Why are the markets in a such a mess? (1)

“The collapse of Lehman Brothers, the swallowing up of Merrill Lynch, the threat to the world’s biggest insurance company, AIG, and the nationalisation of Freddie Mac and Fannie Mae, together with Northern Rock, herald the end of the free-wheeling deregulatory era of finance capitalism that lasted from the early 1980s to 200.”

Quote from a letter from Michael Meacher MP

“The way things stand, it is now a question of whether there is a complete meltdown of the financial system, with institutions crashing like ninepins, or whether a severe rationing of credit over a prolonged period leads to falling house prices, weaker consumer spending, lower investment and rising unemployment. This is without doubt the most serious financial shock since 1929, and while talk of a 1930s-style depression is still conjecture, so are the predictions that failing banks and a bankrupt financial system will have minimal impact on the ‘real economy'”.

Quote from an article by Larry Elliott
So why have the markets gone mad? It’s obviously an over-simplification but two key factors are the two Ds:

  1. Derivatives – the bundling and onward sale of financial risks which investor Warren Buffett has called “financial weapons of mass destruction”
  2. Deregulation – the belief that the markets can be trusted to be responsible and self-regulating

What we need now are:

  • liabilities to be balanced by adequate assets
  • risks to be balanced by effective regulation
  • separation of retail banks and investment banks
  • curbing of irrational exuberance and excessive greed

In short, the markets need to get rational and responsible which a lot to ask of capitalism.


  • Mavis Smith

    Maybe ‘Hedge’ funding was “The straw that broke the Camel’s back”.
    It breaks my heart to see that we have really learned nothing since 1930’s.

  • opit

    Watching the current ‘selection’ of reimbursing the biggest U.S.thieves for their losses at the expense of the victims should put everything in perspective : the system is doing its job – increasing the monetary control of the super rich establishment at the expense of upstarts and wage slaves.