A Brief Look at the Sub-Prime Crisis : Was It a Regular Business Cycle, the Result of Lax Supervision and/or a Regulatory Failure?

The global economy has been in an interesting position the last year. Many economies of all types, sizes and origins are in fear of, or actually in, recession. The terms ‘credit-crunch' and ‘sub-prime' are common parlance referred to on a daily basis by newspapers and common laity. This is a testament as to the force of sentiments held in common thought. Financial markets are built around risk and uncertainty. These markets are important because they handle much of the money in the economy. There is undeniably a need for regulation because of the ‘special economic role of money and the uncertainty associated with it.' There is a great deal of contention over issues to do with how the current situation came about. The hunt has begun for those responsible. Critics and academics are pointing the finger of causal blame in all directions. Very few players in the financial sector have escaped criticism in some form. The process of rationalising the various contributory factors is a complex task. To make any sense of the forces involved it is necessary to analyse and consider the build-up of the crisis from various perspectives. It soon becomes apparent that regulators were behind the trend in the markets. Regulatory approaches, monetary policies, macroeconomic factors and the general attitude towards debt combined to form the recipe for the current crisis. It is clear that it is the culmination of these various factors that has led to the current crisis and it is impossible to put the blame on one head. This paper shall attempt to describe the various contributory macroeconomic and regulatory factors, to assess their interactions and to highlight their importance