Perhaps, Francis Fukuyama was right and it indeed is the end of history.
The invention which made it possible for the lending to become so reckless was securitisation: the process by which loans were added together and sold on to other institutions as packages of debt. This had the effect of making the initial lender indifferent to whether or not the loan could be repaid – he’d already sold the debt to someone else, so he didn’t need to care. These packages of debt were then sold on and resold in the form of horrendously complex and sophisticated financial instruments, and it is these which are the basis of the global jamming-up of capital markets.
So: a huge unregulated boom in which almost all the upside went directly into private hands, followed by a gigantic bust in which the losses were socialised. That is literally nobody’s idea of how the financial system is supposed to work. It is just as much an abomination to the free marketeer as it is to the social democrat or outright leftist. But the models and alternatives don’t seem to be forthcoming: there is an ideological and theoretical vacuum where the challenge from the left used to be. Capitalism no longer has a global antagonist, just at the moment when it has never needed one more – if only to clarify thinking and values, and to provide the chorus of jeering and Schadenfreude which at this moment is deeply appropriate. I would be providing it myself if I weren’t so frightened.
Unfortunately, we have no current model of where to go from here, apart from a more heavily regulated form of growth-based liberal capitalism. There will be more intrusive regulation, more proactive interference. There may even be (there should be) a new Bretton Woods to control the global flow of capital. That doesn’t seem enough, but in the absence of another set of ideas about how the world should work, it may turn out to be what we have to settle for.
Link via Chris Floyd, who himself has written eloquently on the subject.