Andrew BakerReader in Political Economy

School of Politics, International Studies and Philosophy

Queen’s University Belfast

Three questionsWhere did all the money go to? What does it actually mean to talk of a crisis? What main interpretations of the crisis have

been advanced and what are the intellectual foundations?

Where did all the money go?A $2 trillion -$11 trillion hole in the global

financial systemA starting point is the 9/11 attacks which

created climate for low interest rates world wide and consumer/ credit boom in the US and other Anglophone economies

Banks borrow cheaply by issuing ABCP and investing in high yield but potentially high risk securities – MBS, CDOs and CDS

Supersized rentierism on steroids?

Where did all the money go?Price of world oil goes up from 2004, central banks

raise interest rates – Fed, BoE, ECBHeavily indebted consumers and householder default

on loans – a glut of credit becomes a trickle – herding and a downward spiral

The case of the REPO market in the United States and the small problem of 500 million handguns

The paradox of credit – it is most plentiful, when it is least needed and scarce and almost non existent when it is most needed – ‘procyclicality’

The private debt disaster has become a public debt problem – banks - ‘bank on the state’ – but what about round 2?

What is a crisis?A medical term referring to the critical

turning point in a disease or condition (is the patient going to die?)

Financial crises can be conceived of as critical turning points that lead to change

A crisis is a political moment in which there is a competition over the meaning of the event and the type of change that necessitates

It therefore matters which explanation of the crisis become dominant

4 Perspectives1. The market fundamentalist libertarian

perspectiveThe market as a spontaneous morally superior

social orderGovernment intervention creates moral hazardGovernments should not put a floor under a

crashGovernments should focus on enforcing

contracts and sound money The crash caused by government intervention

politicizing the housing market in the United States

4 perspectives2. The Social Democratic Regulatory perspectiveNeoliberalism and free markets have gone too far –

efficient market theories are the problemFinancial markets are prone to myopia and herding

and go to extremesGovernments need to regulate them through counter

cyclical policy and to need to simplify the system – simple systems are more stable than complex ones.

The need for a new growth model based on different political and social relationships – different to the Anglo Liberal financialised growth model

Current problem is a lack of demand. Austerity is designed to fuel the old model.

4 perspectives3. The Corruption or bad apple storyGreed drives criminal or corrupt behaviourPonzi schemes and mis-selling of productsToo simple – misses the point?

4 perspectives4. The structuralist or anti-capitalist perspectiveContradictions and structures of global capitalism are

at fault – global circuits of capital, surplus countries recycling to debtor states brought about the crisis

A nice cycle until western consumers start defaulting on their loans

Cheap consumer goods dry up – inflation and prices rise – rising prices + stagnant wages + cuts in services (austerity) = social unrest and class politics

Banks need to be nationalised and used as a public utility rather than private profit machines

Alternative forms of economic organization not for profit companies, mutuals, trusts, community ownership – small scale local economies that are environmentally sustainable.