"Trading in speculative derivatives amounted to more than ten times the yearly value of all goods and services on Earth!"
The crisis in sub-prime housing lending is bad enough – it threatens to utterly derail the hopes and dreams of a huge chunk of what passes for the Black "middle class" in the United States. More than half of all Blacks that refinanced their homes last year were given high-cost loans, and African Americans are three times as likely as whites to have been sucked into the sub- prime, predatory loan zone. The racial aspect of the current crisis is quite clear – just as it has long been evident to any objective observer that much of today’s – or should we call it, yesterday’s – vaunted Black upward mobility is built on shifting sands of unsecured borrowing. But of course, to say so made one a party-pooper, a gloom-and-doom monger – and few people wanted to spoil the party even if they knew it would soon be unhappily over.
As the huge scope of the housing debacle began to emerge, it was not long before familiar Black voices were heard, blaming something or other in African American "culture" for bringing the catastrophe down upon our own heads. Blacks don’t pay enough attention to their finances; Blacks are too caught up in the cosmetic aspects of wealth; Blacks just can’t seem to hold on to money and real property, etc., etc., etc. As if such dubious assumptions somehow explained why African Americans were disproportionate victims of the bursting sub-prime bubble.
But wait! Soon we learned that the financial giant, Citigroup – the country’s biggest bank - was on the rocks, and ultimately had to be bailed out by the Persian Gulf nation of Abu Dhabi. Investment markets all over the planet were roiling, all supposedly because of the U.S. sub-prime lending crisis. But how could that be? Sub-prime lending is a significant chunk of U.S. housing transactions, but on a world scale U.S. sub-prime troubles should only register as a large blip – not a global crisis. Clearly, something much larger was afoot – a threat to global capitalism as a whole. Something HUGE.
"Something much larger was afoot – a threat to global capitalism as a whole."
An article on the Bloomberg website shows where the real speculative action – and global danger – resides. The headline read, "Global Derivatives Market Expands to $516 Trillion." Derivatives are weird and mysterious financial instruments, for buying and bundling debt, speculation on the value of debt, and betting on the future of debt. Understand that the gross domestic product of the United States is only about $13 trillion, and the annual gross economic product of the entire planet is less than $50 trillion. Yet trading in speculative derivatives amounted to more than ten times that much – ten times the yearly value of all goods and services on Earth! This is like playing monopoly with endless stacks of play money – there is little connection between global speculation and what the world actually produces.
The U.S. sub-prime lending crisis got some big banks in trouble. They then had to look elsewhere for someone to pump actual cash into their portfolios, but in the process were compelled to at least attempt to explain how much their financial institutions, the paper they were holding, were really worth. They can’t, because it is largely speculative capital, which is not real money. The same holds for who knows how much of the world banking "system," especially its Wild West derivatives sector.
So let’s stop talking about the financial irresponsibility of African American sub-prime borrowers. There is a much bigger bubble out there, and it is unsustainable.
For Black Agenda Radio, I’m Glen Ford.
BAR executive editor Glen Ford can be contacted at [email protected]