Trevor Evans is a professor at the Berlin School of Economics, and has also worked in Nicaragua and other countries. He has written especially on the interrelation between finance and capitalist crises. He spoke to Martin Thomas.
(...) The process of liberalisation of the financial sector created the basis on which all sorts of innovations could develop, and resulted in a huge expansion in the size of the financial sector relative to industrial and commercial capital.
(...) The process of liberalisation of the financial sector created the basis on which all sorts of innovations could develop, and resulted in a huge expansion in the size of the financial sector relative to industrial and commercial capital.
(...) The crisis which broke in August 2007 was the end of the third of the waves of expansion, since the early 1980s, which have been closely linked to the process of financial liberalisation.
The housing credits were mainly then sold on, by grouping large numbers of mortgages as bonds that could be traded. Those bonds were in turn transformed into other bonds which could get more attractive ratings. It appeared that the big banks were selling the bonds on, but what became clear last summer was that many of them were also holding some of the new bonds themselves, not on their own books, but in off-balance-sheet vehicles to get round all the international rules on capital requirements [i.e. rules which say that banks must have a certain stash of cash, of their own, to underpin their operations].
The housing credits were mainly then sold on, by grouping large numbers of mortgages as bonds that could be traded. Those bonds were in turn transformed into other bonds which could get more attractive ratings. It appeared that the big banks were selling the bonds on, but what became clear last summer was that many of them were also holding some of the new bonds themselves, not on their own books, but in off-balance-sheet vehicles to get round all the international rules on capital requirements [i.e. rules which say that banks must have a certain stash of cash, of their own, to underpin their operations].
When the central bank sets a low interest rate, the financial sector goes searching for leverage. That means that if things go well, they get high returns; the moment things go wrong, the leverage goes into reverse, and they make huge losses.
a way out?
(...) The Fed has now pushed its interest rate very low. That will relieve the pressure on some of the financial institutions under stress.
But the traditional channels by which central bank monetary policy operate are running into problems. In the advanced capitalist countries, the main way that monetary policy operates is that the central bank buys bonds and thus provides central bank money to the inter-bank money market. Usually the central bank has a target for the interest rate in the inter-bank money market, and then banks in turn charge an interest rate which is a mark-up on that inter-bank rate for their outside lending.
a way out?
(...) The Fed has now pushed its interest rate very low. That will relieve the pressure on some of the financial institutions under stress.
But the traditional channels by which central bank monetary policy operate are running into problems. In the advanced capitalist countries, the main way that monetary policy operates is that the central bank buys bonds and thus provides central bank money to the inter-bank money market. Usually the central bank has a target for the interest rate in the inter-bank money market, and then banks in turn charge an interest rate which is a mark-up on that inter-bank rate for their outside lending.
Lea todo el texto y la entrevista a Trevor Evans en Worker´s Liberty
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