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Ha-Joon Chang explains the turmoil in global markets

August 9, 2011

from David Ruccio

Ha-Joon Chang [ht: ja] explains that the turmoil in global markets was not inevitable, and it won’t be fixed by controlling budget deficits. Instead, he argues, there’s an “urgent need to reform our financial system, whose dysfunctionality lies at the heart of this crisis.” 

Nowhere is this more obvious than in the case of the rating agencies, whose incompetence and cynicism have become evident following the 2008 crisis, if not before. Despite this, we have done nothing about them, and as a result we are facing absurdities today – European periphery countries have to radically rewrite social contracts at the dictates of these agencies, rather than through democratic debates, while the downgrading of US treasuries has increased the demands for them as “safe haven” products.

In his view, we could have created a public rating agency, introduced internationally agreed rules on sovereign bankruptcy, regulated complex financial products and tax havens, and changed the perverse incentive structure in the financial industry.

Woulda coulda shoulda—and now we’re paying the cost.