Has the financial crisis led to a paradigm shift?

Before the outbreak of the global financial crisis (GFC) in 2007, the ways in which financial markets, institutions and actors functioned reflected, to a great extent, specific paradigms about how financial markets and institutions ought to work and how investors behave. Markets were perceived as informationally efficient, and financial innovation was considered an effective tool of risk management and economic growth (see also Greenspan 2000). Equally, self-regulation of the markets by the financial industry was considered an effective regulatory tool. The pro-self-regulatory approach of policy-makers before the crisis was patent in the opposition of the US Treasury, the Securities and Exchange Commission (SEC) and the Federal Reserve to the attempts of the Commodity Futures Trading Commission (CFTC) to strengthen the public regulation of over-the-counter derivatives in the late 1990s (Nutting 1998). Gradually, in the last couple of decades, politics had come to be seen as subordinate to the markets. Ever since Francis Fukuyama's post-1989 'end of history' idea became prevalent (Fukuyama 1992), suggesting that Western-style liberal democracy combined with capitalism had prevailed over other socio-economic paradigms, the neoliberal version of free market economy with a limited role for the state became the dominant one. In the second half of the 2000s, markets were increasingly less subject to political scrutiny while regulatory institutions and mechanisms were further relaxed. Nobody questioned the entanglement of vested interests within such institutions and mechanisms, and financial rating agencies became hegemonic in making the day or predicting doom and gloom for entire countries and economic activity sectors. International organisations such as the Organisation for Economic Co-operation and Development (OECD) and the World Bank or the International Monetary Fund (IMF) did little to effectively contest this subtle erosion of their power in favour of more private and even less accountable private actors such as banks, multinationals and rating agencies. The roles of the IMF and of the World Bank before the GFC generated much dissatisfaction among global civil society (Higgott 2012: 20)