2023-06-07 12:44:49
Inflation, collective panic and bank failure… You wonder why the current year has the air of already seen ? The least declining economist in France has his own idea.
The crisis is no longer an exception, it has become the norm. Especially for 20 year olds. If we look back briefly, we realize that, over the past fifteen years, the world has been hit by the subprime crisis, the euro zone crisis, the attacks, the health crisis with Covid-19, the war in Ukraine and inflation, and finally the climate crisis whose effects are accelerating and intensifying each year. And that is not enough, now with the fall of a Silicon Valley bank, we are told of a possible financial crisis in 2023…
The essence of a crisis is to surprise us. Some are foreseeable (such as the financial crises which have their origin in the deregulation of finance or the climate crisis which all the forecasts show is inevitable if we do nothing), but the characteristic of a “crisis” is to have a surprising character, in particular by having a stronger impact than expected. For example, the unemployment of seniors in France or the underfunding of public services are structural elements, but we don’t talk regarding crises until there is an exceptional situation.
The 2008 crisis surprised everyone for two reasons: it came from the first world power, the United States, and from an excess of private debt (while at the time the international institutions were expecting a crisis resulting rather from an excess of public debt in a poor country). The crisis of subprime also exposed questionable practices in international finance. In the early 2000s, President Bush wanted poor households to become homeowners. As there was no question of raising wages, a credit addressed to the most modest households and presenting insufficient guarantees to access a normal loan was invented: the famous subprime (which means below the first choice). Lending to people who are already struggling to repay their old loan would have been sheer madness in a normal world. However, amid general recklessness, this loan was so successful that it represented 40% of new loans in 2006. Why such success with the banks, when households were almost certainly unable to to pay it back? Quite simply because in the event of default, the bank seizes the property and resells it. And since the United States was in a real estate boom, the price rose between buying and foreclosure. The bank therefore made a real estate capital gain in the event of default by the creditor. In fact, subprime loans were a sleight of hand to allow a bank to make a real estate investment while making a poor and indebted person believe, for a short time, that he might buy a home. As long as real estate prices rose, this little game worked. But one day they started falling and the banks started taking losses until one of the biggest, Lehman Brothers, collapsed…
SHEEP BEHAVIORS
The crisis of 2023 is mainly due to the rise in central bank rates. The Fed and the ECB have raised their rates to fight inflation, but the rise in these rates has a negative impact on economic activity. It must be said, without rate hikes, without social networks that amplify rumors and without the very rapid possibility of withdrawing and transferring accounts, in particular thanks to the Internet, the SVB bank would probably not have gone bankrupt. And since the rise in rates also concerns Europe (and therefore France), we cannot say that French banks will not be heckled in 2023. Especially if we add to this the problems of compliance of loan files guaranteed by the which might be borne by the banks (100 billion still to be repaid), bankruptcies with the rise in energy prices, inflation which means that many households are digging into their savings, etc. The resources of the banks are likely to decline. We should not add rumors that lead to herding behavior and further weaken the banks…
There is no doubt that in the event of a crisis, the State (in other words the taxpayer) will intervene to bail out the banks and that thanks to this money they will resume speculating on the financial markets to end up attacking the public debts of the States which saved them . This is a scenario that has been constantly repeated since 2008. The 2008 crisis should have led to a new way of operating the economy with more regulated finance and less social inequality, but it only increased the logic that had caused it. Far from being a crisis of liberalism, it was a crisis of neoliberalism. The framework persisted and even grew stronger…
Par Thomas Porcher
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