Saturday, March 31, 2012

Free Markets and Fair Markets

How did we get here?
It is not capitalism that is necessarily at fault, claim the economists, but a particular brand of capitalism, inspired by US economist Milton Friedman, which has prevailed the past 30-odd years. The adherents of such “free-market” capitalism, listened to by politicians from Reagan and Thatcher onwards, have been able to change our very laws, removing one after another of the constraints on their risky behaviour. This culminated in the creation of suicidal financial instruments such as collateral debt obligations (CDOs). These financial tools allow banks to repackage borrowers’ loans (the bank’s debts) and re-sell them on to outside investors. The result was the housing bubble. It was this approach to debt that played such a major role in the global financial crisis of 2008.

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