r administration in the UK adopted what can be called “supply side” economics, the cornerstone of which was reducing the tax rates for corporates with a view to encouraging them to produce more.
The contention of this author is that the credit crunch of 2008 represents stresses that have been building up ever since the 1980’s and these are the result of the brand of economics and policies followed in the US and UK from that time onwards. As I point out in subsequent sections, the changes in the banking sector because of macro and micro factors led to the financial system being unstable. The fact that there were several crises, notably the Northern Rock, the Savings and Loans scandal along with the periodic instability that led to the Asian financial crisis of 1997 did not make it easy for the regulators as well.
The credit crunch can be blamed on a combination of factors that include bad regulation, excessive speculation and a tendency towards risk taking that went beyond the acceptable levels. This tendencies were building up throughout the period starting in the 1980’s and reached their apogee in 2007 when the bubble burst with the fall in the housing market and consequent contraction of the economy. What exacerbated the situation was the spike in Oil prices in 2008 which meant that people had lesser money to spare for repaying their mortgages as the oil price increase pinched the wallets of the consumers (Rubin, 2009).
Atkinson and Elliott point out: The modern era has been characterized by slower growth in average real incomes, higher levels of debt to maintain living standards, greater job insecurity and financial crises that have become more frequent and more far reaching. The only class that has benefited unambiguously from this new world order is that of the gods of greed (Elliot and Atkinson, 2008). To explain this point further, what has essentially happened is that there was excessive speculation that came from availability of easy credit and