The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

One Year after Lehman Collapse:
New Speculative Bubbles

Sep 14, 2009

It’s been a year since the collapse of Lehman Brothers, the major Wall Street investment bank, triggered a panic that threatened the utter ruin of the financial system and the economy as a whole. Only the supposedly “heroic” intervention by the U.S. government, which handed trillions of dollars to big banks, insurance companies, auto companies, etc. was able to stop this collapse.

Or did it?

There are all kinds of signs that the government injection of trillions of dollars only encouraged more speculation and more bubbles.

Over the last few months, the stock market has leaped up by more than 50%. The price of oil went up by more than 70%, and gold is now trading at a near record level of $1,000 an ounce. Banks are now financing new waves of mergers as companies buy and sell one another, a little like in the old days before the collapse. Speculative investments with exotic names like Collateralized Debt Obligations (CDOs), that were blamed for spreading the last crash, are being created and traded on a massive scale once again.

Underlying this increasing speculation is a growing bubble of debt. Over the past three months, the leading stock brokers increased by 75% the amount of money they’ve loaned to stock speculators. Speculators are increasing their profits and their risks.

Some economists, like Simon Johnson, the former chief economist of the International Monetary Fund, are warning that if this continues, an even more dangerous crash is inevitable. He and other economists are calling urgently for the government to step in with new regulations to stop the bubble.

But the role of government is to serve as a tool for the capitalists, each of whom is competing to increase their own profits. Even if the government could step in, which is doubtful, any intervention to stop the growth of the speculative bubble could trigger a new crash. The government cannot address the causes of the crisis; it can only offset the losses of the capitalists so that profiteering can resume. The problem is, given the record size and scope of the government bailout over the last couple of years, any new bailout could very well bankrupt the U.S. government. It could usher in a bigger and more grave crisis.