Current Global Credit Crunch began with 9/11

A Queen’s University academic has claimed the seeds of the current global credit crunch lie in the US response to the 9/11 terror attacks.

Dr Andrew Baker made the claims at the launch of a new Politics, Philosophy and Economics degree at Queen’s. The course - the first of its kind in Ireland - will give students a unique insight into how politics, business and commerce overlap and including what has caused the global economic crisis.

Launching the course, Dr Baker said: "While there is no simple, straight-forward explanation for the recent economic downturn, we can trace the roots of the crisis back to the 9/11 terror attacks. After 9/11 American people were encouraged to spend, spend, spend in the spirit of patriotism, to help restart the flailing 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 home owners 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. The homes that had underpinned loans between banks and their customers, and the spin-off trading between banks and other banks, decreased in value.

“With rumours abounding about the state of some banks’ finances, banks stopped lending to one another. Credit dried up, mortgages became much harder to obtain and property prices fell further. The share prices of banks then began to tumble. 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.

“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.

“The origins of this crisis are complicated, but are undoubtedly rooted in the relationship between politics and economics - a relationship to be explored by students on the Politics, Philosophy and Economics degree at Queen’s.

“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.

“As politicians and economists try to steer the global economy through completely unchartered waters, there’s never been a better time to study Politics, Philosophy and Economics."

Anyone interested in the course can find out more at an Information Day at the School of Politics, International Studies and Philosophy at Queen’s on Wednesday 29th October at 1.30pm or visit the School website at www.qub.ac.uk

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 like Rupert Murdoch, politicians such as Imran Khan, and journalists including BBC political editor Nick Robinson.

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."

For more information on the BA Politics, Philosophy and Economics at Queen’s visit the School of Politics, International Studies and Philosophy website at www.qub.ac.uk