Cause and Effect (Part 2)

In order to understand what caused the Financial Crisis, we need first to understand what it means to cause something.

Classically, causation can be classified four ways. We looked at material and efficient causes yesterday. Today we will examine formal and final causes. The formal cause of a table is the plan for a table–a horizontal plane supported by several legs. Think of it as the blueprint, or ideal structure. The formal cause of a chemical reaction would be periodic table and electro-chemical potential of various molecules.

The final cause is the purpose it serves. The final cause of a table is to lift stuff up so someone can get at it. The final cause of a car is transportation. It’s what we

So when we ask what caused the Financial Crisis, we should look at it classically, using the four causes. The efficient cause of the crisis was the subprime mortgage market; the material cause was monetary and financial flows; the formal cause was the structure of the financial system; and the final cause was to correct the imbalances and distortions that had developed in the economy.

We need to look at the crisis as fully as possible in order to understand it. Because if we don’t understand history we’ll just go through it again. We sure don’t need that.

Douglas R. Tengdin, CFA

Chief Investment Officer

By |2013-08-27T09:46:17+00:00August 27th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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