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Boom produces bust

The surge in capitalist markets from 1997 to 2007 was only achieved by deliberate, reckless stimulation of credit growth, enacted through a combination of abnormally low interest rates (relative to inflation) and exceedingly lax regulation of both credit and housing markets.

In this period there were three separate speculative bubbles – in technology stocks (the dot.com bubble), in real estate and in physical commodities such as oil. It was an unprecedented expansion of credit, where people - including far too many workers - were encouraged to spend way beyond their means. During the boom years preceding the financial crisis, households were allowed to accumulate excessive debt – reaching in Britain the astonishing level of around 170 per cent of household disposable income.

Finance capitalists in a bubble just tend to ignore any long-term potential crises lurking inside the “boom”. When credit flows freely, there is only time for euphoria; cheap money encourages banks, investment banks and hedge funds to borrow even more and place even bigger bets. Eventually, suddenly, it all comes to a stop. Boom turns to bust! The bust which appeared in 2008 still shows no sign of leaving.

Work in the finance capital sector is remunerated with incentive-based “compensation” schemes. In the whirlwind of a boom, finance managers and firms are encouraged to take more and more risks and ape each other’s strategies: there is a merry-go-round of keeping up with the general recklessness elsewhere. The policy is – Don’t fall behind!

But in recent decades even finance capital outdid itself, introducing new heights of risk and folly and trialling lots of new-fangled financial packages (with the usual impenetrable names) such as sub-prime mortgage-backed securities (MBSs), collateralised debt obligations (CDOs), credit default swaps (CDSs). They all boil down to this: put a market price on the risk, distribute it to investors who are willing and able to bear it, and, so the theory goes, it will greatly reduce the chances of a crisis by spreading the risk around.

All of this is utterly illusory, as these packages actually increase and enhance the likelihood of a crisis on a much bigger, more crippling scale. Capitalism’s relentless drive to increase profits has ended up in casino style speculation. Contemporary capitalism with its glorified expansion of usury on a stupendous worldwide scale contaminates every sphere of life.

Workers do not need finance capitalism. Instead we should promote the real economy, so essential to our survival and prosperity. Force investment in skills, public services, industry. Construct our future. Rebuild the potential of Britain.