In the fall of 2008, a little more than a year after the Bank for International Settlements (a Switzerland-based organization that fosters cooperation between central banks) warned that “years of loose monetary policy have fuelled a giant credit bubble, leaving us vulnerable to another 1930s slump,” the combustive concoction of free market fundamentalism, corporate-dominated globalization, stagnant wages, growing inequality, greed, excessive leverage, and financial innovations such as securitization finally exploded.

Financial market conditions in the OECD countries sunk to their lowest levels in more than half a century, and the U.S. government made its most dramatic interventions in financial markets since the 1930s. The Federal Reserve and the Treasury nationalized the country’s two mortgage giants, Fannie Mae and Freddie Mac; bailed out AIG, the world’s largest insurance company; and, in effect, extended government deposit insurance to $3.4 trillion in money market fund...

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FOOTNOTES:

• [1] As recently as 2005, when talking about the housing bubble, Alan Greenspan said that “widespread securitization of mortgages make[s] it less likely” that price declines would “have substantial macroeconomic implications.” The very thing Greenspan thought would reduce risk, in fact, spread risk.
• [2] Dean Baker deserves special mention for sounding the alarm about our bubble economy for years. Eight years ago, he wrote in these pages, “It is hard to get a good view of the economic landscape from inside a bubble . . . There is likely to be a whole range of accounting and financial sins that will be exposed in the deflation of the bubble . . . .Many other forms of creative bookkeeping will come to light after a market crash has made them impossible to sustain. Only after the crash will it be possible to determine the extent to which the financial system is crippled.” (“Holes in the ‘New Economy,’” Dissent, Summer 2000).