This is
a very educational book essentially offering a really, really long response to
the question “What were the causes and effects of the 2008 Financial Crisis/Great
Recession?” When I say long, I mean it’s about 750 pages. It is extremely thorough,
explaining things in four parts. It starts by explaining the causes of the
crisis- how sub-prime mortgages creates a housing bubble and stock market boom
and fed the rise of large and powerful investment banks. Tooze shows the reader
how the foreclosures of subprime mortgages in tranches rated too highly by
ratings agencies caused shockwaves in financial markets among the banks that
had too many risky investments, like Lehman brothers. The second part explains
the immediate responses in 2009 and 2010, mainly how the US government found a
way to staunch the bleeding and save Wall Street. However, the US government
would do nothing for average Americans and Europe would do nothing at all for
anyone, leading to the Eurozone crisis. The third part deals with that very
crisis, with the author putting the blame on Germany for restricting action
until it was already too late and more costly and pointing out that the
financial crisis spilled over due to European banks having large holdings in
American finance and housing. Those banks’ home countries would try to assist
them and find the debt to great for each individual country. The fourth and
final part deals with the political ramifications of the handling of the
economic crises. Through ten years, the economic crises created political
crises, mainly through the rise of white nationalism across the West.
It seems
like Europe really screwed up by not taking decisive, unified action. Small
countries had to respond and ended up in huge debt bailing out their financial
institutions while the European Central Bank (ECB) did nothing. This is why Ireland
went bankrupt. Another major impact of the crisis was the expansion of the role
of the Federal Reserve to become the worldwide last lender of resort to banks
that it deemed “too big to fail.” Already when the millennium began, 65% of the
world’s economy was pegged to the dollar with most else pegged to the Euro.
Afterwards, financial institutions became even more dependent on the Fed.
The bailouts sort of proved that
the economic consensus from the 1970’s onward wasn’t free market capitalism,
but rather a money-grab by the rich. If the elites really believed in the free
market, wouldn’t they have let all the banks fail? Instead, they decided to
save the vast majority, spending 1 trillion dollars of American taxpayer money
to save the banks and absolutely nothing to help the people who just lost their
homes. For me, this is the defining moment in how I see politics. The
Republicans were so inept they couldn’t support taking any action. The Democrats
were so deeply corrupted by Wall Street that they only took action to help their
billionaire campaign donors. Only one political party had the willingness to
try to solve the problem and it did not do the full job, only solving the rich
people problem and not the real problem. In Asia, on the other hand, countries
like China, Japan, and South Korea were all intelligent enough to use government-sponsored
stimulus to save themselves from the worst of the crisis.
Miscellaneous Facts:
- By 2006, one third of all mortgages in the United States were for second, third, or fourth properties.
- During the recession, the median household net worth in the USA was cut in half from over 100,000 dollars to just over 50,000 dollars.
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