Tuesday, September 16, 2008

Big Banks Go Bust: America's Financial System in Crisis

By , The Nation and Campaign for America's Future
Posted on September 16, 2008, Printed on September 16, 2008

Below are two key articles for understanding the current financial crisis:

William Greider: "Creative Destruction"
The Nation

Dean Baker: "Time to Reform Wall Street"
Campaign for America's Future.

Creative Destruction

The epic deflation of Wall Street rolls forward like a blood-spattered steamroller, claiming more important victims. It takes down noble old names like Merrill and Lehman Brothers, destroys the savings of large pension funds and mom-and-pop investors, throws tens of thousands of financial workers out of jobs.

But let's not dwell on the downside. This is the process Joseph A. Schumpeter famously described as "creative destruction" -- capitalism's way of clearing away debris from the past so that new flowers may bloom. In this drama, what is being swept away is the monumental arrogance of celebrated financiers, also the fraudulent gimmicks that created lots of new billionaires by selling bad paper to the world's investors. A great bubble of wealth grew in the canyons of Wall Street -- a run-up of falsified financial assets that lasted for roughly twenty-five years. Now the air is rushing out of that balloon with no way to stop it.

In the long run, the destruction of concentrated wealth and power is always good for democracy, liberating people from the heavy hand of the status quo. Unfortunately, many innocents are slaughtered in the process. As the US manufacturing economy was dismantled by downsizing and globalization, the learned ones (Alan Greenspan comes to mind) told everyone to breathe easy -- ultimately this would be good for the workers and communities who lost the foundations of their prosperity. Now that "creative destruction" is visiting the bankers, we now observe they are not so accepting of their own fate.

The destruction of Wall Street's girth and power is unavoidable, in any case...


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