Future Trajectories

The mix of financialization and internationalization that characterized the post-2000 global economy always contained within itself the potential to unravel. The tendency of overaccumulation inherent to postwar capitalism—fed by technological innovation and the seemingly limitless production capacities of the world’s low-wage zones—could not be sustained despite the accelerating piles of debt. The stability of this system began to erode with the collapse of the US real estate bubble in 2007. Asset price declines placed severe pressure on highly leveraged banks and financial institutions, which in some cases had extended more than 40 times the amount of capital they actually held. Beginning in the summer of 2007 and continuing throughout 2008 a series of dramatic events occurred: the collapse of Bear Stearns, the fifth-largest US investment bank; the bail-out of Fannie Mae and Freddie Mac, which had accounted for 80 percent of new US mortgages; and then the quick succession of financial institution failures—Lehman Brothers, Merrill Lynch, Washington Mutual, and American International Group (the world’s largest insurer). By the end of 2008, approximately US$30 trillion of value in world share markets had evaporated and the US government had pledged the remarkable figure of $8.5 trillion, equivalent to 60 percent of the total value of the US GDP in 2007, in order to prop up financial markets (Sterngold 2008).