Dean
17th March 2011, 16:25
As many have said (despite mainstream attempts to blame the working class), it is the process of valorization, and the competition for better rates thereof, that creates and intensifies credit crises.
The Credit Crisis as a Valorization Problem (http://thethinred.blogspot.com/2011/03/credit-crisis-as-valorization-problem.html)
"In the face of stiffening competition, banks were increasingly required to keep pace with the returns on equity offered by their rivals – a case not so much of “keeping up with the Joneses” as “keeping up with the Goldmans”."So we see that the underlying cause of the expansion of credit is the valorization of capital. Not only the simple valorization, but the competition for capital (which I hope to cover soon on its own right) serves as an important ossifying process for companies which cannot necessarily sustain this model:
"As fundamentals improve, high-ability banks are more likely to achieve high returns than low-ability banks. So posting low returns in the boom is particularly damaging to reputation as this constitutes a clearer signal of low ability. This strongly incentivises excessive risk taking to boost short term returns as fundamentals improve."Not only must banks accrue value for investors at an increasing rate - but they must do so irrespective of the potential risk of such actions. This is parallel to a lot of what has happened in the CDO/MBS securitization bust - even similar enough to indicate a much deeper, generalized problem with the profit-seeking activities of advanced financial institutions.
The Credit Crisis as a Valorization Problem (http://thethinred.blogspot.com/2011/03/credit-crisis-as-valorization-problem.html)
"In the face of stiffening competition, banks were increasingly required to keep pace with the returns on equity offered by their rivals – a case not so much of “keeping up with the Joneses” as “keeping up with the Goldmans”."So we see that the underlying cause of the expansion of credit is the valorization of capital. Not only the simple valorization, but the competition for capital (which I hope to cover soon on its own right) serves as an important ossifying process for companies which cannot necessarily sustain this model:
"As fundamentals improve, high-ability banks are more likely to achieve high returns than low-ability banks. So posting low returns in the boom is particularly damaging to reputation as this constitutes a clearer signal of low ability. This strongly incentivises excessive risk taking to boost short term returns as fundamentals improve."Not only must banks accrue value for investors at an increasing rate - but they must do so irrespective of the potential risk of such actions. This is parallel to a lot of what has happened in the CDO/MBS securitization bust - even similar enough to indicate a much deeper, generalized problem with the profit-seeking activities of advanced financial institutions.