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More nerves on the stock exchange

Marxist Analysis · 2026-05-13

Core Argument

The central thesis is that the turbulence in global stock markets in early 2007 is not a temporary correction but a symptom of deeper contradictions within the US housing bubble and the financial system built upon it. Michael Roberts argues that the collapse of the sub-prime mortgage market — specifically the default of New Century and the cascading exposure of major banks through securitised debt — signals the approaching end of the current cycle of capitalist expansion. The claim is not that this particular tremor will immediately trigger a full crisis, but that it is a reliable warning that a major downturn in the financial sector, and by extension the wider economy, is imminent within a relatively short timeframe of six months to three years. The article thus positions the 2007 stock market jitters as the early tremors of what would become the 2008 global financial crisis.

Theoretical Grounding

The analysis is grounded in the Marxist theory of crisis, particularly the understanding that capitalist booms are inherently unstable and contain the seeds of their own destruction. Roberts draws implicitly on Marx's analysis of fictitious capital — capital that exists as claims on future surplus value rather than as actual productive assets. The sub-prime mortgage market, with its packaging and resale of risky loans, is a textbook example of fictitious capital multiplying far beyond the underlying value of the housing stock. The article also deploys the concept of overaccumulation: the housing bubble represented a massive overinvestment in residential property, sustained only by extending credit to borrowers who could not repay. When the bubble burst, the contradiction between the inflated paper values and the real ability to pay became unavoidable. The piece sits firmly within the Marxist tradition that rejects the notion that financial crises are merely accidents or regulatory failures, instead seeing them as inevitable expressions of capitalism's internal contradictions.

Conjunctural Relevance

This article was written in March 2007, at a moment when the sub-prime mortgage crisis was still largely contained within the US housing sector and had not yet metastasised into a global banking crisis. Roberts identifies the specific mechanism of contagion: banks had packaged sub-prime loans into complex financial products and sold them to other institutions, spreading risk throughout the financial system. The collapse of New Century, the second-largest sub-prime lender, is cited as a key event. The article notes that stock markets had fallen by about 6% since the scares began, less than the May 2005 sell-off, but Roberts insists this is qualitatively different. The conjunctural significance lies in the fact that the housing bubble had already burst — house prices had moved from annual rises of 15% to absolute falls — and the financial system was now absorbing the shock. The article correctly identifies that the diversification of risk through securitisation had not eliminated risk but had made it systemic. This was a prescient analysis, published over a year before the collapse of Lehman Brothers.

Where the Argument Continues

The article is part of a sequence of Michael Roberts' writings on the approaching crisis. It explicitly references two earlier pieces: "World stock markets in turmoil" (March 1, 2007) and "Boom to Slump" (November 13, 2006), which together build the case that the post-2001 recovery was a fragile, credit-fuelled expansion. The argument continues in subsequent IDOM articles throughout 2007 and 2008, as Roberts tracks the deepening crisis — from the nationalisation of Northern Rock to the collapse of Bear Stearns and Lehman Brothers. The broader theoretical framework is developed in Roberts' book The Great Recession: A Marxist View (2009) and his later work The Long Depression (2016), which situates the 2008 crash within a longer cycle of declining profitability. For listeners, the Against the Stream podcast episodes from 2007-2008 provide a running commentary on the crisis as it unfolded.

Connections

This article connects directly to Marx's analysis of credit and fictitious capital in Volume III of Capital, particularly the chapters on interest-bearing capital and the role of the credit system in amplifying crises. It also resonates with the work of later Marxist economists such as Paul Sweezy and Harry Magdoff, who analysed the tendency of monopoly capitalism toward financialisation and stagnation. Within the contemporary Marxist tradition, Roberts' analysis aligns with the work of Andrew Kliman on the tendency of the rate of profit to fall as the underlying cause of the 2008 crisis, and with the broader school of thought that rejects Keynesian and Minskyan explanations of financial instability as insufficiently materialist. The article should be read alongside other IDOM pieces from the same period, particularly those analysing the US housing bubble and the fragility of the global banking system.

Key Quotes

  1. "In the great bubble that was US housing in the five years up to summer 2005, many Americans started to speculate in house purchases, while others were desperate to get on the housing ladder. So they looked for mortgage loans that they could ill afford."

  2. "These 'sub-prime' loans, as they were called, were hugely risky for the borrowers and would be a disaster for the banks if the housing market collapsed. And it did."

  3. "The worry is that many banks have packaged up their loans in the sub-prime market and 'sold' them on to other banks. This diversification of risk means that sizeable sections of the mortgage industry are 'exposed' to the sub-prime market."

  4. "Now the second-largest sub-prime lender, New Century, has said that it cannot pay back its creditors and lots of small sub-prime lenders have gone to the wall. The risk of a general financial sector default has risen."

  5. "But even if markets should eventually recover again as they did last year, this ripple is yet another confirmation that it is only a matter of a relatively short time (six months to three years) before a major downturn in the financial sector (and with it, the rest of economy) takes place."