The rise of finance
The crisis followed a quarter of a century in which finance had grown on a massive scale to play an unprecedented role in the system. The stock market valuation of US financial companies was 29 percent of the value of non-financials in 2004, a fourfold increase over the previous 25 years;• the ratio of financial corporations' to non-financial corporations' profits had risen from about 6 percent in the early 1950s through the early 1960s to around 26 percent in 2001;7 global financial assets were equal to 316 percent of annual world output in 2005, as against only 109 percent in 1980;8 household debt in the US was 127 percent of total personal income in 2006 as against only 36 percent in 1952, around 60 percent in the late 1960s and 100 percent in 2000.9
The growing role of finance had its impact throughout the global economy. Every upturn in the recession-boom cycle after the early 1980s was accompanied by financial speculation, causing massive rises in the US and British stock markets in the mid-1 980s and mid-1990s, the huge upsurge of Japanese share and real estate prices in the late 1980s, the dotcom boom of the late 1990s, and the housing booms in the US and much of Europe in the early and mid-2000s. Along with these went successive waves of takeovers and mergers of giant companies, financed by credit, from the buyouts of firms like RBS Nabisco in the late 1980s through to the wave of takeovers of old-established companies by private equity funds in the mid-2000s.
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The New Age of Global Instability