Abstract
This chapter examines the background to the Great Financial Crisis of 2008. It focuses on how since 1979 regulatory and tax policies introduced by both Conservative and Labour governments fostered the growth of the City of London at the expense of other sectors of the economy. This period saw a rapid growth in financial innovation which led the sector to play an ever more significant role in the economy. The chapter also examines why political elites chose to favour the interests of finance over other sectors of the economy. In part, this was a consequence of extensive lobbying by the sector, but it was also because financial innovation came to underpin a new growth model based on expanding consumer debt which helped to compensate for stagnant wage growth. However as the events of 2008 proved it was a model that was both dangerous and unstable.
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Notes
- 1.
The use of speculative or ‘naked’ CDS contracts are alleged to have been central to some of the most controversial events of the financial crisis. Most notoriously, Goldman Sachs was accused of creating and then selling toxic mortgage backed securities as sound investments to its clients whilst simultaneously betting against those same securities using CDS contracts (Morgenson and Story 2009).
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Berry, M. (2019). The Rise and Fall of British Finance. In: The Media, the Public and the Great Financial Crisis. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-1-137-49973-8_1
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