The 2008 Financial Crisis And The Next One Have A Common Root

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Capitalism Has Worked, but It’s Now Leading Us to Financial Collapse

Capitalism has proven to be the system that can claim to have created the most prosperity. But it has also created, or at least has encouraged, considerable injustice. The widespread prosperity is now eroding while injustice is increasing. Meanwhile, stock exchanges are teetering, hesitating back and forth. Lately, they have been trending more toward “back.” Then again, the financial crisis started in 2008 only appears to have finished.

The bull market that started in 2009 and pushed the Dow Jones to 26,000+ may give the impression that the American— indeed, the global—economy has recovered. The financial crisis is far from over, however. Its roots are deeper than 2008, going back to a specific historical event that occurred at the end of 1989 and the start of 1990: the fall of the Berlin Wall. That event gave the final blow to the economic system that was responsible for generating the most intense and widespread period of prosperity in recorded history.

Finance Has Become More Important Than the Actual Economy

The inherent weakness in the economic system rests in the fact that finance and speculation have superseded productive activities. The latter tends to spread wealth across a wider section of the population. The gains of finance don’t stretch beyond a handful of individuals. Speculation both generates and thrives on weakness. This is why we could see a major stock market crash in 2018 and a re-emergence of the 2008 financial crisis.

What Could Happen in the Next Few Months?

The financial markets are resting on ever-weaker foundations. One of the reasons for the weakness is that the causes and nature of the 2008 financial crisis have never been adequately discussed or explored. Few doubt that the easing of financial regulations in the 1990s are a factor, especially President Bill Clinton’s repeal of part of the Glass-Steagall Act. The latter step was under pressure from Clinton’s aides in 1999. (Source: “Wall Street deregulation pushed by Clinton advisers, documents reveal,” The Guardian, April 19, 2014.)

Glass-Steagall deterred banks from taking on too much risk. The 1999 changes to the act allowed insurance companies, investment banks, and retail banks to merge. But does such deregulation alone explain the crisis? No, it’s merely one minor aspect.

Some might argue that deregulation, just as any measure that legalizes and co-opts activities, will lead to degradation if it renders some excesses (vices) tolerable, even praised. Society in general accepts the otherwise-tame and polite corporate executive when he/she has has a little too much to drink. Alcohol consumption is legal and even encouraged, within reasonable limits, in polite society.

Thus, the concept works similarly in finance: a little regulation can help certain kinds of financial speculation (an elegant term for what most people otherwise define as “gambling”) to continue.

A Few Gained While Millions Lost

The worst aspects of the 2008 financial crisis from a moral standpoint is that many people who had nothing to do with stocks and the financial markets suffered the consequences of the actions of Wall Street players. Many of the latter survived with their wealth intact, yet millions of people all over the world lost their jobs, savings, and livelihoods.