LEICESTER, England, June 9 (UPI) -- Bankers, economists and politicians shared a "manic culture" of denial and omnipotence 20 years before the 2008 financial collapse, a British researchers says.
Professor Mark Stein of the University of Leicester School of Management said the Western financial world saw but did not heed warning signs from the collapse of the Japanese economy in 1991 and the 1998 crisis in southeast Asia -- and then went into an overdrive of denial, escalating its risky and dangerous lending and insurance practices in a manic response.
The study, published in the journal Organization, suggested Western economies, in the run up to the 2008 credit crisis, displayed manic behavior seen in the psychologically disturbed -- and it could happen again.
"Unless the manic nature of the response in the run up to 2008 is recognized, the same economic disaster could happen again," Stein said in a statement. "Witnessing the collapse of communism, those in power in the West developed the deluded idea that capitalist economies would do best if they eschew any resemblance to those communist economies, thereby justifying unfettered financial liberalization and the destruction of the regulatory apparatuses of capitalism."
The massive increase in credit derivative deals, industrialization of credit default swaps, and the removal of regulatory safety checks, such as the repeal in the United States of the Glass-Steagall banking controls, were a manic response to the financial crises within capitalism, Stein said.
"Whether one examines the actions of banks and hedge funds, or the limitations of ratings agencies, auditors, regulators and governments, a more worrying and deeper question emerges concerning why so many parties, more or less simultaneously, were implicated in such unprecedented and extreme risk-taking," Stein said.