeping the economy on the 'sustained economic activity' track or, if derailed into 'booming economic activity', aiding its retrieval into 'sustained economic activity' again. Dominant returns that are offered by a given sector due for example to some governmental relaxations result in unsustainable investment in that sector and thus in bubble formation. Rupture of the credit bubble affects the confidence of financial markets in the downward direction which results in speculation reversal causing large scale debt deflation. Government must therefore act to protect the financial system from such confidence shocks. It must act to protect the slumbering instability from awakening and therefore constantly vigil financial and non-financial sectoral prices, credits, and activity deviations. Similarly, commercial banks' risky behaviour can be contained by putting constraints on their sectoral operations.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available