Understanding the GFC – how governments came to be held hostage by the big banks that caused the mess in the first place

“The unfairness of the global financial crisis has been hard to miss. Greek pensioners impoverished, American home owners bankrupted, unemployment throughout the developed world soaring. And the worst that seems to happen to bankers and financiers is a loss of their oversized bonuses, and even that has not happened often.”

These are the opening words of a recent post on Eureka Street by business journalist David James. In straightforward terms David James explains the causes of the economic mess the world finds itself in today.

Here are the next few paragraphs from his article:
“Imagine the global financial markets as a block of flats. On the first floor is the ‘real’ economy, the commercial exchange of goods and services. This equals about $50 trillion, with growth increasingly coming from developing economies because Europe, the US and Japan are experiencing declining growth rates.

The second floor is the conventional world of money: bank lending, shares, land, bonds. It is about $350 trillion, according to the McKinsey Global Institute.

The third floor is derivatives. These are complex financial instruments ‘derived’ from more conventional forms of money (that is, it sits on the second floor). It is possible, for instance, to take out a derivative, such as a futures contract, to bet on the direction of a company’s shares on the stock exchange. This ‘derived’ trade can create much larger profits or losses than would be possible with the actual shares and may not even require buying or selling the actual shares.”

David James goes on to explain the absurdity of the situation we find ourselves in because we live in a badly engineered block of flats.

The problem David James says is that money is seen to be the centre of this topsy turvey system and not people.

“Instead of money being used in the service of people, people are increasingly serving the interests of money and its high priests.”

Read Davis James’ full article at http://www.eurekastreet.com.au/article.aspx?aeid=34683

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About peterhanley1

Peter Hanley has lived in North Queensland for more than 30 years. His interests include human rights, social justice, sustainability and community development. True North explores issues in these areas.
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