How the 2008 financial crisis changed our world
How the 2008 financial crisis changed our world
THE CHRONICLE OF BOOKS AND IDEAS. In "Crashed" (ed. Les Belles Lettres), historian Adam Tooze gives a detailed account of what happened during the 10 years following the 2008 financial crisis. According to him, this shock wave has considerably reshaped the functioning of our world.
On September 16, 2008, in the aftermath of the bankruptcy of the American investment bank Lehman Brothers, the world economy sank into the worst crisis since 1929. To avoid chaos, all countries adopted, the United States in the lead, measures counter-cyclicals by massively injecting liquidity - especially dollars - into their savings. The banking and financial system seized up, unable to determine the value of sophisticated derivatives, the "subprimes" linked to "rotten" mortgages, which the financial industry, in search of maximum return with lower risk, had machined and sold to the chain to unseen investors.
This event caused a shock wave which has continued to produce its effects ever since. This is what Adam Tooze explains, in "Crashed" (ed. Les Belles Lettres). In this block of more than 750 pages, this professor of modern German history at Yale University (United States), like a detective, leads the investigation by delivering a living story rich in details of what has changed in ten years.
If it is impossible to be able to account for all of Adam Tooze's analysis, we can learn certain lessons from it. First, this crisis has made millions of people suffer "for no good reason", according to an inverted "class struggle" logic: "Wall Street first, the others then." "European failure
The worst happened in Europe, where the management of the crisis ended in failure, with leaders incapable of acting together. "The social and political wounds they inflicted on the European project may never heal," notes the author. The consequences of these "injuries" weighed on businesses in the Old Continent, and therefore employment, to the benefit of American and Asian companies. "In the arena where companies are confronted, the crises which raged from 2008 to 2013 have inflicted on European capital a historic defeat", because even if exports are important, "nothing can replace a good internal market health ”, he recalls.
Because in Europe, the crisis was not judged as a consequence "of the shock of 2008", but rather as "an internal problem in the euro zone, centered on the political questions of public debt". This was the pretext for the application of an obsessive policy of rebalancing public finances at the expense of growth. Under the leadership of Germany, "austerity" will impose itself on the countries of southern Europe, notably Greece (barely 1% of the GDP of the euro zone), the urgency being to protect the banks French and German companies, heavily invested in Greek debt, in the event of sovereign default.
Since then, the burden of this debt has been transferred to European taxpayers, when it had to be restructured as the IMF insists. For Adam Tooze, this debt did not threaten the European system because everyone had known for a long time that the country was insolvent. The risk lay more in "his over-indebted financial system" which was "at the mercy of short-term financing in the markets. "
Mario Draghi's "bazooka"
Barack Obama may have hammered Europeans at the time to stabilize the euro system, but he encountered dogmatic deafness in Berlin and Frankfurt. It was only under pressure from financial markets speculating against the single currency that Mario Draghi, President of the ECB, released his "bazooka" by announcing "that he would do whatever is necessary to defend the euro ”, by using unconventional measures, such as the imposition of a zero or even negative rate, or even the redemption of debts issued by countries and companies. Today, we are still there. Most of the European countries go into debt, reforming at least.
This European obsession contrasted with the United States, which returned to growth and job creation in a short time. The American federal state did not hesitate to bail out its national banking system as well as the foreign banks present on its territory. This public intervention put in brackets the neoliberal idea which, for years, had convinced that the markets were self-regulating. Yet the bankers got away with it. Despite the disproportionate risks they took, protected by the logic of "too big too fail", their responsibility was not sanctioned. Without punishment, mistakes are doomed to repeat themselves.
This European "austerity" obsession contributed, in the absence of an alternative, to the rise of "populism". Social democracy, long a bulwark against the markets has been in free fall since its conversion in the 1990s to market efficiency, favored by the free movement of capital, deregulations, privatizations, which have called into question the welfare state.
A political crisis
This is what makes Adam Tooze say that the crisis is first of all political: "This situation brings to light an essential, albeit disconcerting, truth, the concealment of which has influenced all economic policies since the 1970s. The foundations of modern monetary system are political. "
With the abandonment in 1971 by Richard Nixon of the reference to the gold standard, "money and credit, just like the structure of the financial sector which oversees them, are created by political power, social conventions and legal rules, unlike sports shoes, smartphones and oil barrels. Currency is at the top of the modern monetary pyramid, ”he notes. However, the only prices that will increase regularly during these years will be those of stocks and real estate because they capture the flows of money that seek to invest. The signs of this political crisis also appeared with unthinkable events. a few years ago: Brexit, the election of Donald Trump (even if Sarah Palin's candidacy in 2008 for vice-presidency and the emergence of the Tea Party were warning signals), the election of Emmanuel Macron who took advantage of the rejection of the political system in France, or the alliance of the extreme right and the 5-star anti-party movement that heads Italy.
Growing inequality
For Adam Tooze, the crisis will have shown that centrist liberalism "was wrong" because it was unable to provide a solution to the growing inequalities. This is what we see today in France with the movement of "yellow vests". But for the author, it is above all Barack Obama who will not have convinced the Americans to continue to follow the path he had traced with the failure of Hillary Clinton, despite the economic recovery. They will prefer the earthy billionaire Donald Trump, who will inaugurate a new way of governing the first world power. He does not bother to tell the truth, his demagogic remarks often have no meaning.
For Adam Tooze, "the loss of credibility is blatant and total" for governments unable to manage situations based on the facts. And as the president of the European Commission, Jean-Claude Juncker, says: "Hiding the truth from the general public is quite simply what the governance of capitalism requires today".
Capitalism which will have seen China assert its power since 2008, as we see with the hiding trade war which opposes Trump the protectionist and Xi Jinping thuriferous of liberalism in commercial matters. Because the crisis has enabled the People's Republic of China, which had dazzled the world with exceptional Olympic Games in 2008, to compete for the role of world leader in the United States. Has it not driven global growth for years?
However, far from dominating the world, it has shown signs of fragility, notably its financial markets which have experienced spectacular setbacks. As Adam Tooze notes, in China, you have to look at corporate balance sheets rather than trade surpluses. Debt in dollars, they are very sensitive to changes in interest rates and exchange rates. "25% of the debts of Chinese companies are in dollars, for only 8% of their profits," he said.
The flight of Chinese fortunes
This dependence of the People's Republic of China on the dollar and US monetary policy manifested itself in 2015, when the end of the quantitative easing of the Fed led to a slowdown in Chinese growth, which caused prices to fall of petroleum and other raw materials, depressing number of emerging commodities exporting countries. And it also scared away part of the Chinese fortunes abroad.
To curb its stock market crisis, Beijing had to tap into foreign exchange reserves which, from $ 4 trillion in 2014, melted to $ 3 trillion in early 2017.
The question also arises: with the gradual integration of China into the global financial system, will the United States help the Asian giant in the event of a crisis? It will be a dilemma for them, according to Adam Tooze
And besides, whether they are Chinese, American or European, are national governments as decision-makers as before? No, according to Adam Tooze, who does not believe in a return of the nation state as the rise of populism might suggest. On the contrary, it has lost its status as a framework for solving problems, supplanted, according to the author, by transnational companies. “If everyone is aware that we live in a world where corporate oligopolies reign, this reality and its incidences
THE CHRONICLE OF BOOKS AND IDEAS. In "Crashed" (ed. Les Belles Lettres), historian Adam Tooze gives a detailed account of what happened during the 10 years following the 2008 financial crisis. According to him, this shock wave has considerably reshaped the functioning of our world.
On September 16, 2008, in the aftermath of the bankruptcy of the American investment bank Lehman Brothers, the world economy sank into the worst crisis since 1929. To avoid chaos, all countries adopted, the United States in the lead, measures counter-cyclicals by massively injecting liquidity - especially dollars - into their savings. The banking and financial system seized up, unable to determine the value of sophisticated derivatives, the "subprimes" linked to "rotten" mortgages, which the financial industry, in search of maximum return with lower risk, had machined and sold to the chain to unseen investors.
This event caused a shock wave which has continued to produce its effects ever since. This is what Adam Tooze explains, in "Crashed" (ed. Les Belles Lettres). In this block of more than 750 pages, this professor of modern German history at Yale University (United States), like a detective, leads the investigation by delivering a living story rich in details of what has changed in ten years.
If it is impossible to be able to account for all of Adam Tooze's analysis, we can learn certain lessons from it. First, this crisis has made millions of people suffer "for no good reason", according to an inverted "class struggle" logic: "Wall Street first, the others then." "European failure
The worst happened in Europe, where the management of the crisis ended in failure, with leaders incapable of acting together. "The social and political wounds they inflicted on the European project may never heal," notes the author. The consequences of these "injuries" weighed on businesses in the Old Continent, and therefore employment, to the benefit of American and Asian companies. "In the arena where companies are confronted, the crises which raged from 2008 to 2013 have inflicted on European capital a historic defeat", because even if exports are important, "nothing can replace a good internal market health ”, he recalls.
Because in Europe, the crisis was not judged as a consequence "of the shock of 2008", but rather as "an internal problem in the euro zone, centered on the political questions of public debt". This was the pretext for the application of an obsessive policy of rebalancing public finances at the expense of growth. Under the leadership of Germany, "austerity" will impose itself on the countries of southern Europe, notably Greece (barely 1% of the GDP of the euro zone), the urgency being to protect the banks French and German companies, heavily invested in Greek debt, in the event of sovereign default.
Since then, the burden of this debt has been transferred to European taxpayers, when it had to be restructured as the IMF insists. For Adam Tooze, this debt did not threaten the European system because everyone had known for a long time that the country was insolvent. The risk lay more in "his over-indebted financial system" which was "at the mercy of short-term financing in the markets. "
Mario Draghi's "bazooka"
Barack Obama may have hammered Europeans at the time to stabilize the euro system, but he encountered dogmatic deafness in Berlin and Frankfurt. It was only under pressure from financial markets speculating against the single currency that Mario Draghi, President of the ECB, released his "bazooka" by announcing "that he would do whatever is necessary to defend the euro ”, by using unconventional measures, such as the imposition of a zero or even negative rate, or even the redemption of debts issued by countries and companies. Today, we are still there. Most of the European countries go into debt, reforming at least.
This European obsession contrasted with the United States, which returned to growth and job creation in a short time. The American federal state did not hesitate to bail out its national banking system as well as the foreign banks present on its territory. This public intervention put in brackets the neoliberal idea which, for years, had convinced that the markets were self-regulating. Yet the bankers got away with it. Despite the disproportionate risks they took, protected by the logic of "too big too fail", their responsibility was not sanctioned. Without punishment, mistakes are doomed to repeat themselves.
This European "austerity" obsession contributed, in the absence of an alternative, to the rise of "populism". Social democracy, long a bulwark against the markets has been in free fall since its conversion in the 1990s to market efficiency, favored by the free movement of capital, deregulations, privatizations, which have called into question the welfare state.
A political crisis
This is what makes Adam Tooze say that the crisis is first of all political: "This situation brings to light an essential, albeit disconcerting, truth, the concealment of which has influenced all economic policies since the 1970s. The foundations of modern monetary system are political. "
With the abandonment in 1971 by Richard Nixon of the reference to the gold standard, "money and credit, just like the structure of the financial sector which oversees them, are created by political power, social conventions and legal rules, unlike sports shoes, smartphones and oil barrels. Currency is at the top of the modern monetary pyramid, ”he notes. However, the only prices that will increase regularly during these years will be those of stocks and real estate because they capture the flows of money that seek to invest. The signs of this political crisis also appeared with unthinkable events. a few years ago: Brexit, the election of Donald Trump (even if Sarah Palin's candidacy in 2008 for vice-presidency and the emergence of the Tea Party were warning signals), the election of Emmanuel Macron who took advantage of the rejection of the political system in France, or the alliance of the extreme right and the 5-star anti-party movement that heads Italy.
Growing inequality
For Adam Tooze, the crisis will have shown that centrist liberalism "was wrong" because it was unable to provide a solution to the growing inequalities. This is what we see today in France with the movement of "yellow vests". But for the author, it is above all Barack Obama who will not have convinced the Americans to continue to follow the path he had traced with the failure of Hillary Clinton, despite the economic recovery. They will prefer the earthy billionaire Donald Trump, who will inaugurate a new way of governing the first world power. He does not bother to tell the truth, his demagogic remarks often have no meaning.
For Adam Tooze, "the loss of credibility is blatant and total" for governments unable to manage situations based on the facts. And as the president of the European Commission, Jean-Claude Juncker, says: "Hiding the truth from the general public is quite simply what the governance of capitalism requires today".
Capitalism which will have seen China assert its power since 2008, as we see with the hiding trade war which opposes Trump the protectionist and Xi Jinping thuriferous of liberalism in commercial matters. Because the crisis has enabled the People's Republic of China, which had dazzled the world with exceptional Olympic Games in 2008, to compete for the role of world leader in the United States. Has it not driven global growth for years?
However, far from dominating the world, it has shown signs of fragility, notably its financial markets which have experienced spectacular setbacks. As Adam Tooze notes, in China, you have to look at corporate balance sheets rather than trade surpluses. Debt in dollars, they are very sensitive to changes in interest rates and exchange rates. "25% of the debts of Chinese companies are in dollars, for only 8% of their profits," he said.
The flight of Chinese fortunes
This dependence of the People's Republic of China on the dollar and US monetary policy manifested itself in 2015, when the end of the quantitative easing of the Fed led to a slowdown in Chinese growth, which caused prices to fall of petroleum and other raw materials, depressing number of emerging commodities exporting countries. And it also scared away part of the Chinese fortunes abroad.
To curb its stock market crisis, Beijing had to tap into foreign exchange reserves which, from $ 4 trillion in 2014, melted to $ 3 trillion in early 2017.
The question also arises: with the gradual integration of China into the global financial system, will the United States help the Asian giant in the event of a crisis? It will be a dilemma for them, according to Adam Tooze
And besides, whether they are Chinese, American or European, are national governments as decision-makers as before? No, according to Adam Tooze, who does not believe in a return of the nation state as the rise of populism might suggest. On the contrary, it has lost its status as a framework for solving problems, supplanted, according to the author, by transnational companies. “If everyone is aware that we live in a world where corporate oligopolies reign, this reality and its incidences
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