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Introduction

The world’s contemporary financial situation is one experiencing the effects of a global financial crisis. The financial crisis occurred due to an essentially capitalist structure and persisted and spread globally due to neoliberalism, a new order whereby all states collaborate instead of compete with one another. This unique new situation in global financial history can be explained well through the critical theory which suggests that societal imbalances are refutable but that people are conditioned to exclude certain groups socially which means that the financial crisis persists and the poor remain the poor. The theory also encourages the use of dialogue for interaction between nations.
Neoliberalism
Neoliberalism is a theory in international relations formed in response to neorealism. Critical Theory and the Crisis of Capitalism The neorealists argue that each country should pursue their own gains with no attempts made at cooperation as this would not benefit the state. This somewhat cynical view holds that the states are always competing and anarchy prevails. To gain any benefit, a state must be competitive and must put its own advantage on the forefront and disregard the viewpoints of other states. (Behr, 2009)
In contrast, neoliberlism is all about cooperation between states. It is often used interchangeably with globalization but neoliberalism is not restricted to economic exchange. It includes cultural exchange as well.

Neoliberalism advocates cooperation between states in order to achieve absolute gains as opposed to relative ones. It says that to realize their maximum potential, states should focus on working together and not aggressively compete. (Baldwin, 1993)
In believes that interaction and collaboration will lead to greater benefits for all parties. If the system of cooperation is adopted all around, cooperation will be rewarded in the form of gains for each country. It thus advocates the setting up of institutions to advance cooperation.

Global Financial Crisis
The global financial crisis was brought on simply put, by losing track of risk. Greedy financiers lent money to subprime borrowers who had a doubtful credit history and thus a high risk. Critical Theory and the Crisis of Capitalism The result was exorbitant returns which were not sustainable and the borrowers defaulted. The symbolic collapse of Lehman Brothers bank led to a downward spiral. Primarily, the subprime lending was for mortgage and the asset bubble burst leaving the banks with defaulted on houses and no buyers and a desperate need for bailout.

The mortgages were pooled into and backed by Collateralized Debt Obligations which were then given favorable ratings by trusted companies like Moody’s. The pooling together of the securities was thought to diversify risk and make for a positive investment. However, this diversification was not useful since the assumption that different housing markets in different states would not move together did not hold.

Banks and hedge funds too looked to the higher yielding albeit riskier avenues due to the favorable ratings on these and the low interest rates prevalent. The staggering and unstable market of risky securities that had developed was largely due to the trust of the investing publics. It was this that was to be maintained to ward off immediate threat but the consequences could only be delayed, not terminated. Mark to market regulations led to the revaluation of assets which in turn led to devaluing of the securities and as Lehman Brothers was allowed to go bankrupt, the ensuing panic and pulling out of funds delivered the final blow to the latent crisis and the whole system collapsed.

The question then arises how the lack of foresight and responsibility demonstrated by the financiers in the US cause what is remembered as the global financial crisis the effects of which are still felt today? The savings glut in the emerging economies especially China and the availability of safe and attractive investment securities in the US resulted in an inpouring of funds in American securities whose collateral assets were about to fall drastically in value.
Not just the savings glut in emerging market but the large inflow of funds from the European market too caused the financial crisis to spread to Europe. Europe was in fact in the thick of things, borrowing from American money market funds and investing in the subprime securities. The central banks of both Europe and America were to blame for not stopping the inflation of the asset bubble.

Capitalism is at the heart of the global financial crisis and the ensuing events like the euro crisis and the general slowdown of economies and high volatility. It is capitalism that encourages the rich, or those with money to invest it making high returns and get richer. The very system of finance is based on multiplication of existing money ensuring that only those with money can make more and more of it while those without are shunned or suffer the ghastly effect of losing their life savings to the negligence of the giants.
Even today it is seen that the capitalist system means that the countries would allow the global giants to enter their markets and do not shelter the nascent struggling industry within the country reducing the creating of employment and the gross domestic product of the country in question. Neoliberalism is again at the heart of this financial and economic global crisis. The idea that collaboration and cooperation should exist means freer markets which in turn mean that the

Global Financial Crisis and Neoliberalism
Neoliberalism is at the heart of the global financial crisis. The theory which states that countries should collaborate to the greater advantage of all involved encourages the sort of behavior displayed by the countries during the global financial crisis. Investing in other countries when favorable opportunities erupted led to