The Upcoming Financial Crisis Part 2

The US also had the real estate bubble, but they did not just keep it to themselves; rather, they sold these faulty mortgages in packages called the CDOs and Subprime Mortgages to all over the world. When BNP PARIBAS (French bank) blew the whistle, followed by Lehman Brothers declaring bankruptcy, their bubble exploded; it ended up all over the world, making it a global financial crisis. The credit system failed, all the major banks of the world stopped lending each other and all financial channels got blocked!

The unimaginable catastrophe became a reality; one fine morning when the Europeans and Americans woke up they found finances and trades blocked. They couldn’t do anything other than anticipate the gravity of their losses; there was no one to save them, their homes, their life savings. The governments also proved it, giving trillions of dollars worth of bailouts, not to the people affected by the economy but only to the corporate. Only a third of those bailouts were short term, timely and to the point (accurate), the rest just went to waste by not contributing positively but rather contributing to overspending, and again making small bubbles all over the globe.

The Europeans pointed out all fingers at the US for letting Lehman Brothers fail, but still, they did not address the real issue, the reason being that they were also following the same practices with their banks and also having the same leverage ratios as those of the US. Hank Paulson, the United States Secretary of the Treasury, who increased the interest rates which led to the crisis, had seen repetitive signs and facts that the US had too much credit and that Subprime Mortgages had spread like a virus in America and beyond. Still, he did not take it as an issue till the very end. Just before Lehman Brothers’ bankruptcy, Hank Paulson had an emergency meeting with the CEOs of major investment banks, but Britain backed out, not taking Paulson’s last minute concerns seriously. Since then, Hank Paulson knew that he could not stop the tsunami and, worst of all, he had no answers.

China’s main exports were to America, and with America canceling out all new orders, not even being able to pay for the shipments China had exported in late 2008, China’s industry was bound to undergo a major recession. Chinese companies cannot file bankruptcy to protect themselves against creditors; so many Chinese industrialists disappeared over night in fear of the worst. Factories were closed and workers who were already owed months of wages got laid out. An estimated 15 million of poor Chinese workers got fired as a response to the global crisis, and many of them did not have food to eat for days at a stretch.

French workers who considered employment a human right started kidnapping their CEOs on factory closures and layoffs, the French Prime Minister, disturbed by this fact, gave a speech denouncing the way of the markets and promised major reforms in the capitalistic economic structure. He said that he would base his reforms on measured economic facts, reasoning, “What gets measured gets done!” and of course, how can an economy improve if its financial products cannot be measured.

The Current Situation

Heavy borrowing is the capitalists’ preferred policy to deal with their system’s latest crisis. Since 2007, capitalist governments everywhere borrowed massively, running into large budget deficits, and their national debts soared.

Borrowing has only helped reduce the criticism, resentment, anger, and anti-system tendencies among those fired from jobs, evicted from homes and deprived of job security and benefits; nothing more. The irony of the situation is that it does not just stop at deception, but the masses are bound to suffer more even as the economy is getting out of recession; the European Commission expects spending cuts worth 0.25% of Eurozone GDP to be implemented in 2014.

Italy and Spain are being forced to borrow, or in other words, are being forced to seek help from the European Central Bank’s (ECB) emergency bailout scheme, known as “outright monetary transactions”; and as irrational as it sounds, in the coming years, they are being told to redraft their tax and spending plans or risk breaching Eurozone debt rules in 2014. Therefore, Spain has announced in November 2013 that it would leave the €41bn (£34bn) EU bailout program it has drawn on to rescue its teetering banks.

Italy’s Finance Ministry protested after the commission’s judgment: “In formulating its opinion, the commission does not take into account important measures announced by the government.”

In the recent research into the human cost of the crisis, it was found that between 2007 and 2012, reported average life satisfaction declined by more than 20% in Greece, 12% in Spain and 10% in Italy.

“In the wake of the crisis, household income and wealth, jobs and housing conditions deteriorated and have not completely recovered yet in many OECD countries,” says the How’s Life report.

The think tank’s research into Greece suggests the the average Greek household has been “severely affected” by the crisis, particularly when it comes to household income, jobs, life satisfaction and civic engagement.

From 2007 to 2011, Greece recorded a cumulative decline in real household disposable income of around 23%, the largest decline among the OECD countries. Between 2007 and 2010, income inequality increased by 2%, well above the OECD average of 1.2%.

The poor employment situation’s impact on life satisfaction, from 2007 to 2011, the percentage of Greek people declaring being very satisfied with their lives fell from 59% to 34%, the lowest share in the OECD area.

The percentage of Greek people reporting that they trust the government fell from 38% to 13% between 2007 and 2012.