---------
I am a lot more hostile to `Anatomy of a Crisis', by Barry Eichengreen.
While this historical analysis seems to correct:
In the United States, there were two key decisions. The first, in the 1970's, deregulated commissions paid to stockbrokers. The second, in the 1990's, removed the Glass-Steagall Act's restrictions on mixing commercial and investment banking. In the days of fixed commissions, investment banks could make a comfortable living booking stock trades. Deregulation meant competition and thinner margins. Elimination of Glass-Steagall then allowed commercial banks to encroach on the investment banks' other traditional preserves.
In response, investment banks branched into new businesses like originating and distributing complex derivative securities. They borrowed money and put it to work to sustain their profitability. This gave rise to the first causes of the crisis: the originate-and-distribute model of securitization and the extensive use of leverage...''
The conclusion is dead wrong:
``It is important to note that these were unintended consequences of basically sensible policy decisions...''
What is important to remember is that these were not unintended consequences, because the warning that these would be the consequences formed the arguments against these neoliberal policies when they were first proposed. And these were therefore not sensible policy decisions. They were intended to privilage capital and its already favored financial markets. Why? Because playing around with money has lower overhead and operating costs than actually making solid stuff that real people need and use to live. The costs are lower and the potential profits are many times greater.
Manufacturing and production considers itself doing well when it makes 3-5 percent or at least it did, back when I worked under a division of C.R.Bard, a medical supply and manufacturer.
Back then, I had a climbing buddy who was deep into this real estate and financial market speculation business. He told me, if I gave him any money (had to be in increments of 10K) he could promise me 18 percent. That's when I realized, so that's why everybody loves financial markets. Back then B's operating costs amounted to a small office in Oakland and two or three secretaries. Everything else was subcontract, mostly legal work and dirt cheap immigrant based (read non-union) construction companies. I figured out that he specialized in buying up little old ladies and poor household mortages, foreclosing them, rehabing the houses and putting them back on the market for several times their original appraisals. This is some pretty ugly exploitation. B. was worth several million by that time. His investors were mostly small medical practice specialists in the richer out laying area suburbs who were swimming in money and wanted more.
This whole neoliberal mind set was the economic planning answer to industrial and manufacturing declines and failures in the early 70s. Manufacturing couldn't attract enough capital to rebuild their own infrastructure, plants, production facilities---because they were not very profitable investments.
So to `save' the US economy the neoliberals dreamed up this financial market bullshit (just as B. did), and US heavy industry went out of the country, well greased by investment to do so, and eager to reap the rewards of cheap labor, cheap land, cheap construction, cheap resources (just like Oakland's heavy industrial base did). Why? To escape high costs of labor, resources, and imposed environment regulations in the US.
Well, that's the way I explained all this to my work buddies over smoking break on Friday. These breaks only last 7-15/mins, so I have to skip the details and get to the basic story fast.
Somebody correct this if I got it wrong, so I get it right. It is an important part of my `radicalize the workers' program.
CG