World Economy and Ecology The World Financial System in Crisis

The current financial crisis can only be properly understood if it is viewed in an historical context and in relation to economic and political processes. The crisis originated in the rather insignificant arena of the United States subprime mortgage market in 2007, and rapidly esca-lated into the first major financial and then economic crisis to affect the centres of the world economy. Two separate responses to this historically unique situation have been proposed, based on different interpretations of events: on the one hand, there is the view that adapting the existing system by introducing more stringent regulation is an adequate response. On the other, there are those who see the financial crisis as the manifestation of a structural crisis which goes to the heart of the neoliberal world order and which can only be overcome with drastic measures. The unprecedented nature of the situation should not tempt us to consign the lessons learned from history to collective amnesia, however. Some of the strategies adopted in response to the 1929 crash can provide entry points for effective responses to the current world economic crisis: redistribution of wealth, the subordination of international finance under world trade, a revaluation of domestic markets and the welfare state, and greater self-reliance in states on the periphery. Figure 1: Regulation of the financial sector in the post-war period prevented banking crises Proportion of countries with banking crises, weighted by their share of world incom