Some Marxists think that capitalism died 10 years ago this month when a couple of obscure hedge funds blew up, generating few headlines outside the financial press. What happened next did attract more publicity: the Great Financial Crisis (GFC).
The problem was – and still is – leverage. Polonius was one of many characters – real and fictional – throughout history to warn about about borrowing and lending. The real lesson is bit more subtle: don’t borrow (or lend) too much.
Polonius, in Hamlet, was advising his son never to lend anything at all to a friend since both your cash and your friendship are at risk.
The lessons of the GFC are that some borrowing is good but too much is bad: not only are the borrowed funds at risk, but, once they hit a certain size, whole economies are imperilled.
It would have been better if bankers had in fact lent to their friends since that might have provided knowledge, a few clues, as to whether or not the borrower was ever likely to be able to pay back the money.
It’s not that capitalism is dead; rather that it is totally rigged. The GFC revealed this simple…