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financial crises « Previous | |Next »
July 2, 2011

In The Busts Keep Getting Bigger: Why in the New Review of Books Paul Krugman and Robin Wells describe a crisis in finance capitalism thus:

Suppose we describe the following situation: major US financial institutions have badly overreached. They created and sold new financial instruments without understanding the risk. They poured money into dubious loans in pursuit of short-term profits, dismissing clear warnings that the borrowers might not be able to repay those loans. When things went bad, they turned to the government for help, relying on emergency aid and federal guarantees—thereby putting large amounts of taxpayer money at risk—in order to get by. And then, once the crisis was past, they went right back to denouncing big government, and resumed the very practices that created the crisis.

That describes 2008-9. It also describes the 1991 crisis. And those of 1982–1983 and 1970.

Their argument is that the great financial crisis of 2008–2009 is the most recent installment in a recurrent pattern of financial overreach, taxpayer bailout, and subsequent Wall Street ingratitude. And all indications are that the pattern is set to continue. We’re seeing, they say, a repeating cycle of financial overreach, crisis, and bailout and the busts keep getting bigger.

The reason, they argue, is the abdication of regulatory oversight in the US. The regulators keep abdicating despite repeated financial disasters because they assumed that financial markets could do no wrong.They say that it’s hard to make sense of the growing ability of bankers to get the rules rewritten in their favor without talking about the role of money in politics, and how that role has metastasized over the past thirty years. They say:

Despite what some academics (primarily in business schools) claimed, the vast sums of money channeled through Wall Street did not improve America’s productive capacity by “efficiently allocating capital to its best use.” Instead, it diminished the country’s productivity by directing capital on the basis of financial chicanery, outrageous compensation packages, and bubble-infected stock price valuations.

The aftermath of the 2008–2009 crisis in the US is that the United States is on track to spending the better part of a decade experiencing high unemployment and sub-par growth blighting millions of lives—particularly the old, the young, and the economically vulnerable.

Greece shows that finance capitalism, with its new concentrations of wealth and income, is not American---it is global. With it comes, as Iceland, Ireland and Greece highlight, the incompatibility between global finance and fragmentation of political sovereignty at the national level.

Domestic finance could be tamed in the previous century through national institutions (regulation, legislation, central banks, and so on), but these cannot control global finance capital, and the possibility that global regulatory institutions can be created is nil in the near future.

| Posted by Gary Sauer-Thompson at 6:26 PM | | Comments (4)
Comments

Comments

There is a dividing line in politics about the financial 2008 meltdown. It runs between those who believe that 2008 was a disaster brought about by under-regulated financial markets and those who think it revealed a disaster of excessive government spending.

The market crisis school want finance tamed and state efforts to rebalance the economy. The state crisis adherents want government spending cut back and the mighty engine of finance to be fired up once more (with a bit of new regulation, but nothing too drastic).

I awlays suspected that those wankers, idiot and f&@king sociopaths who got us into this mess would eventually turn on their benefactors. After all it's in their nature to be utter arseholes. That's what they're employed to do!

And the tools in government won't do anything to curtail their voodoo magic. Oh yeah... too big to fail.

(I even saved a cartoon from a couple of years ago, as a reminder... http://web.aanet.com.au/~mars08/imagess.jpg ... feel free to use it, Gary)

Well, even the conservatives have a word for it- moral hazard.
In other words, even conservative dogma demands personal accoubtability and that's been the very thing that neoliberalism has aimed at eradicating, on behalf of its sponsors, at the expense of the rest of the world.
As Mar's cartoon makes plain, it becomes hard work for the ordinary masses to hump this burden additional, on top of things they are already rightly and properly obligated to.

The only problem with Moir's cartoon is that he didn't make the falling guy anywhere near FAT enough.

Just look to the US where state governments are penniless, while amoral fund manages "earn" billions of dollars. Where public sector workers are stripped of their entitlements, while the portion of tax revenue derived from corporate taxes dropped from about 20% in the 1960s to under 9% in 2010. Where any percentage increase in median household income has slipped further and further behind the growth of GDP.

In no way, shape or form is this the sort of "capitalism" that the tories endlessly pretend to bang on about.