Bert Olivier
Bert Olivier

Tracking the aftermath of the financial crisis

In Aftermath: The Cultures of the Economic Crisis (Oxford, 2012), Manuel Castells, Joôa CaraÇa, Gustavo Cardoso (editors) and a number of colleagues from the social sciences set out to provide some insight into the financial/economic crisis that flared up in 2008 (and has still not run its course). More than that, as the title of the book intimates, they also uncover the “cultures” that have grown up in the wake of the crisis, to be able to get a sense of where the world is moving to. And they conclude that we may very well be in a major transitional phase towards something new. In the editors’ words (Introduction):

“The crisis of global capitalism that has unfolded since 2008 is not merely economic. It is structural and multidimensional. The events that took place in its immediate aftermath show that we are entering a world with very different social and economic conditions from those that characterised the rise of global, informational capitalism in the preceding three decades. The policies and strategies developed to manage the crisis – with mixed results, depending on the country – may usher in a sharply different economic and institutional system…”

One of the historical ironies that they draw attention to, concerns the rise of the “culture of freedom” after the 1970s, on the one hand, and the entrepreneurialism that grew from the individualism that eschewed collective social action as well as bureaucracy, on the other. Together with the technological innovations emerging from university campuses at the time, this anti-corporate establishment “culture of freedom” laid the groundwork for a new kind of economic system (compared to the preceding Keynesian capitalism), marked by privatisation, liberalisation and deregulation – in short, all those economic practices that launched free market capitalism in its globalising, informational guise, which would (and here is the irony) breathe life into new kinds of multinational corporations. This was further enabled by the new computer technologies which formed the basis of global financial exchanges along increasingly globalised informational networks.

The social structure that emerged in tandem with these developments was theorised by Manuel Castells in a trilogy of books on The Information Age (the first of which, The Rise of The Network Society, appeared in 1996), the continuing conceptual relevance of which is borne out by its explanatory power in relation to the recent financial crisis. In the Preface to the second edition (Blackwell, 2010) of the first volume Castells puts this to the test, as it were, and confirms that the salient developments of the last decade do indeed bear out the accuracy of his structural analysis of major social trends in 1996. Specifically, as far as the global financial crisis goes, he points out that it “…was the direct consequence of the specific dynamics of this global economy”, as earlier analysed by him in The Rise of The Network Society.

Castells reminds his readers that, taken together, six factors generated the crisis: One, “the technological transformation of finance,” referred to earlier, which gave financial institutions the “computational capacity to operate advanced mathematical models” (instilling a false sense of confidence in these institutions, as it turned out) supposedly capable of “managing” the mind-boggling complexity of the interconnected global financial markets via directly effective electronic transactions.

Two, the liberalisation and deregulation of the world of finance, mentioned earlier, seriously undermined the ability of national regulators to control the global flow of capital. Three, the “securitisation” of all economic activities, assets and organisations had the effect of elevating financial valuation to the pre-eminent position of global standard for assessing the value of companies, of governments and even of countries’ economies (taking Marx’s insight into the reduction of use-value to exchange value by capital to a new level). The financial technologies in question generated the invention of what Castells describes as “numerous exotic financial products” (such as securitised insurance, including credit default swaps, futures, derivatives, and options), which, given their intertwinement, increased in complexity to the point where virtual capital made transparency so problematical that “accounting procedures became meaningless”.

Four, the “imbalance” between capital accumulation in developing countries such as China, and capital borrowing on the part of rich countries (such as the US), resulted in excessive lending practices involving consumers, cultivating a culture of debt and increasing the financial vulnerability of the lending institutions. Five, in light of the interpenetration of financial markets and securities, the mortgage crisis that started in the US in 2007 had a ripple effect throughout the global financial system (partly because financial markets only partially obey the logic of supply and demand, being mainly driven by what Castells calls “information turbulences”). Six, the economy (as well as their own bonuses) was “pumped up” by adventurous, if not reckless brokers because of the absence of supervision of financial practices such as securities trading.

In the Introduction to Aftermath Castells and his co-editors (backed up by numerous references to other researchers’ work) can therefore state confidently that:

“…the current crisis stems from the destructive trends induced by the dynamics of a deregulated global capitalism, anchored in an unfettered financial market made up of global computer networks and fed by a relentless production of synthetic securities as the source of capital accumulation and capital lending. Furthermore, the combination of deregulation and individualism as a way of life led to the rise of a new breed of financial, corporate managers focused on their own short-term profits as the guiding principle of their increasingly risky decisions…They rationalised their interests by building mathematical models to sophisticate, and obscure, their decision-making process while disregarding the interest of their shareholders, let alone those of society, or even capitalism at large…The ‘me first’ culture is now a key ingredient of business management…”

They further point to the irony, that the implosion of this type of capitalism that started in 2008 was only arrested by the intervention of the state (despite it being earlier relegated to oblivion by the defenders of “market fundamentalism”), which entailed re-regulation of financial institutions. The rest is fairly well known – the end of easy credit (all too familiar in SA, too), a consequent drop in consumption and demand, economic recession, an increase in unemployment, emergency stabilisation of the financial system by governments with tax money and (ironically) loans from financial markets, in the process incurring colossal public debt. The further irony is that the financial institutions that have been revivified by public money, have refused to lend to governments which are caught in a “budget deficit spiral”, or have demanded an exorbitant “risk premium” in addition to market interest rates. Castells (et al) summarises the causally linked events as follows:

“In short: a financial crisis triggered an industrial crisis that induced an employment crisis that led to a demand crisis that, by prompting massive government intervention to stop the free fall of the economy, ultimately led to a fiscal crisis.”

And the authors of this important book leave one in no doubt that this fiscal crisis is still deepening, straining governments’ ability to control or manage it, and giving rise to a variety of “cultures”, including that of recurrent social protests, populist movements and the culture of “defensive individualism”, which, in its turn, exacerbates racism and xenophobia (think of the fundamentalist “Golden Dawn” party in Greece). At the same time, however, they draw attention to the emergence of “cultures of hope” for a new social dispensation alongside of the “cultures of fear”. This should not surprise anyone, given that, unavoidably, people have to adapt their way of life to “the constraints and opportunities arising from the crisis”.

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    • http://none Lyndall Beddy

      There were economic reasons for almost every modern war in History – the First World War being one of the exceptions.

    • Richard

      This is an interesting analysis on the part of these academics, but it seems to me to reiterate what has been floating around in the popular and financial newspapers for some time. Certainly, excessive risk-taking (obscured by sophisticated financial vehicles) has been greatly to blame, but the attitude of regarding bankers as “Masters of the Universe” whose magic spells create money out of nowhere, is also a large part of the problem. However, it is also more fundamental than that. Capitalism by definition requires markets, and the creation of new markets is what makes a successful capitalist. Think about the job of marketing people: it is not simply to satisfy the demands of an existing market, but rather to expand the market. With many competitors, the best way to achieve this is to “create” new markets, as the old British Empire did in the case of South Africa, for example, allowing the country to sell its produce, with very low tariffs, to the rest of the empire. In modern times, how are banks to increase their markets, especially in the face of a world in which most live in the Third World? Such markets are unsuitable, being highly risky and unstable. So they turned their gaze inwards, towards their own poor, and presented them with loans they could not service. In this way, they created a new market, as the tenets of capitalism demand. It was, if you like, the lending of monies to their own, internal Third World. So far, so good.

    • Richard

      contd. However, the scale of the loans mirrored the scale of the internal Third World. In other words, the number of poor people was greater than anticipated. What that means is that the number of people unable to compete within the capitalist system was perhaps larger than realised. This is likely due to high immigration from the external Third World (remember, capitalism is as much a cultural manifestation as a technical one, and most of the Third World ranks as consumers of capitalism rather than contributors to it) and poor investment in education both individually and by the state at home. And so the system crashed, as we know, because it had unrealistic understanding of true social conditions. This shows us the Achilles’ heel of capitalism in the modern nation-state: it requires its participants to operate within a very narrow tolerance of difference, which, with mass immigration into the First World, cannot be guaranteed. It is therefore no surprise that the two countries to have come out of this global crisis the least damaged are India and China which, though not actually conventionally homogenous, are behaviourally homogenous (conformist, by-and-large). Perhaps this is further support for the individuality vs. social obligation axis, with the West overwhelmingly orientated towards the former. I feel certain that this is an unforseen consequence of demographic change in the West, which, being so, means the inevitable and accelerating economic dimunition of the West.

    • Richard

      contd 2: “One of the first studies about this issue suggests that for 1992, migrants in the USA paid about USD 20.2 billion in taxes and received in services (directly and indirectly) about USD 62.8 billion, for a net deficit of USD 42.5 billion (Huddle 1993).” (Migration Observatory, University of Oxford Although others have challenged this, in the UK, for example, Muslims have the highest rate of unemployment, and so presumably consume the most taxes per capita. Whether this is due to discrimination or problems with adapting, different work-ethic, etc., is immaterial (most appear to be self-employed). In the US, the 2012 elections were won by the Democrats, seemingly as a consequence of the ethnic minority vote. Both of these examples cited demonstrate that capitalism as we have known it (both as powerhouse and as oppressor) is changing in the face of immigration. The narrow tolerance of difference it permits cannot cope with large numbers of people not abiding by the system. If we don’t all work, pay our debts, pay our taxes, pay into pensions, save some money, try to be entrepreneurial, limit our family-size, etc., etc., (or in other words translate life into fiscus), Western capitalism simply collapses. It seems in the face of this, our next form of capitalism will inescapably be Eastern. With its less individualistic mindset, and lack of concept of human rights, I wonder what that might…

    • Dave Harris

      Another pretentious article that has not been fully thought out. Now we have social scientists nogal, trying to explain the financial collapse? Eish!

      The ensuing exacerbation of our social instability was a result of the financial collapse and was not a significant factor in creating the collapse! The worldwide recession was a direct result of unbridled capitalism unleashed by the corporate controllers of the economy – those bankers in cahoots with governments like Bush and his cronies who worship free market capitalism that gutted financial controls with deregulation initiatives. The fractional reserve banking system became house of cards that collapsed under its own weight.

      The rise of the “culture of freedom”? What nonsense to imply that we now have some kind of privilege bestowed upon us, the “little people”, by the 1%. Freedom is not a culture, but an intrinsic part of human nature! Deregulation has nothing to do with individual freedoms but corporate greed.

      Its the sheer greed of the 1%, that our economic systems now effectively privatize profits and socialize losses – this is the primary reason for our social and economic instability. Blaming China, or technology, individualism, or the “culture of freedom/home/fear” is similar to “blaming the victim” – a trend popular here in SA among our beneficiaries of apartheid who are quick deflect attention from the real causes of our racial socioeconomic disparity by constantly blaming government.

    • Joe Soap

      I believe we are already in a huge phase transition. In five years time we will not recognize the world we live in, and being and optimist by nature, I believe its going to be a better world than what we have been spiraling down towards for so long now.

      A few days before the Berlin Wall fell, no-one knew is was going to collapse and unravel communism with it. I think we are now dealing with capitalism’s Berlin Wall. Here today, gone tomorrow.

    • Udo

      @ Dave H: Look who is pretentious, believing he can criticise the work (as reported in this piece) of someone as authoritative as Manuel Castells! But I forget – you obviously have never heard of Castells, have you? Do yourself a favour and have a look at The Rise of the Network Society and the other books mentioned by Bert, and you will, if you have any intelligence, hang your head in embarassment. Castells is a top social scientist and complexity theorist, who knows much more about economics and economic history than you ever will, or can.

    • Bert

      Thank you for that analysis, Richard – I like especially what you point out regarding the people within the system who cannot compete successfully on capital’s terms. I think Castells et al have factored that element into their argument under the heading of what they refer to as the large group of unavoidably ‘flexible’ workers who – often as immigrants or immigrant labourers – are forced, because of lack of specialized knowledge (like that possessed by the other, more fortunate group, the ‘knowledge workers’), to lead a life of comparative economic and social disempowerment, like the immigrant labourers in Dubai, for instance. Although these people are regarded as being essential for capitalism to function, today, you may be right that indirectly, they cause a moment of dysfunction in the system.
      Joe Soap – the future is indeed impossible to predict, but I believe Richard is right about the probability that capitalism will mutate towards what exists in the Eastern countries at present – a new form of state capitalism, perhaps. If I understood him correctly, Emmanuel Wallerstein prognosticated, a few years ago, that capitalism as we know it will in all likelihood make way for a kind of dictatorial capitalism that lurches from crisis to crisis, because of the inability of the market to function as stabilizer under current conditions of economic turbulence. Patrick Bond, at UKZN’s Centre for Civil Society, would know more about this than I do, though.

    • Garg Unzola

      So much pure nonsense there, it’s hard to know where to begin. I urge anyone who is interested to read up on the financial crisis and what caused it.

    • Joe Soap

      Chinese type state capitalism scares me. Much prefer the Dalai Lama’s take, he says he’s half Buddhist, half Marxist.

    • Sterling Ferguson

      @Garg Unzola, the financial crisis was caused when the government removed the regulations from the banking system. There were technology changes that impacted these societies but, these changes didn’t cause the crisis.

    • Richard

      I have always wondered about the relationship between “democracy” and “capitalism” (in parentheses to show particular understanding in modern world) because in many ways they work in opposite directions. Most people are in agreement that absolute poverty no longer exists in the West, and “poverty” as used in that context refers to other things, such as poverty of opportunity, or imagination, or power. There is in this a tacit understanding that money = power. However, there is another dimension in modern life that did not exist in previous epochs, and that is the idea of universal sufferage. In other words, the people who do not possess economic power possess a great deal of political power (at least to elect officials, if not legislative power). People will vote for those who will empower them, and those whom they have empowered are then expected to increase their (the voters’) power within the economic sphere. This moderates capitalism (and this effect is finally reaching the USA) but also prevents it from accomplishing its goals of “a perfect marketplace” or other techniques of advancement of the capitalist ideology. In other words, true capitalism can only occur in a non-democratic system, or a democratic system in which the demands of capitalism are entirely pre-eminent. The latter has hitherto been the case in the US. China, of course, presents the scenario of a non-democratic capitalist society, which, by this thesis, should fully realise capitalist…

    • Richard

      Parentheses? Apologies, I meant quotation marks.

    • Brent

      Part 1: Where to start, guess the following quote is as good as any place: “Fraud destroys the confidence that makes the free market possible…especially when fraud goes unpunished. In fact, the English language has a word for that; it’s called “cronyism.” Bert excuse the simple analogy hopefully it wont put you to sleep accustomed as you are to much more complex arguments. Lets liken a well run free market economy (I purposely leave out words like Capitalism/Marxism/Left/Right etc all ideas of a bygone era since China went ‘capitalist’ in 1978 and the USSR went belly up in 1990) to a football league. The teams/players/owners etc are the market (in total) and the controlling League H/Q the Govt who provide the refs/linesmen etc etc to make sure everyone plays to the rules. The League H/Q etc is funded by the market via voluntary contributions (tax? not a good analogy as taxes are extracted by force) and all works well as long as League (Govt) keeps away from the playing surface, sticks to regulating and policing the agreed rules. Like life some do better than others. For example Usain Bolt, Tiger Woods, Messe, Renaldo, Hollywood super stars. Also that famous guy of the previous election Plumber Joe, he asked Obama if he worked overtime every week end and made more money why should he pay higher tax, Obama’s response: ‘we should spread it around’. Free Marketers say Joe should choose how HIS money is spread around not the Govt.


    • Brent

      11: What should not be done is for Govt to buy into the lower teams and then compete with the better teams by being part of the game (economy). What follows very shortly is cronyism and the very opposite to free markets. The financial/housing bust in the US was caused by the Got entering the game via Fany/Freddy, then directly competing against the teams in the league (market). When a Giant enters the league smart teams/clubs (banks) make love not war with said giant and cronyism comes about as a natural consequence. The rules were not relaxed as you and commentators suggest (there are some 25 thousand pages of financial rules in the US) they were just not enforced. It is logical; Govt just never enforces its rules against itself. My free Market sites predicted back in 2002 that the housing bubble would burst but the Washington/financial ruling elite, deep into cronyism (not free markets) knew better. The Free Market response would have been to let/make the offending banks (including Govts Fanny/Freddy) go broke, punishing the cronies not the market (the bond holders). Without Govt pressure (started aggressively by Clinton) the banks would never have lent to those who could not pay, keeping to their and previous Govts financial rules. Ever since the USSR was formed in 1916 the talking heads/chattering classes in the West have been predicting the demise of capitalism (Free Markets), but many times over have been found to be wrong, so don’t place any bets this time also Bert

    • Brent

      Nog n piep: – “The greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults.” — Alexis de Tocqueville


    • Enough Said

      The past is history. The future is what counts. Lets not mess it up like we did the past.

    • Udo

      You’re out of your depth here, Garg; have you got any idea of the economic theory that underpins Castell’s work? He remarks (and this may give you a clue about what’s involved) that Economics 101 will no longer suffice to unravel the causes of the financial crisis. All that will work is a theory that takes into account the interactions between the multi-layered, multi-nodal, multi-modal networks that comprise what he calls the space of places and the space of flows in the globalizing world. And by the way, if you are telling people to “read” about the causes of the financial crisis, what do you think Bert has done? Except, of course, that he has read books that far outweigh in importance most (admittedly not all) of what you’ll find on the internet. Do yourself a favour and find out who Castells is, and if you can buy his trilogy, or the anthology on the Aftermath that Bert refers to here, do it – it would force you to revise your economics. Another author I can recommend in this connection is Keith Hart, author of The Memory Bank (his metaphor for money – look it up on his website), because much of his understanding of the complexity of money-relations in today’s world is underpinned by Castell’s work – although not only by his work.

    • johnbpatson

      So, social scientists, will we be paying more or less tax in five years time?
      And will the new regulations mean smartphone banking apps are governed by the same rules as inter-bank trading? (They are so useful when you are on demos, to show you really cannot donate more….)

    • http://none Lyndall Beddy

      Looking up what caused the Financial Crisis might be difficult – since every since economic “expert” has a different opinion.

    • Garg Unzola

      Bert has posted a link from a socialist er.. social science journal that does not in fact deal with the phenomenon of the financial crisis in its own terms. That is, it does not concern the experiences of those involved in the crisis from a social science perspective. Rather, it rehashes the tired old clichés that have been postulated by all and sundry for the financial crisis. Truth is, the financial crisis took most of the establishment by surprise, including the social scientists, because their models are incomplete and irrelevant.

      If you would like to get in on the deep end, try to google a bit for the economists that made names for themselves by not only predicting the coming crisis before it hit, but who also provide plausible models that explain the situation we’re in.

      It’s not simply a case of unfettered free market capitalism taking its course. It’s not simply a case of government deregulation that left the bad capitalists to their own devious devices. You’re right, though, it is way out of my league to try and correct commonly held misconceptions that have no rational basis.

    • SarahH

      Dear Bert – thanks for this article and the variety of comments it generated. I particularly like:

      ‘… they draw attention to the emergence of “cultures of hope” for a new social dispensation alongside of the “cultures of fear”. This should not surprise anyone, given that, unavoidably, people have to adapt their way of life to “the constraints and opportunities arising from the crisis”.

      It suggests, that even if we do not really understand the workings of global capitalism, neo-liberal economic orthodoxy or related terms, ‘cultures of hope’ trump ‘cultures’ and ‘states’ of denial (Cohen, 2001) any day.

      I just hope that a new dispensation radically reduces inequality and limits the space for greed. To hope for more is to deny human duality regardless of economic and political systems.

    • Brent

      Udo it is also important to read widely especially those writers who you do not agree with. Another book i can suggest that explains the housing bubble and crash from a free market point of view is Meltdown by Thomas E.Woods. Also go into Thomas Sowell’s site and read his essays especially ‘Trickle Down Theory and tax cuts for the Rich’. Both above are the opposite to Keynes theories of economics and statism.


      PS – the so called ‘trickle down theory’, no theory has been found in even the most voluminous and learned histories of economic theories including Schumpeters huge History of Economic Alnalysis. Yet the talking/chattering heads still deride this non existing theory. Typical tactics of the left/liberal elite, when they cannot find fault they create ‘straw men’ clever sayings that undermine the theories being put forward.

    • Sterling Ferguson

      @Unzola, the meltdown didn’t take people on Wall St by surprise because many people took insurance on those loans and sold off their assets. As a matter of facts, in 2007 the meltdown began and the US government used a secret fund to stop the meltdown. However, in 2008 the meltdown was so large the US government couldn’t stop the meltdown.

      There was a professor at NYU that wrote a book about the impending bubble bursting and he was called Mr Doom by the people in banking. When the US government removed the regulations from banking, the whole system went haywire. There were people buying homes with no money down for a million dollars and making fifty thousandth dollars a year. The people knew that these home were over valued and the people couldn’t afford them.

    • Keith Hart

      In the last two centuries the human population has grown from 1 bn to 7 bn (1.5% a year), the urban share from 1 in 40 to around half (2%) and energy production by 3% a year. As a result many people spend more, work less and live longer. But this leap from the countryside to the city is very unequal. 1 in 3 human beings still work with their hands in the fields. Americans consume on average 400 times more energy than Ugandans.

      The world’s have nots can see how the rich live on TV and they are not content. They want development and this was the message of the BRICS at the Copenhagen summit where they rejected the West’s call for them to accept lower levels of carbon emissions than their own. The presidents of Brazil and China both joked that Obama was like a rich man who feasts alone on a banquet, invites the neighbours in for a coffee and then asks them to split the bill.

      We will not find a viable way of living on this planet by rejecting wholesale the institutions that have organized this rapid shift: states, cities, corporations, science and technology, capitalist markets. They have to be made more democratic, with more scope for self-organized alternatives, a different emphasis and direction. But it is not wise to harp on about one big idea that is unlikely to rest on personal experience, knowledge etc or to espouse a retreat from the modern world which could only ever be an option for a few rich people whose slogan is “Stop the world, I want to get off!”.

    • Paul Whelan

      It is very strange that we think our theories explain the world and that the world goes on as it does only to conform to our theories.

    • Olds

      Did anyone notice that just before this “financial crises” the number of billionaires added to a growing list showed a sharp increase? Mistery much where the money went?

      There is also the variable of “concience buying” that is increasingly affecting the free market. Is it cool to wear clothes made in a Chinese sweatshop (basically by slaves), that relies heavily on dirty coal, or eat battery chickens raised on factory farms controlled by corporatons, etc. This disinclines me to a future, more rigidly controlled capitalism, that seems to make the Chinese so successfull at present, I believe that we are on the brink of the next major revolution and that current and prospective producers, wherever they call home, will do well to take heed of the growing number of “defensive individuals” inreasingly freeing themselves from the lie of nationhood to live successfully in the global village.

    • Garg Unzola

      That would be Nouriel Roubini, or Dr Doom. He is disparagingly called Dr Doom because most people characterised his warnings as some kind of Chicken Little syndrome. Note his version of what caused the crisis is different from the standard story that is syndicated across the board.

      His main reason for the crisis appears to be a large current account deficits financed with debt, not deregulation of the banking sector. Roubini has his own version of the Austrian business cycle theory.

      With ‘regulations that were removed from banking’ I presume you refer to the repeal of the Glass-Steagull Act. These deregulations were negligible, as the act was effectively dead in the water when it was repealed, and the US government has always granted exceptions to the act whenever it was convenient. With or without this repeal, the American economy was in deep trouble due to the subprime mortgage crisis and huge household debt (which was accumulated before the banks were ‘deregulated’, deregulation here being a misnomer).

      Point being the recommended volume appears to offer poorly rehashed excuses from within the financial sphere, instead of a fresh perspective from outside it.

    • Brent

      Sterling Ferguson, the US Govt did not remove the rules from banking they just did not apply the rules already there (25 thousand page long set of rules) preferring to interfere in the market thus causing the damage/distortions as Govt interference always does. Then when the s..t hits the fan the politicians rush to blame the ‘free market’ which was not free at all. The only difference between Obama and Bush the 2nd economic policies is that the formers policies and practices are bigger and more of a distortion hence the rapidly rising deficit, now ± 100% of the GDP., which equals Greece.Talk about fiddling whislt the Titanic steers ever closer to the iceberg


    • Paul Whelan

      @Keith Hart – Our two comments, which suggest a certain like-mindedness, more or less overlapped, so I point out now you need to be aware the tone and approach here is generally utopian – not so much one of stopping the world to get off as of getting together to replace the world altogether.

    • Wynand

      @ Garg Unzola,

      “With or without this repeal, the American economy was in deep trouble due to the subprime mortgage crisis and huge household debt (which was accumulated before the banks were ‘deregulated’, deregulation here being a misnomer).”

      Up to your old tricks I see, but not even your own sources support your claims:


      “The Commodity Futures Modernization Act of 2000 was bi-partisan legislation that formally exempted derivatives from regulation, supervision, trading on established exchanges, and capital reserve requirements for major participants.”

      while subprime only became 15% or more as a share of all mortgages after 2004:

      Also, from

      “Because of Pinto’s anomalous findings, Wallison largely elides over the role of so-called “private-label” mortgage-backed securities in causing the crisis despite the large amount of attention these financial instruments received elsewhere, including in the FCIC majority’s report.13 This private mortgage financing channel, which does not involve the federal government at all and was policed only minimally, generated only 13 percent of outstanding loans but was responsible for 42 percent of…

    • Shmerk

      Bert and all who commented here, I find the work of Charles Eisenstein particularly fresh and clear – certainly not academic economic theory, etc. Please view his website and read his books – Ascent of Humanity and Sacred Economics.

    • Shmerk

      And here is the link to his website:

    • Sterling Ferguson

      @Brent, the two ten years wars have caused the US over seven Trillion dollars and still rising. The president that started the wars was President Bush and not Obama. The problem with the US, she wants to be a superpower with eight hundred bases around the world, build vast weapon systems and keep a large standing army, without taxing the people to pay for this. Another myth is the free market will correct itself, the market can only function well when there are regulations because, a small group of people can controlled the market.

    • Sterling Ferguson

      @Unzola, very interesting comment and a small group of people became filthy rich with this sub-prime and the credit cards debt. Many people were given mortgages that the banks knew weren’t qualified to pay back these loans. There were people with over a hundred thousandth dollars in debt to credit cards and didn’t make fifty thousandth dollar a year. If the banking system had been properly regulated, these people wouldn’t have been given loans.

    • Sterling Ferguson

      @Unzola, I was just reading that China is heading the same way, the banks in China have loaned the state owned companies trillion and these companies haven’t paid the banks any money on their loans. The bubble is going to burst in China and it might be soon then what people think. It has been said that many of the Red Capitalists have moved their wealth out of China to overseas accounts.

    • Joe Soap

      Stirling Ferguson is talking about the sub-prime crises that caused the US economy to collapse under Republican George W Bush’s watch. More on the sub-prime crises here:

      This sub-prime crises served once again to show that those who believe in unregulated markets and no government intervention are deluded.

    • Garg Unzola

      Please see savings and loans crisis. Note the dates.

      @Joe Soap:
      The subprime mortgage crisis was a direct result of government regulations.

    • Sterling Ferguson

      @UNzola, most experts are saying the market have to be regulated to protect the public. You are saying the regulations caused the meltdown, please explain what you mean by this statement.

    • Enough Said


      Yes the US debacle was a direct result of too little government regulation.

      If the USA had implemented something similar to South Africa’s National Credit Act (NCA) in say the year 2000 the sub-prime mortgage crises there would never have happened.

      More on the NCA in South Africa:

      The NCA is one of the reasons South Africa has survived the US and European recessions so well.

      “South Africa’s banks are healthy and wealthy”

      We never had to bail the South African banking sector out like the US taxpayer had to bail their banking sector out.

      See “Total Wall Street Bailout Cost”


    • Wynand

      @ Unzola

      What does a crisis caused by the FED raising interest rates from 5% in 1976 to up to 20% between 1979 and 1983 to combat moderate inflation:

      have to do with one caused by an asset bubble, a result of predatory lending by the private sector and deregulation of derivatives, since the vast majority of subprime delinquencies was in private sector lending:

      “Pinto’s claim that 19 million, or 72 percent of all “subprime” and “Alt-A” mortgages were attributable to federal affordable housing policies is far afield of the conclusions of other analysts. The claim is also difficult to reconcile with the actual data, which indicate the entire federal government (including Fannie and Freddie) owned or guaranteed only 32 percent of seriously delinquent loans despite holding 67 percent of all mortgages. Pinto’s claim that Fannie and Freddie were the primary driver of high-risk mortgages does not stand when the evidence is weighed accurately.”


      “This private mortgage financing channel, which does not involve the federal government at all and was policed only minimally, generated only 13 percent of outstanding loans but was responsible for 42 percent of…

    • Wynand

      @ Unzola,

      In fact, it’s amazing how the two sharp spikes in interest rates to 20%, one at the beginning of 1980 and the other in 1981-1982 (with the interest rate at 15% + over this entire year), respectively, are mirrored by two closely spaced sharp falls in gdp, one about 4-6 months after the first interest rate spike in 1980, and the other in 1982 -1983, in the year just following the second period of 15% + high interest rate in 1981 – 1982. This is exactly what we should expect, since a few months would have to pass before the full economic effects of interest rate policy changes would be felt.

      The same cannot be said of inflation, it built up to a maximum of about 15% at the start of 1980, from 6% at the beginning of 1978, and fell near monotonically to about 8% before the second and deepest fall in output occurred in 1982 -1983, this in spite of the fact that output experienced a moderate recovery in 1981 -1982 while inflation was still above 10%.

      So, the recessions mirrored the interest rate policy changes, not the inflation trend. Which is what you would expect since real interest rates of 8, 10 or 12 percent mean that potential investors would not find non-financial real sector investment (that generates economic growth) attractive, as according to a numer of world bank studies, few such investments bring profit rates higher than 7 percent.

    • Wynand

      From my post just before last in response to Garg Unzola:

      “This private mortgage financing channel, which does not involve the federal government at all and was policed only minimally, generated only 13 percent of outstanding loans but was responsible for 42 percent of…”

      It should be:

      “This private mortgage financing channel, which does not involve the federal government at all and was policed only minimally, generated only 13 percent of outstanding loans but was responsible for 42 percent of serious delinquencies.”


    • Sterling Ferguson

      @Enopugh Said, SA has a forty per cent unemployment rate and over half of the population are on family grants. Why do you think SA has been impacted by the meltdown?

    • Sterling Ferguson

      @Wynand, the ten years war in Vietnam was the cause of the inflation in the seventies because the US never raised taxes to pay for this war. When Paul Volcker tries to tame inflation by raising the interest rates this created other problems. Many people are saying this was the beginning of the meltdown.

    • Richard

      Can we not have some more input about the aftermath of the crisis, rather than the causes? The article is not a technical economics piece, but rather something designed to stimulate debate about the shape of things to come. One should look at the piece of writing, and debate that, rather than simply using it as a platform to talk about minutiae.

    • Sterling Ferguson

      @Richard, Paul Krugman wrote that the US debt was no problem as long as the economy keep growing. He used an example of the great Depression of 1929, the US had no debt and this country experienced a depression. The only tool the US had to use was massive government spending, to get this country out of the Depression and restore growth.

    • Garg Unzola

      Thanks for the detour, but perhaps you should 1. read my links in their entirety, and 2. address my points.

      Again, my main point is not that the article got the causes of the 2007 economic crisis wrong (as do you, but again, not the main point). The main point is that the entire industry is at a loss to explain the crisis. Of course it’s politically convenient to lay the blame on deregulation, but what other regulations would have prevented the crisis? Very few people saw the crisis coming. The majority of people who are now banking (excuse the pun) on the deregulation blameshift are the ones who were responsible for the ‘deregulation’.

      I would expect a social sciences journal that is claimed to provide “some insight into the financial/economic crisis that flared up in 2008 (and has still not run its course)” to in fact provide some new insights and not just rehash the stock excuse that’s been doing the rounds. This is my main point. If you buy the stock excuses that’s been doing the rounds, I just pray you aren’t managing my retirement fund.

    • Enough Said

      Good point @Richard

      The future is not what it used to be. This financial crises has been a wake-up call to the 99%, and possibly an ever bigger wake-up call to the 1%. The battle lines have been drawn and we can only speculate what the possible outcome will be. Maybe we need to consult a few futurists to give us some guide lines, but right now the future is in the melting pot.

    • Sterling Ferguson

      @Unzola, you are so right many of these people who were calling for the government to get rid of regulation a few years ago are now calling for regulations. However, Paul Krugman would disagree with most of your comments on the cause of the meltdown. Paul Krugman wrote that the repealed of the Glass Seagull Act was the cause of the meltdown and Wall Street paid the lobbyists $300 million dollars for Congress to repeal this act.