Finance’s profits came from three interlinked asset bubbles, not efficient markets

Evidence

Global finance made so much hay, not through efficient markets but by riding up and down three interlinked giant global asset bubbles using huge amounts of leverage. The first bubble began in US equities in 1987 and ran, with a dip in the dot-com era, until 2007. It was the longest equity bull market in history, and it spread out from the United States to boost stock markets all over the world. The smart cash that was being made in those equity markets looked around for a hedge and found real estate, which began its own global bubble phase in 1997 and ran until the crisis hit in 2006. The final bubble occurred in commodities, which rose sharply in 2005 and 2006, long before anyone had heard the words “quantitative easing,” and which burst quickly since these were comparatively tiny markets, too small to sustain such volumes of liquidity all hunting either safety or yield. — Mark Blyth, Austerity, 625

Categorization

• XREF: This causal story of bubble-chasing leveraged finance is the precise mechanism that austerity then blames on the state — directly relevant to Mattei’s account of how crisis blame gets misassigned. — connects to: Financial bubbles burst when future-productivity claims lose credibility — Max Haiven, Cultures of Financialization, 497; The efficient-markets hypothesis erased discussion of bubbles and speculation — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 749; Finance generated profits by pumping undervalued asset classes for twenty-five years — Mark Blyth, Austerity: The History of a Dangerous…, 627 (+3 more)

Broader Connections

• Financial bubbles burst when future-productivity claims lose credibility #expands (0.85) — Max Haiven, Cultures of Financialization, 497
• The efficient-markets hypothesis erased discussion of bubbles and speculation #qualifies (0.80) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 749
• Financial bubbles burst when current production cannot repay loans borrowed from the future. #expands (0.80) — Yanis Varoufakis, Technofeudalism, 825
• Mainstream economic models cannot explain when bubbles start or stop #corroborates (0.80) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 519
• Finance generated profits by pumping undervalued asset classes for twenty-five years #exemplifies (0.75) — Mark Blyth, Austerity, 627
• Financial asset prices reflect speculative circulation, not underlying real value #complicates (0.75) — Max Haiven, Cultures of Financialization, 80