>Flash Economics (ECONOMIC RESEARCH)

Financial crisis: The inexorable rationale of cause-and-effect sequences that have caused the crisis and start off from the real economy.

The crisis has been fuelled by many factors: pro-cyclical features of rules, abundance of liquidity created by the accumulation of official reserves in emerging countries, excessive risk-taking by banks, forced sales by certain investors, the decision to let Lehman Brothers fail, etc. However, if we focus on its crucial aspects, we can see that the cause-and effect sequences that led to the crisis are perfectly rational and start off from the real economy:

1. the productive specialisation of the United States and Europe spontaneously resulted in low wages and weak growth due to the trend towards a dichotomy in the labour market;

2. to maintain robust growth, one therefore had to use credit, and this implied keeping expansionary monetary policies. As this credit had to be extended to low-income individuals, it was increasingly based (in the United States in particular) on the value of goods (real estate assets) bought on credit and led to over-indebtedness;

3. to avoid having to raise the regulatory equity corresponding to this abundant credit, banks had to use securitisation (and offshore centres);

4. if the financial assets resulting from securitisation were to have a low cost and enable lending to be profitable while maintaining low interest rates on credits, they had to be disguised as assets of good quality, and this was done in particular by rating agencies; The concern now is, as the first point of our analysis still holds, that another sequence of processes initially aimed at maintaining growth and leading to a crisis of another nature, will normally take shape.

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