Journal of Institute of Control, Robotics and Systems (제어로봇시스템학회논문지)

Institute of Control, Robotics and Systems (제어로봇시스템학회)
권호 표지
DOI QR코드

DOI QR Code

Analysis of the Cause of the 2008 Financial Crisis using the Supervisory Control Theory

관리제어이론을 이용한 2008년 금융위기의 원인 해석

  • Park, Seong-Jin (Department of Electrical and Computer Engineering, Ajou University)
  • 박성진 (아주대학교 전자공학과)
  • Received : 2014.07.28
  • Accepted : 2014.09.12
  • Published : 2014.10.01
Download PDF
⟨ Previous Next ⟩

Abstract

In the aftermath of the financial crisis of 2008, while numerous members of the general public lost their homes and jobs, many of the largest banks held responsible for the crisis have been successfully rescued by bailouts. In this paper, through the analysis of income inequality, unemployment, tax cuts, and bailouts, we show that the interests of the general public are different from the interests of politicians and bankers. While the small elite group of politicians and bankers could set the deregulation policies with inordinate power based on full information, most people were ignorant and unconcerned about the policies, and hence did not oppose them. Specifically, we model the credit change in the financial markets of the United States by a finite state machine, and design three local supervisors representing three groups with different interests. It is then shown that the deregulation policies were adopted according to the difference of the supervisors' powers.

Keywords

References

  1. P. J. Ramadge and W. M. Wonham, "Supervisory control of a class of discrete event processes," SIAM Journal on Control and Optimization, vol. 25, pp. 206-230, 1987. https://doi.org/10.1137/0325013
  2. S.-J. Park, "Non-blocking supervisory control of dynamic competitive markets," IET Control Theory & Applications, vol. 5, no. 10, pp. 1223-1227, 2011. https://doi.org/10.1049/iet-cta.2010.0563
  3. S.-J. Park and K.-H. Cho, "Modular nonblocking state feedback control of discrete event systems and its application to dynamic oligopolistic markets," Inter. J. of Control, vol. 84, no. 12, pp. 2046-2057, 2011. https://doi.org/10.1080/00207179.2011.633231
  4. S.-J. Park, "Supervisory control for dynamic monopoly," IET Control Theory & Applications, vol. 6, no. 7, pp. 992-999, 2012. https://doi.org/10.1049/iet-cta.2011.0507
  5. S.-J. Park, "Stability analysis of competitive markets by supervisory control theory," Journal of Institute of Control, Robotics and Systems (in Korean), vol. 16, no. 11, pp. 1025-1028, 2010. https://doi.org/10.5302/J.ICROS.2010.16.11.1025
  6. C. P. Kindleberger and R. Z. Aliber, Manias, Panics and Crashes: A History of Financial Crises, 6th Ed., John Wiley & Sons, Inc., 2011.
  7. F. S. Mishkin, The Economics of Money, Banking and Financial Markets, 9th Ed., Pearson, 2010.
  8. J. E. Stiglitz, Capitalist Fools: Five Key Mistakes that led us to the Collapse, The Great Hangover, G. Carter (Edt.), Harper Perennial, 2010.
  9. P. Krugman, End this Depression Now!, W. W. Norton & Company, 2012.
  10. J. E. Stiglitz, The Price of Inequality, W. W. Norton & Company, 2012.
  11. Board of Governors of the Federal Reserve System, 98th Annual Report 2011, 2011.
  12. B. Appelbaum, "Fed turns over $77 billion in profits to the Treasury," The New York Times, Jan. 10, 2012.
  13. Board of Governors of the Federal Reserve System, 33rd Annual Report 1946, 1946.
  14. Center for Responsive Politics, Banking on connections, Jun. 2010.
  15. B. White, "What red ink? Wall Stree paid hefty bonuses," The New York Times, Jan. 2009.
  16. B. Appelbaum and J. C. Mcginty, "The Fed's crisis lending: a million here, a thousand there," The New York Times, Mar. 2011.
  17. K. Kelly and J. Hilsenrath, "New York Fed chairman's ties to Goldman raise questions," Wall Street Journal, May 2009.
  18. D. Baker and T. McArthur, The value of the "too big to fail" big banks subsidy, Center for Economic and Policy Research, Sep. 2009.
  19. R. Lenzner, "The top 0.1% of the nation earn half of all capital gains," Forbes, Nov. 2011.
  20. J. B. Stewart, "In superrich, clues to what might be in Romney's returns," The New York Times, Aug. 2012.
  21. T. Piketty and E. Saez, "Income inequality in the United States, 1913-1998," Quarterly Journal of Economics, vol. 118, no. 1, pp. 1-39, 2003 (updated to 2011). https://doi.org/10.1162/00335530360535135
  22. D. Baker, "The united states since 1980," Cambridge, 2007.
  23. R. Kaiser, "So damn much money: the triumph of lobbying and the corrosion of American government," New York: Alfred A. Knopf, 2009.
  24. J. S. Mill, "Principles of political economy with some of their applications to social philosophy," University of Toronto Press, 1965.
  25. S.-J. Park, "How economic inequality has increased by tax cuts? Power-based modular supervisory control of discrete event systems," IEEE Transactions on Automatic Control, vol. 59, no. 10, pp. 2843-2848, 2014. https://doi.org/10.1109/TAC.2014.2313762
  26. T. Adrian and H.-S. Shin, "Money, liquidity, and monetary policy," American Economic Review, vol. 99, no. 2, pp. 600-605, 2009. https://doi.org/10.1257/aer.99.2.600
  27. M. Schularick and A. M. Taylor, "Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870-2008," American Economic Review, vol. 102, no. 2, pp. 1029-1061, 2012. https://doi.org/10.1257/aer.102.2.1029
  28. C. M. Reinhart and K. S. Rogoff, "From financial crash to debt crisis," American Economic Review, vol. 101, no. 5, pp. 1676-1706, 2011. https://doi.org/10.1257/aer.101.5.1676
  29. J. Crotty, "Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'," Cambridge J. of Economics, vol. 33, pp. 563-580, 2009. https://doi.org/10.1093/cje/bep023
  30. J. G. Palma, "The revenge of the market on the rentiers. Why neo-liberal reports of the end of history turned out to be premature," Cambridge J. of Economics, vol. 33, pp. 829-869, 2009. https://doi.org/10.1093/cje/bep037
  31. B. Lucarelli, "Financialization and global imbalances: prelude to crisis," Review of Radical Political Economics, pp. 1-19, Feb. 2012.
  32. T. Ferguson and R. Johnson "Too bog to bail: The Paulson put, presidential politics, and the global financial meltdown (Part I)," Inter. J. of Political Economy, vol. 38, no. 1, pp. 3-34, 2009. https://doi.org/10.2753/IJP0891-1916380400