9-29-07, 10:08 am
August’s financial crisis originated in the United States from the practices of its private financial institutions. These firms have made a heavy entry into the credit sector in recent years, in the housing market but also in consumables, secured by residential mortgages. They have moved into the “lucrative” housing market, which offers a low repayment capacity. (“Nobody wants to lend you money, but we will!”)
This activity is financed by reselling to other agencies (private investors or funds, domestic or foreign) the bonds that materialise from the mortgage debt owed by household borrowers. This characteristic explains why the crisis has been exported—notably in Europe—to those who became the buyers of these bonds, and why it is affecting the stock market. In short, these buyers have become substitutes for public agencies, recently nationalised, whose share of the market is in decline. The neo-liberal state has therefore been deprived of a tool for intervening in the mechanisms of the credit sector.
We know that the level of household debt in the United States is gigantic and can therefore see that the situation is not about to discharge itself. It is being claimed that two million of these households will be faced with having their homes seized.
The problem is knowing whether or not the policies combating the effects of the crisis (the contamination of the real economy and other financial institutions) will be able to guarantee what is called a “soft landing.”
The figures, as reported in the press, corresponding to the refinancing of banks by the credit they are granted by the Central Bank (the “monetary policy”) are often pure fantasy. In the United States the total of these credits has been increased from about $25 billion to $50 billion in a matter of days—nothing too spectacular; much more was done for 11 September 2001.
Nevertheless, at the end of the month we saw a second wave of credits, not as strong but longer-lasting, revealing the persistent nature of the crisis, and a second intervention by the European Development Fund, which seemed to have little precedent.
Thursday 6 September saw a new injection of $30 billion over a period of fifteen days. It smells like something is burning!
The former president of the EDF, Alan Greenspan, made an explosive statement, comparing the current situation to historically formidable financial crises that have come before it. (He was careful not to include 1929 in his list.) Very shrewd it is of him to know how long it will take to stabilise the markets.
However, it is clear that the US government is completely committed to supporting its economy—which does not mean that it is in control of everything, in particular not international propagation. We’re not in 1929 any more.
The situation is complicated, as in any case, financial crisis or not, the US economy is on the brink of a new recession. All possible policy levers have been pulled—a low rate of interest on long-term credit, budgetary deficit, and a weak dollar—though the rates on short-term credits are up again. This will probably not be for very long; but is it enough to avoid the recession?
In fact the threat of recession and the financial crisis must be seen as two manifestations of the problems attached to the trajectory the US economy has been on since the start of neo-liberalism, now over twenty-five years ago: crazy levels of consumption, a deficit in foreign trade, and investment being financed by the rest of the world—an unprecedented trajectory characteristic of the current neo-liberal, imperialist configuration under the hegemony of the United States; a trajectory that it will take a long time to put right. And there will be a cost. The crisis, and a recession, are just the beginning.
From the Socialist Voice (Dublin, Ireland).
