Bubbles, risk, crunch and war - by Cyrus Bina and Fernando Dachevsky
Cyrus Bina, distinguished research professor of economics at the University of Minnesota and author of The Economics of the Oil Crisis, discusses with Argentinean journalist Fernando Dachevsky the "unique and universal" economic crisis confronting the world, from its underlying causes to the "practical joke" solutions offered to the oil crisis by President George W Bush and Republican presidential candidate John McCain.
The fallacy of supply-side economics and the myth of self-correcting markets, therefore, culminated in idealism of benign neglect and the straight-jacket practice of neo-liberal ideology. The resultant speculative bubbles in the US real estate, mortgage institutions, collateralized debt market, asset-backed commercial paper market, and debt-obligation insurance market sequentially burst in the face of US authorities, before they hit the public and surpassed the boundaries of the United States - via the transnational channels.
The European Union is now trying to deal with the aftereffect of the US financial debacle. European banks attempted to write down more than US$200 billion of debt obligation, following the US mortgage defaults, thus revealing the tiny tip of the liquidity crisis in view of tight credit market. To date, the write-downs for a few major banks in Germany and Switzerland are some $23 billion, and they certainly will increase by the time the dust settles.
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