Get Red Pepper's email newsletter. Enter your email address to receive our latest articles, updates and news.

×

Stagnation and securitisation: understanding the 2008 financial crisis

Jack Copley provides an introduction to An Angry Person's Guide to Finance — a free Red Pepper pamphlet

May 6, 2014
4 min read

2014 has seen a range of commentators proclaim that Britain is fully on the path to healthy growth. The OECD estimated that this year will see the UK economy outpace its European neighbours Germany, France and Italy. The IMF has made similarly positive predictions. With business investment and consequent growth taking place at the most sustained pace since 2007, it looks like we may finally be making our way back to pre-crisis levels of dynamism.

But just how dynamic was the economy before the financial crisis? Investment as a share of GDP had been tumbling downward since the early 1970s; GDP growth had fallen below zero in each major recession since 1970, which never happened in the preceding 20 years; and the mean unemployment rate was higher between 2000-2007 than in the ‘dark days’ of the 1970s. This picture is very similar across many of the world’s advanced economies. In other words, there was something very wrong with the underlying global economy in the years leading up to the 2008 financial crash.

Recently, this has been acknowledged by remarkably centrist economists. In November last year, former US Treasury Secretary Larry Summers told the IMF that Western economies may have been suffering prolonged weak growth or ‘secular stagnation’ since the turn of the millennium. Such weak growth in real production has provoked governments to slash interest rates in an attempt to encourage growth – the unintended consequence of this being a great increase in debt and an influx of money into speculative financial markets. Such high-risk, high-reward bubbles have given advanced economies the illusion of health.

The Financial Times’ Martin Wolff, former US government economist Jared Bernstein and Nobel Prize winners Paul Krugman and Edmund Phelps have all lent support to this view. Krugman went further than Summers, suggesting that this thesis has “arguably been true, although perhaps with increasing severity, since the 1980s”. Phelps went further still: “It’s surprising when people suddenly are talking about stagnation when we’ve been in stagnation since 1972”.

Discussing the problems of our current financial system without talking about these troubles in the underlying economy can lead to very unsatisfactory explanations for the 2008 crisis. We should all be familiar with them by now: the bankers were too greedy; the financial culture too hedonistic; the regulations too lax. Of course we should not exclude these factors, but a comprehensive explanation for the bloated state of finance today must begin with an understanding of what drives capitalist economies in the first place.

An Angry Person’s Guide to Finance starts at exactly this point. The engine of capitalism is profit – it is the sole motive of investment and an absolute necessity for any business. However, there is no guarantee that profitability across the whole economy will rise or even remain stable over long periods. In fact, it has been stagnating and even falling on average since the middle of the 20th century (various economists’ data is presented here). It is for this reason that we have seen a slowdown in investment, growth and employment across the advanced capitalistworld in recent decades. This is also the key to understanding why money has been increasingly channeled into financial ventures.

This pamphlet traces, in layperson’s terms, exactly how weak profits in the production of goods and services has led to a transformation in the workings of global banking through the processes of disintermediation, securitisation and the expansion of derivatives trading. It then shows how headline-grabbing things like credit rating agencies and bank bailouts are linked to these important processes. Finally, this pamphlet discusses the meagre state of financial reforms and raises questions about the possibility of any real, lasting regulation of a capitalist financial system.

It is no longer sufficient to have a public discussion about the banking system that neglects the economy as a whole: finance and production. It is also no longer reconcilable with the principles of democracy to leave so many people in the dark about these issues by masking them in jargon. An Angry Person’s Guide to Finance endeavors to tackle both of these problems – something that must be done if we are to avoid bringing the same man-made disasters down upon our heads time and time again.

An Angry Person’s Guide to Finance (pdf)

Red Pepper is an independent, non-profit magazine that puts left politics and culture at the heart of its stories. We think publications should embrace the values of a movement that is unafraid to take a stand, radical yet not dogmatic, and focus on amplifying the voices of the people and activists that make up our movement. If you think so too, please support Red Pepper in continuing our work by becoming a subscriber today.
Why not try our new pay as you feel subscription? You decide how much to pay.
Share this article  
  share on facebook     share on twitter  

Brexit, Corbyn and beyond
Clarity of analysis can help the left avoid practical traps, argues Paul O'Connell

Paul Mason vs Progress: ‘Decide whether you want to be part of this party’ – full report
Broadcaster and Corbyn supporter Paul Mason tells the Blairites' annual conference some home truths

Contagion: how the crisis spread
Following on from his essay, How Empire Struck Back, Walden Bello speaks to TNI's Nick Buxton about how the financial crisis spread from the USA to Europe

How empire struck back
Walden Bello dissects the failure of Barack Obama's 'technocratic Keynesianism' and explains why this led to Donald Trump winning the US presidency

Empire en vogue
Nadine El-Enany examines the imperial pretensions of Britain's post-Brexit foreign affairs and trade strategy

Grenfell Tower residents evicted from hotel with just hours’ notice
An urgent call for support from the Radical Housing Network

Jeremy Corbyn is no longer the leader of the opposition – he has become the People’s Prime Minister
While Theresa May hides away, Corbyn stands with the people in our hours of need, writes Tom Walker

In the aftermath of this disaster, we must fight to restore respect and democracy for council tenants
Glyn Robbins says it's time to put residents, not private firms, back at the centre of decision-making over their housing

After Grenfell: ending the murderous war on our protections
Under cover of 'cutting red tape', the government has been slashing safety standards. It's time for it to stop, writes Christine Berry

Why the Grenfell Tower fire means everything must change
The fire was a man-made atrocity, says Faiza Shaheen – we must redesign our economic system so it can never happen again

Forcing MPs to take an oath of allegiance to the monarchy undermines democracy
As long as being an MP means pledging loyalty to an unelected head of state, our parliamentary system will remain undemocratic, writes Kate Flood

7 reasons why Labour can win the next election
From the rise of Grime for Corbyn to the reduced power of the tabloids, Will Murray looks at the reasons to be optimistic for Labour's chances next time

Red Pepper’s race section: open editorial meeting 25 June
On June 25th, the fourth of Red Pepper Race Section's Open Editorial Meetings will celebrate the launch of our new black writers' issue - Empire Will Eat Itself.

After two years of attacks on Corbyn supporters, where are the apologies?
In the aftermath of this spectacular election result, some issues in the Labour Party need addressing, argues Seema Chandwani

If Corbyn’s Labour wins, it will be Attlee v Churchill all over again
Jack Witek argues that a Labour victory is no longer unthinkable – and it would mean the biggest shake-up since 1945

On the life of Robin Murray, visionary economist
Hilary Wainwright pays tribute to the life and legacy of Robin Murray, one of the key figures of the New Left whose vision of a modern socialism lies at the heart of the Labour manifesto.

Letter from the US: Dear rest of the world, I’m just as confused as you are
Kate Harveston apologises for the rise of Trump, but promises to make it up to us somehow

The myth of ‘stability’ with Theresa May
Settit Beyene looks at the truth behind the prime minister's favourite soundbite

Civic strike paralyses Colombia’s principle pacific port
An alliance of community organisations are fighting ’to live with dignity’ in the face of military repression. Patrick Kane and Seb Ordoñez report.

Greece’s heavy load
While the UK left is divided over how to respond to Brexit, the people of Greece continue to groan under the burden of EU-backed austerity. Jane Shallice reports

On the narcissism of small differences
In an interview with the TNI's Nick Buxton, social scientist and activist Susan George reflects on the French Presidential Elections.

Why Corbyn’s ‘unpopularity’ is exaggerated: Polls show he’s more popular than most other parties’ leaders – and on the up
Headlines about Jeremy Corbyn’s poor approval ratings in polls don’t tell the whole story, writes Alex Nunns

Job vacancy: Red Pepper is looking for a political organiser
Closing date for applications: postponed, see below

The media wants to demoralise Corbyn’s supporters – don’t let them succeed
Michael Calderbank looks at the results of yesterday's local elections

In light of Dunkirk: What have we learned from the (lack of) response in Calais?
Amy Corcoran and Sam Walton ask who helps refugees when it matters – and who stands on the sidelines

Osborne’s first day at work – activists to pulp Evening Standards for renewable energy
This isn’t just a stunt. A new worker’s cooperative is set to employ people on a real living wage in a recycling scheme that is heavily trolling George Osborne. Jenny Nelson writes

Red Pepper’s race section: open editorial meeting 24 May
On May 24th, we’ll be holding the third of Red Pepper’s Race Section Open Editorial Meetings.

Our activism will be intersectional, or it will be bullshit…
Reflecting on a year in the environmental and anti-racist movements, Plane Stupid activist, Ali Tamlit, calls for a renewed focus on the dangers of power and privilege and the means to overcome them.

West Yorkshire calls for devolution of politics
When communities feel that power is exercised by a remote elite, anger and alienation will grow. But genuine regional democracy offers a positive alternative, argue the Same Skies Collective

How to resist the exploitation of digital gig workers
For the first time in history, we have a mass migration of labour without an actual migration of workers. Mark Graham and Alex Wood explore the consequences


6