Sozialalmanach - Caritas Luxembourg

A cliché of the present discussions is that the crisis (even artificially considered in isolation
from other intersecting crises, of world poverty and climate change) has demonstrated
that the international financial and economic system is too complex to be understood – still
less governed – by anyone.
As is evident in retrospect, the crisis had been gestating for some time before 2008. It
needed a ‘trigger’ to release the vulnerabilities that lay hidden under the confidence engendered
by a consistently rise both in the stock market and in the level of corporate profits.
That confidence even prompted the hope that the rise in prices for natural resources – as
oil reached $140 per barrel in mid-2008 – would deliver at least some heavily-indebted poor
countries (HIPC) from their plight, even if the same rise menaced other poor populations
to the extent of causing food riots.
The trigger itself seems not to have been especially complicated: the debacle of US
‘sub-prime mortgages’, the famous ‘toxic debt’. These many thousands of householders
were presumed to be tragically rash (‘mortgage delinquents’) in treating their most important
asset as an investment that would always rise in value, and could be used as security against
rocketing consumer borrowing.
The exposure of the poor quality of these mortgage debts, instantly threatened the US
institutions that largely financed the suddenly shaky housing boom: ‘Freddie Mac’ and
‘Fannie Mae’. The folksy charm of these names belies their stature. When they were rescued
by the US Government in September 2008, they were said to have lent or underwritten about
$5.3 trillion of the total $12 trillion outstanding mortgage debt in the United States, and
to have amassed a combined $14bn of losses over the previous year. A theme that would
later recur many times was voiced. As the UK newspaper the Guardian reported, ‘Freddie
and Fannie have long been considered as being too big to be allowed to fail.’ 2 Meanwhile,
of course, the families whose houses were repossessed were by no means ‘too big to fail’.
The bizarre mix of presumed but illusory prosperity and all-too-real precarity marked
this first, US phase of the recession. What constituted the international crisis was that
some of the world’s most expert economic actors (for example, major international banks),
almost the lords of the market, also failed to understand. It was not only mortgage agencies
that trembled, for tens of thousands of these unsafe mortgages, packaged together, were
magically deemed safe and attractive investments.
Either the system was simply taken for granted (that is, it operated at a level beyond
supposed experts’ practical understanding) or the exhilarating momentum of growth dulled
all critical faculties. Put like this, it is not ‘complexity’ that is striking, but blindness.
2 The Guardian (2008).
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