The ten year anniversary of the financial crash presents us with a chance to reflect on what caused it and whether we're any better placed to avoid a repeat.
What became a worldwide financial and economic disaster started in the American sub-prime mortgage market. In short, a lot of people too poor to afford a mortgage were knowingly sold mortgages anyway by unscrupulous firms. When people inevitably defaulted on those mortgages it created an enormous amount of bad debt, which, thanks to the genius of the financial markets, had been parcelled up into mysterious "financial products" generally known by three-letter acronyms such as MBS (Mortgage Backed Securities) or CDO (Collateralised Debt Obligations). The bosses of British banks seemed particularly partial to these products and piled in, seriously believing that they had discovered the secrets of financial alchemy which would guarantee returns with no risk. They were wrong.
Leaving aside the greed and stupidity of so many of the world's financial institutions and, particularly, their leaders, it is easy to see why poor Americans jumped at what they saw as their chance of the American Dream and why under pressure sales forces, with targets to meet and commissions to earn, pushed unsuitable products on to them. The US is the most unequal, major, developed world economy and, as a result, it is racked with status anxiety from top to bottom. Inequality forces people to compete with each other to try and scramble up the greasy pole, or at least stay where they are in the pecking order. Buying your own house rather than renting is a massive step up the social ladder as is being a success in business, even if that business is saddling poor people with crushing debt that they can never hope to repay. But inequality helps out here too. Great inequality encourages us to think of poorer people as somehow having failed anyway, so maybe it matters less what is done to them. Out of sight, out of mind.
In a wider sense the 2007 crash was the result of deep-seated changes in the world economy, not least the massive expansion of private debt that had built up in the system over recent decades. But again, inequality and status anxiety had key roles here. Real wages have not allowed us or our families to live the lives we want, the lives that advertisers sell us every day. So in order to get these lives and to preserve our status and sense of self-worth in the world around us, we borrowed to bridge the gap. A massive bubble was created and this burst in 2007, all it took was the big American sub-prime needle to do it.
So where are we now? The financial commentator, Gillian Tett, on BBC Radio 4 this week, made a striking analogy saying “What has happened is a reliance on private debt – heroin, if you like – has been replaced by a reliance on public debt – morphine. The system as a whole is still unbalanced.”. This suggests to me that we are not near a long-term solution. We know in the UK that household debt is stratospherically high so we appear to have achieved the unwise and unenviable trick of being on both heroin and morphine at the same time. The only long-term solution, nationally and globally, is to distribute, and redistribute, wealth and income more fairly so that money is put back in the hands of working people and we can begin to wean ourselves off these debt drugs. In other words, if we want to avoid a repeat of 2007, we should really look to reduce inequality.
Bill Kerry - Supporters & Local Groups Manager