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• Historical view
• Signs of the crisis
• Synthesis of the crisis in the United States

It is true that real estate bubble (especially with « sub-prime »), and its crash was the immediate cause of the financial crisis. But appearances are often deceptive. The root of the problem comes from the American neo-liberal model that has been exported in the entire world for the last three decades. All that has to be done is to describe that at the base of the neo-liberal growth model, there is the necessity to repress the growth of wages next to the spreading of consumption.


The existence of a contradiction with the neo-liberal growth model is clear. If we suppose a stable workforce (as for the size) consumption can only increase thanks to higher salaries or the intermediary of the spreading of consumer credit. As real estate prices have increased and the salaries have stayed stable, families have started consuming thanks to loans on the growing values of their houses. When the prices decreased, many families found their own funds to be negative and their finances plunge into chaos.

Consumption is now going on stagnation and the American economy is sinking and plunging into an economic recession. As the American government politics have done little to change the dynamic at the core of the neo-liberal model, it is not obvious that the stability of financial markets will be enough to repair the model. However, if the government takes the measures necessary to restore the growth of salaries then the neo-liberal model will die. With little irony, the ultimate solution for the crisis is the disappearance of neo-liberalism.

financial crisis


• Historical view

The beginning of this crisis is caused by the decision of the Federal Reserve Bank to use in 2003 and 2004 interests rates that were considered to be too low, encouraging the « aggressive » distribution of credits as well as the search for additional remunerations by investors and savers, obtained by the massive development of risky loans to insolvent persons, with higher interest rates.

The crisis began at the second semester of the year 2006 with the crash of risky property loans (mortgage) in the United States (sub-primes), borrowers (of modest conditions) were no longer able to pay off. The world financial crisis is revealed in February 2007 by the announcement of important supply ordered by HSBC Bank. It has changed into a worldwide financial crisis since the summer 2007, banks of the entire world had to pass depreciations of their assets value each quarter in their accounts with a distrust especially toward secured claims (ABS, RMBS, CMBS, CDO) that include a part more or less important of home loans (sub-prime), then toward investment funds, UCITS (including monetary unit trust) and the banking system of open-ended collective investment scheme likely to hold those derived credits.

Until the summer 2008, we were facing a fall of banks equity caused by those depreciations which were totalled at 500 billion American dollars. Some banks have cleared those losses thanks to capital growths, by selling new shares on stock exchange which totalled 300 billion American dollars. Most of the banks preferred reconstituting their supplies by a reduction of their traditional credit activity, and they just respected at the bare minimum the solvency ratios, despite a crisis which scope creates a more important need for security. It is the most serious banking crisis since 1929 Great Depression and it has led, since September 2008, a major disruption of the international banking scene.

On September 15th, 2008 the American government let the business bank Lehman Brothers go bankrupt without interfering, after being sure that its creditors were numerous enough to scatter the impact. This decision forced banks to take measures. Realizing that the States favoured the saving of deposit banks, many major American investment banks chose to be bought back in order to save their activities (Bear Stearns, Merrill Lynch, Washington Mutual and Wachovia).

Those business banks were the designated victims of the insurance system of real estate claims by the credits raisers, which had a huge success with savers until 2007, but it turned out to be ineffective ahead of the scale of the risks to cover. Those credit raisers did not have enough equity to keep their commitments; they ended up on bankrupt, forcing their customers as prestigious as the Merrill Lynch bank to press charges.

The global crisis of confidence in the financial system caused a first fall of the stock markets in summer 2007. However, it was much less important than the one of fall 2008. Authorities and governments first thought it was a banking liquidity crisis and central banks did not stop injecting massive liquidities in the inter-banking market. But little by little, the scenario of a global solvency crisis of banks imposed itself.

The extent and scale of this crisis comes from the transgressions of the rules that govern the distribution of credit. The securitization of American risky claims, resold as bonds to savers all over the world gave it a worldwide dimension.

   
         
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