Privatizing Profits, Socializing Losses, By Tony Phillips
The rapid fallout from less than a decade of financial speculation has been mind-boggling. Barely legal, the unregulated bubble in “credit derivatives” grew from $1 trillion in 2003 to $15 trillion in 2007 to finally burst, leaving the global financial system on life support in the public ward.
The unravelling began in August 2007, reaching crisis levels in October 2008. The “toxic” credit bubble was pricked by the deflation in another bubble the U.S. housing market. Bad mortgages defaulted on a large scale, raising other questions as to the viability of certain credit derivative investments. The result: an implosion of U.S. investment banking with knock-on threats to overexposed retail banks. Inter-bank credit froze due to counterparty risk, and lack of credit threatened the productive sectors of the world’s economies.