Re: [OPE] Questions on the Financial Crisis.

From: Alejandro Agafonow <>
Date: Mon Nov 10 2008 - 12:42:31 EST

Jerry, I know you are pointing out to more structural causes of the crisis. The problem is that these structuralists theories seemed to be warning about the crisis so long, without making clear what the concrete thing would going to trigger the crisis off.   The critical point here is how financial instruments started to deal with the risks involved in unreliable loans since key legislative reforms were made during the government of George Bush. The new financial framework that supported “credit default swaps” was considered gambling before, and therefore forbidden.   Michael W.: “I guess you could investigate their grounding in the efficient markets hypothesis? Then to investigate exactly which aspects of reality they miss out that explains their putative role in the credit crunch. (I have already indicated some of these, and argued that they are pheneomena that must be used in concretising the basic abstract model.)”   The aspects of the reality those mathematical models missed concern the complexities of the recuperation of loans sunk in unreliable mortgages, and this explains its putative role in the failure of forecasting the future prices of mortgages that happened to be unprofitably low.   Regards,A. Agafonow ________________________________ De: GERALD LEVY <> Para: Outline on Political Economy mailing list <> Enviado: lunes, 10 de noviembre, 2008 17:24:30 Asunto: RE: [OPE] Questions on the Financial Crisis. > The financial crisis has two main pillars: > 1) Unreliable loans that marketed in the way mathematical models prescribed, would allegedly reconstitute them “… > in ways that it is supposed to eliminate most of the risks” (60 minutes). > 2) Risk saving devises like “credit default swaps” that insured the investors in the case of the financial instrument > failure. But these swaps by virtue of their name were not subjected to the regulations applicable to common > insurances. Therefore, those who sold swamps (well known financial institutions) were not required to have > capital reserve to face the trigger of the insurance.     Hi Alejandro:   On what foundation do these 'pillars' rest?   The question of "unreliable loans" is not only related to the financial sector and the housing market.   It is also related to income and employment.   What has been happening with real wages in recent decades?  Have they remained relatively stable?  If wages are stable but housing prices were increasing at a rate far in excess of the rate of inflation,  how are people able to afford those houses?     Where have jobs been created in the US economy and what are the wages for those jobs?  What kinds of jobs have been lost and what did they pay?  How has the trend towards contingent (part-time) labor affected the purchasing power of a significant and growing segment of the working class? How has the loss of manufacturing jobs in entire regions in the US affected regional unemployment and wages?   What has been happening with the long-run average rate of profit in the US economy and how has that affected the international mobility of capital?   How have austerity programs in the US in recent years affected the purchasing power of workers?   Is there no relation at all between escalating medical costs and defaults on home loans?   Are we witnessing merely a "financial crisis" or the decline and fall of an Empire?   In answering these questions, one moves away from simplistic answers - such as those reported in the "60 Minutes" story - of greed and incompetence.   In solidarity, Jerry

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Received on Mon Nov 10 12:50:16 2008

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