The economic crisis -- What are the main causes?

Jeyakumar Devaraj (Socialist Party of Malaysia) discusses The economic crisis -- What are the main causes?

He traces the trajectory as follows:

• The collapse of the USSR allowed increased exploitation and increased profits through capital investment in the third world (second globalization);
• The reduction in the manufacturing workforce in the first world lead to a sluggish demand for consumer goods;
• Profits had to be invested somewhere and that in the housing market;
• The expansion of the housing market was a specliative buuble;
• The immediate cause of the housing crisis was the rapid rise of the oil price that caused many defaults;
• The governments intervened to save the financial instutions threatened by these defaults;
• The price of these interventions has been austerity measures that has lead to the popular revolts.

I think this analysis misses the ideological driver behind the push to increase home ownership: the growth in the popular support for Capitalism in the form of property owners. And the increase in wealth generated by 'flipping' homes should not be overlooked.

I think the structure of the mortgages created the defaults rather than the increase in oil prices. The mortgages were written to have low interest honeymoon periods of several years that borrowers relied on before 'flipping'.

There was also a whole new class of people who relied on the housing market to replace the jobs lost in the manufacturing movement to third world countries. These were the realtors, mortgage brokers, builders, etc. As such, the loss of manufacturing was not seen as a loss, but, rather, a door to better job opportunities.