It is now more than a year since the sub-prime lending crisis in the US mortgage sector came to light. The unprecedented and still unfolding financial crisis in the developed world brings with it the end of the illusion of the market being “efficient”. This is the time for a fundamental rethinking on financial liberalisation in order to reduce systemic and global instability. This section presents papers and articles that seek to explain the causes and consequences of the U.S. subprime mortgage crisis. Through a critique of the underlying structure and dynamics of deregulated finance, they analyse how this crisis has led to a generalized credit crunch in other financial sectors, which ultimately affects the real economy and the world economy at large.

• Will the Paulson Bailout produce the basis for another Minsky Moment?
  Jan Kregel
  The reorganisation of the financial system that appears to be taking place in the US does not seem to respect the basic principle that any reformulation of the regulatory system should limit the size and activities of financial institutions, and should be dictated by the ability of supervisors, regulators etc. to understand the institutions’ operations. Instead, it seems to support larger financial institutions that are created by merging weak institutions with stronger ones. If the present trend of bank mergers continues, the resolution of the crisis, as Minsky always predicted, will lay the basis for another financial crisis.
  

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• A Perspective on the Crisis
  Prabhat Patnaik
  Discussions of the current world economic crisis tend to focus exclusively on the bursting of the housing bubble in the United States. This no doubt is the immediate cause of the crisis, but underlying its operation is the fact that the stimulus for booms in contemporary capitalism has increasingly come from such bubbles. The U.S. whose size and strength make it, in the current regime of trade liberalization, the main determinant of the pace of expansion of the world economy as a whole, has increasingly come to rely on such bubbles to initiate and sustain booms. The dot-com bubble whose bursting had caused the previous crisis was followed by the housing bubble which started a new boom. This has now come to an end, precipitating a major financial crisis and initiating what looks like a major depression reminiscent of the 1930s.
  

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• Proposals for Effectively Regulating the U.S. Financial System to Avoid Yet Another Meltdown
  James Crotty & Gerald Epstein
    
• Policy and Security Implications of the Financial Crisis: A Plan for America
  James K. Galbraith
       
• The Time has come: Let's Shut Down the Financial Casino
  ATTAC's Statement on the Financial Crisis and Democratic Alternatives
       
• We need a Paradigm Shift
  Jayati Ghosh
  Everyone now recognises the need to reform the international economic regime. But the idea should not simply be to fix a system that is obviously broken: we need to exchange it for a better model. That is because the current financial architecture has failed in some very important ways.
  
  Most importantly, the international financial system has failed to meet two obvious requirements: of preventing instability and crises, and of transferring resources from richer to poorer economies. Not only have we experienced much greater volatility and propensity to financial meltdown across emerging markets and now even industrial countries, but even the periods of economic expansion have been based on the global poor subsidising the rich.

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  The Financial Crisis and the Developing World
  Jayati Ghosh
  The past two weeks have made it clear that the developing world is far from immune to the storms raging in financial markets in industrial countries. Stock prices in emerging markets have gone on similar roller coaster rides to those in New York and Europe. Indeed, they have shown such very high volatility, going sharply up and down on a daily basis around an overall declining trend, that the pattern is reminiscent of the behaviour of stock indices in the last major international financial upheaval in 1929/30 – the Great Depression. And the credit crunch and freezing of interbank lending have been only too evident even in developing countries whose economic “fundamentals” are apparently strong and whose policy makers believed that they could de-couple from the global trends.
  This almost immediate diffusion of bad news is the result of financial liberalisation policies across the developing world that have made capital markets much more integrated directly through mobile capital flows, as well as created newer and similar forms of financial fragility almost everywhere. But the international transmission of turbulence is only one of the ways in which the global financial crisis can and will affect developing countries.
  

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• Structural Causes of the Global Financial Crisis: A Critical Assessment of the 'New Financial Architecture'
  James Crotty