All the above gave rise, in short, to a world economic panorama dominated by unemployment, inflation, public and foreign deficits and the increase of social unrest that came with it. A general crisis of these dimensions required very forceful responses that began to occur, as early as the 1970s, in the military dictatorships of Latin America, which were the first regimes to apply liberal measures that would later spread throughout the world. The fall of the Berlin Wall in 1989 and that of the entire former socialist bloc together with the generalization of unemployment that greatly weakened the working classes, created the political conditions for a recovery aimed primarily at benefiting the regain of business profit. The theoretical support would come from the hand of neoclassical principles that were now reformulated in what has been renamed as neoliberalism.
The incorporation of new information technologies and the establishment of regimes of full mobility for movements of goods and capital made it possible to globalize a large part of productive activity. This was the new economic stage of planetary interconnection and predominance of neoliberal ideas that gave a response to the great crisis of the 1970s and opened the door to a new era of practically unencumbered financial disturbances. There were117 systemic banking crises in 93 countries and 113 episodes of financial stress in 17 countries from 1970 to 2003, shortly before the last major crisis in 2007.
In this context, a deregulatory process that had been established since the end of World War II allowed banks to spread low-quality, high-risk financial products that ended up contaminating the entire international financial system. With very low interest rates, banks in the United States granted hundreds of thousands of mortgage loans to people in very precarious financial situations. They were the so-called subprime mortgages, also called junk mortgages or NINJA loans, because they were granted to people “No Income, No Job and No Asset”. Such subprime mortgages were transformed and combined into new assets that the banks called Residential Mortgage Backed Securities (RMBS), that is, obligations guaranteed by residential mortgages, or Commercial Mortgage Backed Securities (CMBS) if they were commercial mortgages. They were acquired by investment funds (often owned by the banks themselves), which in turn derived them into new products, thus generating a perverse chain, because if the initial mortgage stopped paying, all subsequent products would immediately lose value.
When these mortgages stopped being paid, as it was easily foreseeable that sooner or later, some banks would begin to record losses or even declare bankruptcy, already at the beginning of 2007. Little by little the contamination was spreading all over the world, the credit tap was closing and with that investment stopped, unemployment multiplied and governments were all facing another global crisis in 2008. What started as a financial crisis became a crisis in the real economy. Without clear recipes to deal with it, everything indicated that massive state intervention would be necessary, but that clashed with the dominant neoliberal thinking.
