Crisis opening in 2007

An editorial in the Financial Times (21 January) summed up well the Government's new plan for the collapsed bank Northern Rock. "The plan is this. Northern Rock will issue billions of pounds in new bonds... and repay its debt to the Bank of England. Private investors will [take over the bank]. And to make it work the bonds - all £30 billion or so - will carry a government guarantee... "The package amounts to a subsidy [from the Government to the Northern Rock shareholders and its putative buyers] and it may be worth billions of pounds... "[But] the political attractions are obvious. The...

I attended two sessions discussing the current credit crisis at the conference on 9-11 November sponsored by Historical Materialism magazine. The two sessions offered very different views on the crisis, with disappointingly little interaction. No speaker in either session was confident enough to give a definite yes or no on whether the credit crisis will snowball into a sizeable crisis of trade and production. Robert Brenner, in the second session, ventured a prediction that it will snowball, but made it clear that was only a best guess. The big difference between the two sessions was in their...

“You can expect”, writes US economist Nouriel Roubini, “that the ongoing credit crunch will get much worse in the year ahead and its fallout will spread from the US to Europe and throughout Asia and the globe. "Trillions of dollars of securitised assets that were sliced and diced in the long food chain of securitisation are now at some risk. The first crisis of financial globalisation and securitisation is only at its beginning stage”. At one end — the starting end of this crisis — two million poorer US households are likely to lose their homes in the coming months because, with interest rates...

Over the last several months, a crisis originating at the lower end of the US mortgage market has become, at least incipiently, a world credit crisis. The immediate background to the credit crisis is a bubble, since about 2003, in low-security, high-interest mortgage lending in the USA. Corporations have made a buck by lending to house-buyers with poor credit records, at high rates of interest. They allow for some defaults in payment. But when interest rates go up, and the house-price spiral slows or reverses, the defaults swell. By the end of 2006, “subprime” mortgages comprised about $1.5...