This is part ll of the collapse of the Financial System.I am continuing from the previous blog.
The collapse of the Soviet Union in 1989, according to Sir Courtney,became a victory for laizzez-faire economics over Marxist-Leninism.Neo-Liberalism became the direct descendant of laissez-faire and was marked by two main tenets-The workings of the free markets were without governmental intervention and it was an era marked by individualism.As Margaret Thatcher famously replied;''There are no societies,only individuals''.The article goes on to list about three reasons for the demise of the Neo-Liberal paradigm-viz-The 2002 1.6 trillion tax cut bill,which transformed President Clinton's legacy of fiscal ''surplus as far as the eye can see'' into fiscal deficits that reached beyond the horizon.Here Bush transgressed the Keynesian principle of contra-cyclical macroeconomic policy in which accumulated surpluses are drawn down in recessionary periods.
Between 2001 and 2004 the sub-prime mortgage market grew from 160 billion to 540 billion.What Sir Courtney's article doesn't say is that 2002 also marked the passage of the Municipality and Finance Act which was the gateway for the proliferation of derivatives of an unprecedented volume.In fact no one is quite certain of the true figure of paper products on Wall Street.A conservative figure could be 500 TRILLION DOLLARS.By the 2002 Municipality and Finance Act ,schools and other municipalities could raise finances without Congress's approval.
Finally, by linking CEO PAY to stock prices, the temptation was just too much.Higher stock prices meant higher pay,so books were falsified accordingly.The managers began managing the stock prices and not the company.
In my next blog I will introduce a new paradigm, that if adopted , might be able to stabilize the financial markets.
Causes enoch john Supports
freedom of thought and expression