Wall Street created a house of cards on a mountain of junk debt and nearly drove the world’s economy to ruin. Had they been allowed to fail, the banks would have dragged us into Great Depression II.
Government’s (aka, the American people’s) largesse propped these institutions up like an R.A. holding up a drunken frat guy. And it was understood that this sudden influx of liquidity would come with strings attached: tighter regulation, the end of fantasy derivatives, and other reforms. And yet, in spite of populist outrage, nothing happened. The “too-big-to-fail” banks are now even bigger.
From his article in In These Times, the magazine of workers’ struggles:
“A year ago, Wall Street was on life support. Its entire fantasy finance casino had crashed, wiping out years of record profits in a matter of days. The entire phony edifice of structured finance based on junk debt came tumbling down.
The financial sector imploded as banks and investment houses watched their triple-AAA-rated securities turn toxic. Lending ceased as banks realized that all of their trading partners also were loaded with junk. No way would they loan money to anyone.
In a modern society, a credit freeze means instant death to the real economy, since virtually every enterprise, big and small, runs on credit. When the financial sector froze, it pushed the real economy off a cliff.
We were on the verge of the Great Depression II. We all knew what screwed up. The fantasy finance fiasco created and run by the largest banks in the world, totally failed us. And the dogma of deregulated markets screwed up even more.
We relearned the painful lessons of the Great Depression: deregulated finance leads to a speculative casino, then to bubbles, and then to busts, taking us all down. That’s what deregulated finance does.”
Read more here.
This post originally appeared at chelseagreen.com, by Dennis Pachecho, Chelsea Green Publishing.