8/6/2019 On why 2008 is the worst financial crisis in the last 100 years.

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The Credit Crunch is the worst financial crisis in the last 100

yearsTim Pusnik Jausovec

6th December, 2008

Human beings are not rational we are rationalizing. Every financial crisis up-to-date was rationa-lized into a causal relationships between unforeseen initiators and its natural consequences. It allowedcapitalism to be yet again seen as an indisputable logically coherent system, which is worth protectingno matter what. I will argue that the Credit Crunch is the worst financial crisis of the last 100 years,simply, because the same conditions persisted long enough for the crisis to happen; and secondly because

specific ameliorating factors available in previous crises are no longer there.

The past has proved Marx right in all but one of his predictions: that mankind will recognize thecapitalistic experiment as a failed, but necessary, step in the transitionary organic revolution, it needsto create a marxist society. Sadly, the policy makers of yesterday, today, and arguably tomorrow con-tinue down the road of rationalization. It is the sole fact that we have failed to change the system,which allows such crises to occur, that makes this crises the worst one, because it takes away the excuseof inexperience. It exposes the true inability of our society to move away from the flawed capitalisticexperiment. The 98O collapse of Long Term Capital Management proved that even the smartest eco-nomists fail. In its aftermath the Fed bail-out failed to provided future liquidity requirements, whichonly exacerbated the problem of high-yield bonds and asset-backed securities. It, therefore, providedthe prologue to the current crisis. Oddly enough, in 98 Henry Paulson staged a boardroom coup atGoldman Sachs ousting Mr. Corzive for his inability to recognize the liquidity problems. Today Mr.

Paulson and Mr. King of the Fed and Bank of England, respectively, are taking center stage in pro-viding liquid funds to banks, lenders, and car companies without preconditions. Ironically, both madeloud uproars against unconditioned bail-outs and fund rate cuts in the past. The perpetuation of thesame mistakes, even in light of new information, makes this crisis a bigger financial failure than any other.

Furthermore, high levels of deregulation, connectivity, and relative peace are the factors that makethis crisis worse than any other. Deregulation allowed for risky mortgages to be packed into securitiesand, with favorable ratings, traded freely among global players. Moreover, they were even used as colla-teral in other loans. When adding delicate financial instruments such as CDSs, it created a domino effectof global dimensions. The weight, of previously non-existent levels of deregulation and interconnectivityadds considerably to the magnitude of this crisis. Ironically the silver lighting in The Great Depressionwas the state of war following it. Since the US defense spending, unlike any other country in the world,

remains entirely within the US economy and all major nations spend a significant proportion of theirdefense budget with US companies. Some (such as the UK) divert almost 70% of defense spending theirway. It is clear, therefore, that global instability leading to increases in defense spending overall providesa boost to the US economy not seen anywhere else in the world fueling its economy. The relative peaceand metamorphosis of modern warfare take that economic boost away from the US. This disables thebiggest economic leader of the world to reinvigorate its economy. The combination of those factors ledto the biggest financial crisis of the last century.

The failure to recognize deregulation, connectivity and peace as problems of the crisis by the peoplewho were saying exactly that 10 years ago, points to the utter failure of the rationalization that capitalismbrings. Never has the failure been so harsh or evident than now, because of that, it makes it the biggestfinancial crisis in the past 100 years.

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