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Is it fair to blame investment bankers for the global downturn ?

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Introduction

´╗┐Is it fair to blame investment bankers for the global downturn? It seems to be quite easy to jump on the ?bank-wagon? and blame investment bankers for the current global economical downturn. The current downturn in question is one which is generally accepted by the financial industry to have started in 2007, and was officially dated December 2007 by the National Bureau of Economic Research (NBER).The question is, whether this industry and its bankers are the root cause, and if so, could they have avoided it? The word ?bankers? can imply different meanings to different people, so to clarify, when I use the word ?bankers? in this text, I am referring to investment bankers. The first article I analysed is by Jonathan Wang, Ph.D., and entitled ?Real Causes For US Financial Meltdown and Global Recession? (March 2009). Wang is the President of Amlink, a multi-million dollar company which provides links in trade and politics between China and the United States of America (USA). He is based in Michigan, USA. I will be comparing it to John Gapper?s ?Promises that proved ultimately empty? (January 9th 2012)[1]. Gapper is the assistant editor and chief business commentator for the Financial Times newspaper and website. He is based in New York, USA. Wang has an opinion that the bankers are unaccountable as the blame is with the governments whereas Gapper has an antipodal view in line with the assessment Wang gave, stating ?it was within banks where the crisis emerged and where its heart still lies?. ...read more.

Middle

In the United States he was awarded the Best Columnist Citation by the Society of American Business Editors & Writers; and in the UK he was award with the Best Business Columnist at the Comment Awards. He also has a degree in Philosophy, Politics and Economics from Oxford University. Both articles have strengths and weaknesses, and it is better to analyse these sections rather than attacking the author (ad hominem). The chain of argument in both articles has been constructed quite rigidly, and allows the statements made by the respective authors to reach their necessary conclusions. Wang concludes that increasing tax on the top income groups becomes necessary as the government must focus on stabilization rather than expansion. His main reasoning for this is ?when the share of total income going to [the] top 10% reached 50%, the capital market crashed in the United States?. He also has an intermediate conclusion that the ?Government?s improper interventions in the capital market before both episodes of crisis had accelerated the extreme inequalities and ultimately intensified the crisis.? Wang reasons that ?It is the extreme inequality that has resulted in the great depression in 1929 and again caused the global recession today?. This is fallacy of the single cause as the recession in 1929 has three are three general theories on what caused the 1929 depression, Keynesian, Monetarist & Austrian. ...read more.

Conclusion

His perspective of social inequalities is only US based but I can understand his assumptions that expansion was high and the consequence of this led to social inequalities. This has happened elsewhere, such as during the Chinese Mao era of 1949-1976, in particular during the Great Leap Forward (1958-61). Gapper?s perspective has persuaded me that he is of more expertise than Wang as he is so influential in finance media. His analysis was concise and constructive. He quoted many important figures in his article including an executive director of the Bank of England; Chairman of the Financial Services Authority; and a Professor of Entrepreneurship at MIT Sloan school. His arguments are quite strong however he does go a stage of a circular argument where he should be concluding his article. His evidence did strengthen my perspective however Wang?s comments led me to read more into financial theories, especially of those surrounding the 1929 Great Depression. He managed to intrigue me into the history of the financial world and I do believe that 1929 and 2007 are very similar in the cause, but the cause is the banking industry, not the housing market. Wang has only commented on the United States but his views may apply worldwide however his lack of evidence weakens his perspective as it is too narrow. My final conclusion is that investment bankers were the major, not the only, cause of the global downturn which started in 2007, and we have to share the blame for the current economical state ________________ [1] [2] [3] ...read more.

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