One of the great landmarks of the Financial Capitalism it was the process of financialization of the economy, in which company shares, market debt and speculations became commodities governed by market laws, such as free competition and The law of supply and demand. A financial crisis, in turn, is the emergence of serious and structural problems in this logic of the system.
The global financial crisis, more precisely the one that started in 2008 in the US real estate market and that spread around the world in the years The next ones, mainly affecting Europe, was a speculative crisis, in which speculation-based debts and bonds suddenly lost their value. To understand all the steps in this process, it is first necessary to understand the collapse of the US real estate sector, commonly called 2008 crisis.
The 2008 Crisis
Despite being commonly seen as a crisis that broke out in 2008, it was in 2007 that it began, as that was when the US housing market began to plummet in terms of valuation, that is, the price of real estate in the United States was falling precipitously, which was starting to have a ripple effect throughout the economy.
It all started because, in 2001, with the objective of boosting consumption and market dynamics, the government American began to provide more credit, lowering interest and encouraging loans financial. Such action has gained a large proportion in the real estate market, as, with more credits and loans available at low interest, the people started to invest in real estate, but not necessarily to live, but simply to sell more expensive later and get profit. It's what we call real estate speculation.
With a lot of people looking to buy a house, it was no wonder their price soared. In a few years, it was possible to buy a new house only with the speculation with the previous property, it was an excellent deal. With that, the mortgage market expanded and loans for the purchase of houses were granted with the house itself as collateral. In the end, it was even better if the mortgage was not paid, as the lender would be left with an asset that was getting more and more expensive and therefore more valued.
Many companies began buying these mortgages from banks and trading them on the market as if they were a common commodity. Two of these companies later became very famous for this: fannie mother and the Freddie Mac. They bought the banks' mortgage debt (called subprimes or “bad credits”) in order to make a quick profit on them by trading them or even receiving payment for those debts.
With the excitement of the housing market, more and more houses were being built and credits were granted even to low-income families without any type of guarantee. With more houses available, the trend was a decrease in their prices, that is, devaluation, causing the profits were smaller or losses occurred, which was aggravated by the various defaults made in the mortgages. Thus, real estate values plummeted in 2007 and especially in 2008, spreading the crisis. THE fannie mother and the Freddie Mac went bankrupt that same year, and several banks went along with it, with emphasis on the Lehman Brothers.
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The European Economic Crisis
There is practically a consensus that the crisis in Europe, especially in the eurozone, is nothing more than an extension of the 2008 US housing crisis. And the reason for that is simple: globalization. What happened is that the subprimes were traded around the world, involving investors mainly from developed countries, with emphasis on the European Union. With the market crash, these investors and everything that depended on them were also affected.
To prevent the banks from failing, many governments have spent a lot to bail them out and avoid an even more acute recession, the which raised the public debt and deficit of these countries, increasing the risk of debt defaults by many governments. Some of these, in particular, lived in a more serious situation, they were the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain), an acronym that alludes to the word “pigs” (pigs, in English).
And what does a country do when it is in debt and the economy is in recession? More debt! Loans were taken out from the IMF, World Bank and EU, which demanded, on the other hand, cuts in spending on the public sector, cut wages and reduced investments. The problem was that this generated more economic stagnation, as the consumer market became less active and profits decreased, aggravating the situation. Added to all this were the strikes and protests of the population that did not accept the measures imposed by international organizations, called austerity measures. In Spain, for example, unemployment rose sharply from 2011 onwards.
The United States, in the same way, also suffered from the increase in debt, which forced the country even to raise the public debt ceiling, generating a great discussion policy around the approval of this resolution which, if not approved, would generate a major default by the US government and, then yes, a global crisis without equal would occur. In that case, there would be thousands of creditors staking out to see ships! Luckily, the resolution passed, and the United States (and other countries) are currently trying to expand employment and investment in the economy.
The curious thing is that this crisis affected, to a great extent, the most dependent developed and underdeveloped countries. The so-called “emerging economies”, such as Brazil, Russia and China, felt on smaller scales these effects, largely due to its high reserve funds and the investments made with these funds. Furthermore, these countries managed to increase employment and the performance of their large consumer markets, thus boosting their internal economies. However, the crisis is not over yet and care is not enough!
By Me. Rodolfo Alves Pena
