put up as much as $50 billion in U.S. taxpayer money to shore up the speculator�s holdings.

Financial bubbles are not limited to emerging markets. Over a number of years, financial bubbles inflated stock and land values in Japan well beyond any realistic underlying value. At the peak of the bubble, the total value of Japanese real estate exceeded that of all North America. The bubble burst in 1989, sparking a major financial crisis.

How Is Money Created?

Where does the money come from to fuel a financial bubble? Much of it comes from the same place where most of our money originates-from borrowing. Most of our money is created by banks loaning it into existence. A bank is allowed to lend out as much as 90 percent of the money it has on deposit.

The deposits continue to exist as money of the depositor, while the loan creates a new account against which the borrower may withdraw cash or write checks. Almost by magic, $1,000 in deposits is thus turned into $1,900 in available money. Both stocks and land are assets against which the asset holder is able to borrow.

Most small shareholders may invest their savings in stocks or land. The big players are able to supplement their savings by borrowing to purchase stocks or even borrowing against stocks to gain �leverage.� If the margin requirement on stock purchases is, for example, 30 percent, one need only put up $300 for every $1000 worth of stock purchased. The higher the market value of the asset (e.g. stock) goes, the larger the loan it can be used to secure. It is important to remember that stocks are value-created assets, meaning they have no real intrinsic value. A financial bubble thus actually creates money out of virtually nothing.

The bubble can grow without apparent limit until something makes the players nervous and too many of them decide to sell out and claim their profits.

Then the bubble collapses and the value of the assets plummet, sparking a crisis among the banks that are left with substantial portfolios of uncollectible loans and governments are almost always forced to step in with a bailout to stop a banking collapse�as the U.S. government did in the savings and loan crisis. Financial bubbles are one mechanism that creates money without creating value. Of course, the finance capitalists have a considerable variety of other mechanisms for transferring money�a claim on wealth�to themselves without commensurate contribution to the wealth-creation process. These include speculating on price movements and derivatives, and engaging in arbitrage to profit on minor time lags between markets. Their very transactions can create instability in currency markets, which forces governments to intervene with public monies that flow directly into the speculators� pockets. In each case the finance specialists transfer claims to real wealth to themselves at the expense of those who actually do productive work.

While economists have become exceedingly facile in rationalizing how these predatory activities actually benefit society, they are in truth more accurately described as forms of legal theft, by which a clever few expropriate rights to the real wealth of society while contributing more to its depletion than to its creation.

Competing for Money

William Greider, in his book One World, Ready or Not, observes that real-economy corporations are caught in the trap of having to compete for investment funds against the often more lucrative games of the world of pure finance. That places intense pressure on them to increase their profits way beyond what otherwise might be considered reasonable and responsible.

The profit levels demanded by investors are most readily achieved by externalizing a major portion of production costs, that is, getting tax payers to subsidize pollution clean-up, workers� benefits, trade infrastructure, and other costs so that the corporation doesn�t have to foot the bill. Companies also move to nations where they can pay less than a living wage, break up labor unions and bargain down labor unions with the threat of moving their jobs, and where they can dump their toxic wastes into the ground. The companies use their financial clout to bribe politicians to get more tax breaks and subsidies, and to reduce government expenditure on education, welfare, infrastructure for mass transit, and other public goods.