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The Great Financial Crisis

The Great Financial Crisis: Causes and Consequences

John Bellamy Foster
Fred Magdoff
Copyright Date: 2009
Published by: NYU Press,
Pages: 144
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  • Book Info
    The Great Financial Crisis
    Book Description:

    In the fall of 2008, the United States was plunged into a financial crisis more severe than any since the Great Depression. As banks collapsed and the state scrambled to organize one of the largest transfers of wealth in history, many-including economists and financial experts-were shocked by the speed at which events unfolded.

    In this new book, John Bellamy Foster and Fred Magdoff offer a bold analysis of the financial meltdown, how it developed, and the implications for the future. They examine the specifics of the housing bubble and the credit crunch as well as situate current events within a broader crisis of monopoly-finance capitalism-one that has been gestating for several decades. It is the "real" productive economy's tendency toward stagnation, they argue, that creates a need for capital to find ways to profitably invest its surplus. But rather than invest in socially useful projects that would benefit the vast majority, capital has constructed a financialized "casino" economy that neglects social needs and, as has become increasingly clear, is fatally unstable. Written over a two-year period immediately prior to the onset of the crisis, this timely and illuminating book is necessary reading for all those who wish to understand the current situation, how we got here, and where we are heading.

    eISBN: 978-1-58367-369-0
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. 1-4)
  2. Table of Contents
    (pp. 5-6)
  3. Preface November 6, 2008
    (pp. 7-10)
  4. Introduction
    (pp. 11-24)

    The Great Financial Crisis began somewhat inconspicuously in late summer 2007 with the failure of two Bear Stearns hedge funds, and then went from bad to worse over the following year despite countless attempts by governments to halt its progress. It is now universally recognized as the worst economic crash since the Great Depression. Indeed, as U.S. economist andNew York Timescolumnist Paul Krugman indicated in late 2008, it raises “the prospect of a second Great Depression.”²

    Although former Federal Reserve Board chairman Alan Greenspan has likened it to “a once-in-a-century credit tsunami,” the Great Financial Crisis is a...

  5. PART ONE: Causes

    • 1. The Household Debt Bubble May 2006
      (pp. 27-38)

      It is an inescapable truth of the capitalist economy that the uneven, class-based distribution of income is a determining factor of consumption and investment. How much is spent on consumption goods depends on the income of the working class. Workers necessarily spend all or almost all of their income on consumption. Thus for households in the bottom 60 percent of the income distribution in the United States, average personal consumption expenditures equaled or exceeded average pre-tax income in 2003; while the fifth of the population just above them used up five-sixths of their pre-tax income (most of the rest no...

    • 2. The Explosion of Debt and Speculation November 2006
      (pp. 39-62)

      In a series of articles inMonthly Reviewand in Monthly Review Press books during the 1970s and 1980s, Harry Magdoff and Paul Sweezy proposed that the general economic tendency of mature capitalism is toward stagnation.¹ A shortage of profitable investment opportunities is the primary cause of this tendency. Less investment in the productive economy (the “real economy”) means lower future growth. Marx wrote about the possibility of this very phenomenon:

      If this new accumulation meets with difficulties in its employment, through a lack of spheres of investment, i.e. due to a surplus in the branches of production and an...

    • 3. Monopoly-Finance Capital December 2006
      (pp. 63-76)

      The year now ending marks the fortieth anniversary of Paul Baran and Paul Sweezy’s classic work,Monopoly Capital: An Essay on the American Economic and Social Order. Compared to mainstream economic works of the early to mid-1960s (the most popular and influential of which were John Kenneth Galbraith’sNew Industrial Stateand Milton Friedman’sCapitalism and Freedom),Monopoly Capitalstood out not simply in its radicalism but also in its historical specificity. What Baran and Sweezy sought to explain was not capitalism as such, the fundamental account of which was to be found in Marx’sCapital, but rather a particular...

    • 4. The Financialization of Capitalism April 2007
      (pp. 77-88)

      Changes in capitalism over the last three decades have been commonly characterized using a trio of terms: neoliberalism, globalization, and financialization. Although a lot has been written on the first two of these, much less attention has been given to the third.¹ Yet, financialization is now increasingly seen as the dominant force in this triad. The financialization of capitalism—the shift in gravity of economic activity from production (and even from much of the growing service sector) to finance—is thus one of the key issues of our time. More than any other phenomenon it raises the question: has capitalism...

  6. PART TWO: Consequences

    • 5. The Financialization of Capital and the Crisis April 2008
      (pp. 91-110)

      With the benefit of hindsight, few now doubt that the housing bubble that induced most of the recent growth of the U.S. economy was bound to burst or that a general financial crisis and a global economic slowdown were to be the unavoidable results. Warning signs were evident for years to all of those not taken in by the new financial alchemy of high-risk debt management, and not blinded, as was much of the corporate world, by huge speculative profits. Since the 1960s,Monthly Review, first under the editorship of Harry Magdoff and Sweezy and subsequently in the work of...

    • 6. Back to the Real Economy December 2008
      (pp. 111-140)

      “The first rule of central banking,” economist James K. Galbraith wrote recently, is that “when the ship starts to sink, central bankers must bail like hell.”² In response to a financial crisis of a magnitude not seen since the Great Depression, the Federal Reserve and other central banks, backed by their treasury departments, have been “bailing like hell” for more than a year. Beginning in July 2007 when the collapse of two Bear Stearns hedge funds that had speculated heavily in mortgage-backed securities signaled the onset of a major credit crunch, the Federal Reserve Board and the U.S. Treasury Department...

  7. Notes
    (pp. 141-156)
  8. INDEX
    (pp. 157-160)