Financialisation and the Bubbles That Burst
Credit crunched
The mood was one of "exuberant optimism", as the world business elite gathered in the Swiss resort of Davos in January 2007 to "enjoy" what the Financial Times called "the opportunities brought about by globalisation, new technologies and a world economy that is expanding at its fastest pace for decades" .1 The mood was rather different at their next gathering in January 2008. There was "grim determination"2-grim because the global financial system had begun to grind to a halt with a "credit crunch"; determination because the "real economy" was still expanding and it seemed that appropriate government action would get the banks lending again.
Governments took action in the months that followed. In January central banks slashed interest rates. In February the British government nationalised the mortgage bank Northern Rock; in March the US Federal Reserve provided \$30 billion for J P Morgan Chase to take over the failing Bear Stearns bank; in April and May central banks on both sides of the Atlantic provided hundreds of billions to the banks to keep them going, and in July they provided hundreds of billions more; early in September the US government took over the giant mortgage lenders Fannie Mae and Freddy Mac in what the former government adviser Nouriel Roubini described as "the biggest nationalisation humanity has ever known".3
It was all to no avail. The collapse of one of the pillars of the US's financial system, the investment bank Lehman Brothers, on 15 September caused what was generally called a "financial tsunami". Bank after bank in country after country came close to collapse and had to be rescued by government bail-outs that cost further hundreds of billions and often involved partial nationalisation. The credit crunch had become the most serious financial crisis the global system had known since the slump of the 1 930s. By end of the year it was clear to everyone that it was more than just a financial crisis. Tens of thousands of jobs were being lost every day in all the major economies; world trade was falling at an annualised rate of 40 percent, and the IMF was predicting "the sharpest recession since the Second World War for the rich countries" .4 But it was not only the rich countries which were affected. South Korea, Malaysia, Thailand and Singapore suffered sharp economic contraction; 20 million Chinese workers lost their jobs as its exports fell and its real estate bubble collapsed; Russian ministers began to fear a new crisis; Brazil's industrial output started falling; the economic recovery of Eastern Europe came to a sudden halt as millions of people found they could not keep up with their mortgage payments to West European banks. At Davos in January 2009 there were "ever more doom-laden prognoses" .5
CHAPTER ELEVEN
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