The Effects of 2008 Financial Crisis on Neoliberal Globalization (Essay Sample)

The Effects of 2008 Financial Crisis on Neoliberal Globalization
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The global financial crisis of the year 2008 had significant effects on neoliberal globalization, most of which are still felt in the current economic setting. The crises affected the economic arrangements of different states of the globe making them to restructure their fiscal policies (Anagnost, 2020). Taking a deep look into the crises, which exhibited some similarities with the market crash of 1929, it typically involved the loss of credit, reckless speculation, and excessive accumulation of debt in the asset markets. The year was characterized by the cheaper credits and significantly lax standards of lending, which contributed to the fueling of housing bubbles. After the bubble burst, most financial institutions were left with trillions of dollars which became worthless investments in subprime mortgages. The crisis facilitated the changes in the neoliberal globalization impacted by creating economic frameworks, which necessitated the need to maximize the investment costs to raise the profit and reduce the social securities.
The immediate effect of the crisis is that it led to many banks' failures in the world due to the deregulations and uncontrolled provision of housing mortgages. This resulted in the sharp decline in the confidence that the investors had on the banks' abilities to settle all their debts fully and the reduction in the credit availability from the banks that led to the increase in prices of stocks and commodities. Banks were among other businesses that suffered failures. The harsh economic conditions that came about following the 2008 crisis had hit the economy hard. The people's general livelihood was greatly affected, and their living standards affected at the end due to their reduction in income and rise in unemployment that rose rapidly during the period. This brought about the need to find ways to solve the issue of bank failures.
Neoliberal globalization at the time of the crisis involved the global policies related to economic liberalization. They include such policies as deregulation, free trade, austerity, globalization, and the substantial reduction in governments' spending so that the private sectors in the global financial markets can de dominant. The characteristics of neoliberal globalization, therefore, include free trade and free markets. Neoliberal globalization was affected by the 2008 global financial crisis, since to attain the economic stability, there had to eb an opposition and utmost defiance of neoliberal globalization policies. The crisis notably led to the end of the neoliberal globalization policies because the stock market became a little liberalized, and most financial institutions reconstructed on their lending systems.
During the global financial crisis of 2008, most of the mortgage lenders started to expand their credit-worthy definition and expand the mortgages to more buyers, including those who had downright poor credit histories. This led to a trajectory increase in the prices of houses, which affected many people. Additionally, most of the banks went into a fatal crisis after the faltering of the home prices. Therefore, this instilled fear into most of the banks, which feared lending to each other. The banks feared becoming stuck with the collateral subprime mortgages. As researched by Anagnost, (2020), the period experienced a more consistent and economically tragic state of market plummeting, which lead to the erasure of wealth. The mitigation strategies to contain the situation by most states bore no fruits as the effects escalated, leading to the various impacts, some of which are still felt until the present day. Among these effects contributed to ending neoliberal globalization policies, which had, by then dominated the globe.
The financial crisis of 2008 ended neoliberal globalization when various governments intervened in financial markets in response to the deregulation of most financial institutions. Most governments, including the United States government allowed most financial institutions and markets to establish policies that could be more lenient to traders. Before then, there had been deregulation of financial flow. The neoliberalists had opposed the measures meant by the government to intervene in the financial crisis. There was the formulation of more stringent fiscal policies that regulated the cash flow during that time of the crisis.
After the crisis, there was a sovereign debt burden which resulted from uncontrolled spending by some countries as a measure of economic cushion during the crisis. Notably, most countries, for example, Italy, Spain, Portugal, Ireland, and Greece, were significantly affected by the act of overspending what they had gotten prior to this crisis. It later turned out that these countries spent a lot over what they had earned. This irresponsible spending had contributed to the surge in the bonds interest rates due to the fear of the growing countries' debt. These countries turn to borrow from money lending agencies to curtail the debt crisis. This was owing to the rise in the rates of interest and it turned out that these countries could not shoulder. The borrowing came with some strict terms from the lending bodies.
These lending bodies facilitated the ending of neo-liberalization by then, owing to the fact that most countries were in a debt crisis. They included bodies like the European Union and the International Monetary Fund which demanded that these countries should come up with measures to ease up the labor market, restructure their welfares, and get involved in the austerity programs. The liberalization of the labor market and its restructuring was aimed at the governments gaining significant control over their labor markets financially and boosting their financial ability to grow.
The financial crisis prompted changes in the policies that were had a significantly adverse contribution to the liberalization. Many countries focused on salvaging banks that were on the verge of collapsing and came up with some key labor reforms. The efforts like reductions in the employers' social insurance pay and the introduction of subsidies were put in place to help control the unemployment rate that was undergoing a steady rise. These measures were typically antagonistic to neoliberal policies. The various state governments also increased the scope and amount of the then employment market policies, specifically those aimed at bringing an increase in the number of those getting absorbed to the job industries.
The crisis brought about the rise of capitalism, especially in the United States due to households extended and uncontrolled indebtedness. Before the crisis, the lending companies gave out loans to people of even poor creditworthiness who in most times did not pay back the loans. There was an increase in the pressure buildup on the households since they could not pay their loans. The introduction of policies to help curb this was introduced to help control this by deflating the housing bubble and finally bringing to an end the neoliberal era.
A regime of change came up due to the occurrence of this crisis. It was not anymore based on the financial capitalization as before since that had seen a period of conspicuous setbacks of capitalism. The financiers and the rentiers' coalition regime were seen to be brought to an end. The group that was seen to remain was those financiers who were also the professionals; their prowess and privilege continued to be seen though to a small extent. The massive rentier shares in the national revenue were remarkably under criticism but ignored to consider the meritocratic arrangements' legitimacy. The continued merit on the significant income differences saw the new regime still emerge with a continued but changed focus on the productive and manufacturing sector.
There was increased economic coordination between the world G20 countries to address the crisis. This economic crisis prompted the making of international restrictions on borrowing to curtail the financial crisis. The developing countries suffered the restrictions that ensured that their borrowing abilities were placed under excellent control. The rich countries suggested that they develop their foreign savings as this could promote their growth. This did not work for them since it comes out by the pressurizing and mush demanding to them. This, on the other hand, was responded to by highly rated substitution of foreign to domestic savings and a crisis involving recurrent payment. The rich and more developed countries did not have any restrictions on borrowing since they were not involved in the acts. They rarely borrowed funds from external funding bodies but rather from their internal sources and their currency that never affected the conversion.
The privatization issue saw the economic development back the government intervention. The governments of different states that were at the heart of the crisis took charge of the market control to put measures and ensured the observation of these measures. The private sector had proven to be unreliable in determining the future of the economy since their major aim was seen to be unbalanced and it majorly focused on making profits rather than caring about bettering the future. The various governments, therefore, ensured that they strengthen the banks that had collapsed due to the crisis. They ensured no risky lending due to competition from the lending bodies, in that case, the banks. On borrowing, they placed strict measures to ensure that lending was done with the aim of investment and not spending on things that did not plow back to both the borrower's pockets and the economy to promote economic growth.