The 2008 Financial Crisis and the Rise of China's Global Power

Introduction to Altman's Analysis

In his article "The Great Crash, 2008: A Geopolitical Setback for the West," author Roger Altman analyzed the series of events that led to the "Great Crash"—the American economic crisis of 2008. In examining the causes of the Great Crash, Altman also considered the major players affected by and, in some cases, benefited from the crisis, discussing its potential long-term effects on countries in the West and in China. The article demonstrates how the economic crisis was preceded by years of exceedingly positive outlook on the U.S. economy, leading to "rampant speculation" in critical markets—particularly the housing market—along with the U.S. government's "overly accommodating monetary policy." Underlying all these causes is the emergence of Asian economies that are challenging not only the United States' economic stronghold, but also its political influence on the global stage.

This review of Altman's politico-economic analysis focuses on two important themes. First, Altman examines how U.S. domestic economic policies were shaped by political events and how those events influenced the way the U.S. and other countries perceived American economic and political power. Second, Altman predicts the future of the U.S. as a global political and economic leader, given that countries such as China and India are gradually emerging as competitive challengers capable of influencing economies and governments worldwide. Combining both themes, Altman concludes that as a result of the Great Crash, the economic and political power the U.S. previously held will be increasingly challenged by emerging economies that were not significantly affected by the 2008 crisis—most notably China.

Post-9/11 Monetary Policy and the Financial Bubble

In developing the first theme, Altman points to the attitude of the American government in the aftermath of 9/11. He argues that the monetary policies implemented after the attacks were "overly accommodating" and greatly favored credit and loans at low interest rates. Increased and indiscriminate lending activity spurred the U.S. economy after 9/11, fueling a booming housing market domestically and generating a highly positive outlook on both the stock market and the U.S. economy in general. Looking at the economic behavior of Americans and of the economies dependent on the U.S. prior to the crisis, the prevailing mood can be described as profoundly optimistic—likened, in retrospect, to a financial bubble.

Because of this positive outlook, financial institutions and even private individuals engaged in highly risky behavior, encouraged by the expectation that the economy would only improve as the U.S. maintained its role as global leader even after 9/11. The widespread belief that prosperity would continue indefinitely made the warning signs of systemic risk easy to ignore, setting the stage for the eventual collapse.

The Collapse of the Housing Market and U.S. Economy

This optimistic environment could not be sustained. Because of poor credit standards and bad loans, financial institutions were unable to maintain the bubble. Poor returns on loans and credit eventually caused it to burst, and the housing market was the most visible manifestation of the crisis, since the majority of poorly underwritten loans had been directed toward mortgages. "Rampant speculation" ultimately caught up with U.S. investors, resulting in plummeting stock prices, companies declaring bankruptcy, and financial institutions scrambling to redirect investments toward more profitable economic endeavors—of which China stood to benefit as an emerging economic power.

Conclusion

Altman has predicted these future events almost to the point of accuracy, as China is now actively challenging the U.S. economy while the latter continues to struggle with the economic slump that began nearly four years before the article was written. Altman's analysis makes clear that the Great Crash was not merely a financial event but a geopolitical turning point—one whose consequences for the global balance of power are still being felt today.