In the case of a cleaner at a school a few years ago it was a couple of ballpoint pens and the fact he nicked some stationary – that was enough.
What if you brought down the entire global economy, turned a large number of homeowners into paupers, wiped out pension savings, threw millions of people out of work — and as an afterthought, destabilized a number of the world's most developed countries? And then what if you ended up even richer than you started out? Well, so far, it seems that isn't enough.
The film Inside Job, is about these people. Inside Job is a documentary that quizzes some major perpetrators of the global financial crisis. It doesn’t pull punches it says that these individuals were crooks who got away with their crime. Worse than that not only are the people who caused the economic crisis not being prosecuted. They are still getting rich, and richer and a lot of them actually remain running the businesses that still influence the global economy.
From around 1950 until the early 1970s there was a period of unprecedented egalitarian economic growth. It was also a period of some limited but real form of benefits for the population. As growth went up social indicators went up, as you'd expect. Many economists called it the golden age of modern capitalism — they should call it state capitalism because government spending was a major engine of growth and development (dams, roads and government buildings).
In the mid 1970s that changed - restrictions on finance were dismantled, finance was freed, speculation boomed, huge amounts of capital started going into speculation against currencies and other paper manipulations. The power of the economy shifted to the financial institutions, away from manufacturing.
So what went wrong? In a nutshell that cause of the global financial crisis was a bit like the boy in the old story “The Emperor’s New Clothes”. One shout of disbelief and the illusion began to crumble. In this case it was the beginning of doubt in the never-ending increase in the value of property.
The cause of the financial system's meltdown is not hard to grasp. The decades-long supremacy of "free trade" resulted in capital being unmoored from national economies and freed to move around the world with few limitations (under the imperative of government not "intervening" in markets). Unconstrained by borders and investment rules, those dollars, yen, euros and what have you roamed the planet seeking a better rate of return.
From the 1980s real estate was the can't-miss investment, and as enormously overvalued housing bubbles sprang up, notably in the United States, Wall Street's financial whizzes started offering newer and more "creative" investment vehicles, bundling mortgages and selling them off to investors from around the globe. That was driven by an era of relentless deregulation, both at home and abroad.
Meanwhile, international bodies like the WTO and the IMF were pressuring the governments of all countries to drop their controls on the flow of cash and goods. Government after government capitulated to the free market orthodoxy.
Without fear of a regulatory backlash, the banks pushed their new investments hard, and investors gobbled them up with glee. You had sleazy brokers pushing bad investments on gullible retirees. One executive at Morgan Stanley's mortgage unit as saying, "It was unbelievable. We almost couldn't produce enough to keep the appetite of the investors happy. More people wanted bonds than we could actually produce."
In the end, investors were basically buying up paper that had only a distant relationship with anything concrete. The link that had long existed between homeowners and lenders was broken, and debt -- in this case debt tied to housing, but also commercial and consumer debt -- became a hot investment vehicle.
Convinced that the market would continue to grow indefinitely -- or maybe that they'd get bailed out if things headed south -- investors leveraged their assets further and further, in effect buying on the margin – in the hope that it wouldn’t crash – not yet.
Yet these loans -- many of which were taken on investment properties by people expecting a nice, quick turnover -- started to go belly-up, a panic ensued. As the rot spread, banks started going down and investors essentially began a stampede on an already weakened financial sector. It was the modern-day equivalent of a bank run, but on a global scale.
That posed a risk to the mammoth and wholly unregulated market in insurance on bad loans that had grown up around these new kinds of investments. The market in what are known as "credit default swaps" is of unknown size, but it's estimated to be worth as much as $60 trillion, most of it essentially paper backed by too little in the way of hard assets.
Here in New Zealand we have been comparatively sheltered from the financial storm, but its waves have hit our shores. The bailout of South Canterbury Finance, tax cuts for the rich paid for by borrowing, the rise in GST, employment law reforms, the insidious chipping away at welfare, talk of raising the age of super, and cuts in public sector services and jobs are all signs that in fact our Government is acting out a shadow play paralleling the international chaos.
Our own Prime Minister made his fortune while working at Merrill Lynch. He knows how to make money out of moving money. He has seen and worked for the shiny suits who do the corporate raids – but he does not know how to create jobs. Don Brash is the same. They are both disciples of the free market and want to privatize everything. The theory behind this is that the State is inefficient and chokes innovation. Whereas the invisible hand of the market brings discipline and controls unattainable by the State. I have a friend who heard the Prime Minister at a breakfast meeting in Auckland in early April. He said that he knows most Kiwis are opposed
I want you to look at the film and focus on these issues – the values that motivated the main players in this documentary are you could argue the same ones that motivate those that want to privatize New Zealand. I hope this film will help you realize the dangers of what the National/ACT Government is inflicting on our people and hopefully you’ll want to be part of a strong, organised resistance to the whole ‘privatise the profits, socialize the losses’ agenda.
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