Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Hereís how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

World financial crisis - where to from here?

By Tristan Ewins - posted Monday, 8 December 2008


Origins of the crisis

Now, as the world teeters on the brink of what might turn out to be the most profound economic crisis since the depression of 1929, a reappraisal is necessary in the face of neo-liberal shibboleths.

Around the world massive stimulatory packages and financial guarantees, even nationalisations, are in the process of implementation, to buoy consumer confidence and demand and also to encourage liquidity and fortify investor confidence.

Amongst Keynesians, and the Marxist and radical Left, there is an aura of vindication.

Advertisement

Most immediately, the crisis has been traced to the sub-prime mortgage debacle in the United States.

To summarise, overly-complex financial instruments were devised with the aim of minimising risk. According to John Bellamy Foster, writing for The Monthly Review, the idea was:

… that geographical and sector dispersion of the loan portfolio and the “slicing and dicing” of risk would convert all but the very lowest of the tranches of these investment vehicles into safe bets.

The efficacy of such instruments, however, proved to be illusory.

Those most vulnerable - including millions of working class Americans - were encouraged into the market through a variety of mechanisms regardless of their credit history, income or wealth. Such “mechanisms” included low interest rates as well as “teaser” rates which were only temporary. Other devices included low reserve requirements.

This sector of the mortgage market became known as the “sub-prime”.

Advertisement

In a scenario which should be familiar to Australians, these circumstances led to an extraordinary “housing bubble”: a process which has been referred to as “speculative mania” and “hyper-speculation”.

According to Australian blogger, Sean Carmody, between 2004 and 2006 more than 20 per cent of new US mortgages were taken out by “sub-prime” borrowers. Enormous amounts of money were diverted into the housing sector, in wave after wave, under the assumption that asset appreciation would somehow continue forever.

In Australia, a housing bubble had the effect of enriching existing home owners on paper, while making home ownership impossible for many younger investors. Efforts to help first-home-buyers in Australia were simply exploited and fed into the vicious logic of the property bubble. The appreciative effect was particularly great under Australia’s specific circumstances of undersupply. Regardless of low interest rates, the Australian housing bubble ensured that “over the past 10 years” houses became “nearly twice as expensive relative to income”.

  1. Pages:
  2. Page 1
  3. 2
  4. 3
  5. 4
  6. 5
  7. All


Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

13 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Tristan Ewins has a PhD and is a freelance writer, qualified teacher and social commentator based in Melbourne, Australia. He is also a long-time member of the Socialist Left of the Australian Labor Party (ALP). He blogs at Left Focus, ALP Socialist Left Forum and the Movement for a Democratic Mixed Economy.
.

Other articles by this Author

All articles by Tristan Ewins

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Photo of Tristan Ewins
Article Tools
Comment 13 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy