How the financial crisis came about and what needs to be done now
By Hans-Werner Sinn, Econ, Berlin 2009, ISBN 978-3-430-20084-4
Published in Grail World 56/2010
The world financial crisis of 2008, which triggered a world economic crisis, is on everyone's lips. The guilty party is sought and not found. Instead, politicians are spreading the hope that the bottom has been reached. By 2011 at the latest, things should pick up and the economy should then grow vigorously again.
If you want to find out more about the background to the crisis, you should read the above-mentioned book by Hans-Werner Sinn. The author is a full professor at the LMU (Ludwigs-Maximilians-Universität) in Munich, head of the Ifo Institute for Economic Research and is considered one of the most prominent economists in Europe.
In his book with clear graphics, which is easy to understand even for non-economists, he describes the development and the expected effects of the financial crisis. It turns out that the whole financial order, which is left too much to the free play of forces, is sick and endangers the capitalist economic system as such - which makes sense for its value.
Governments, central banks, state financial supervisory authorities, inadequate regulations, excessively permissive or even irresponsible laws, bank managers, rating agencies, real estate agents, as well as home buyers and other citizens (especially in the USA) who have lived beyond their means are responsible for the financial crisis.
As is to be expected in our “age of globalization”, there was manipulation on a broad front, which one can actually only call fraudulent. For example with the notorious scrap papers (e.g. Mortgage-Backed Securities = MBS, see p. 132 f.) Or with the valuation of single-family houses (see p. 113).
When I was a commercial apprentice a good 60 years ago, there were rules of propriety that were taken for granted and tried and tested, good commercial principles that were only ignored by crooks and willful fraudsters with whom no serious businessman did business. Today this category sits as dark men of honor in management positions. These make fun of the supposedly "dating back to the Middle Ages", long outdated trade customs. With their capital power, they blackmail democratic politicians, who then adapt the state laws to the wishes of the great exploiters. No wonder that democracy is falling into disrepute in many places.
Indeed crucial to the financial collapse are above all, according to Hans-Werner Sinn drastic errors in the system. As Adam Smith (1723-1790) already knew, the market economy can only function with a suitable regulatory framework. The indispensable rules of the game for a social market economy that existed within the individual states were softened in the globalization and deregulation mania and not, or only to an inadequate extent, replaced by international regulations. The neoliberal belief in the self-regulation of the markets, which would automatically put everything in order without state regulation, had prevailed worldwide. The way was clear for a new version of the disreputable “Manchester capitalism”, in which the strong ruthlessly ignore the interests of the weak according to a Luciferian principle. This misinterpretation of the self-regulation of the markets has cost us both spiritually and materially, and it can become even more expensive.
Given the current state of the world, it is hardly to be expected that the necessary regulations can be implemented globally in the foreseeable future; because the nation-state egoism dominates over a global altruism. In all likelihood - apart from a few cosmetic repairs - things will essentially continue as before: the runaway economic and financial system is completely separated from intellectual or moral considerations. It will continue to oscillate between boom and crash in the future. The strong will get rich and the weak will lose; entirely in the sense of a social Darwinism that was long believed to be outdated.
How long will this system of injustice last?