Economic turmoil 'linked to 9/11 response'
The seeds of the global credit crunch lie in the US response to the 9/11 terror attacks, an academic said today.
Dr Andrew Baker, senior lecturer of political economy at Queen’s University, Belfast said there could be no simple explanation for the crisis, but argued US reaction to the Twin Towers attack was key.
Dr Baker said too few people understood the complex links between politics, consumer spending and international financial systems and so failed to foresee the consequences of the free market.
“While there is no simple, straightforward explanation for the recent economic downturn, we can trace the roots of the crisis back to the 9/11 terror attacks,” Dr Baker said.
“After 9/11 American people were encouraged to spend, spend, spend in the spirit of patriotism to help restart the failing economy.
“To fuel that spending, in the extraordinary political and psychological climate of that time, US policy makers actively encouraged levels of borrowing and lending that would never otherwise have been allowed.
“As their spending increased, many US homeowners found themselves stretched to the limit. Unable to meet their mortgage repayments, many of their homes were repossessed.
“In the meantime, however, banks and financial institutions had used their customers’ mortgages and the value of their homes to create two new financial products known as mortgage debt securities and credit default swaps in an effort to spread the risk of mortgage defaults, but in reality this just expanded the amount of debt in the system.
“Unfortunately, when the decade-long property bubble on both sides of the Atlantic began to deflate, this house of cards came tumbling down.”
He made his comments at the launch of a Politics, Philosophy and Economics degree at Queen’s.
The course, the first of its kind in Ireland, will give students an insight into how politics, business and commerce overlap, examining issues such as the current crisis.
“As the true extent of banks’ exposure to so-called ’toxic assets’ emerged, governments stepped in to take a stake in the banks, recapitalising them with public money,” Dr Baker said.
“Many are quick to blame irresponsible individual bankers for the crisis, but the reality is that the free market society in which we lived encouraged risk taking and has created a complex system whereby losses in one sector, such as property, have implications for the entire economy.
“That system of financial complexity was created, endorsed and promoted by the regulatory and policy decisions of governments, as well as by the innovations of banks. The problem was that the complexity of the system was so great that too few people understood how it worked and its implications.”
He added: “Now, more than ever, the world needs people who can understand the political structures that govern society; reflect on the ethics and logic of economic decisions; and understand how political actions affect economic matters and how government decisions are influenced by economic events.”
Gerry Mallon, chief executive of Northern Bank, said: “The current crisis illustrates just how intertwined political, philosophical and economic issues are. The introduction of this degree at Queen’s could not be more timely.
“From the perspective of the local business community, this is a hugely encouraging development, as is the prospect of being able to recruit from a local pool of graduates who can combine political, philosophical and economic analyses together in one package.”
Queen’s said a similar Politics, Philosophy and Economics degree at Oxford boasts an impressive list of graduates including former prime ministers and presidents, such as Harold Wilson and Bill Clinton, businessmen including Rupert Murdoch, politicians such as Imran Khan, and leading journalists.
