“I like thieves. Some of my best friends are thieves. Why, just last week we had the president of the bank over for dinner.” W.C. Fields.
All-in-all, I rather be in…well…anywhere but this capitalistic utopia we’ve turned the world into. OK…so maybe not. Anyone who’s paid attention to economics over the reign of the current crop of unrestricted capitalists knew this day was coming. It’s an interesting thing to watch.
The capitalist system is in the throes of the worse financial crisis since the Great Depression. This is the view not only of the billionaire George Soros, but also of the International Monetary Fund, the custodian of the capitalist system, and all the serious capitalist commentators.
Should we be happy? Of course not. But, we should also take a good look in the mirror. We let it happen. Sure, the corporations, financiers, militarists and the like are to blame for the system. We kept our mouths shut because of the continuous flow of consumer goods which showed up on our stoops. We worried about ourselves, rather than the society as a whole. We were played, and we were quite pleased at the results of being played.
The hurricane sweeping the credit markets, stock markets and banking system last week was a consequence of all the contradiction that had built up in the foundations of capitalism over the previous 20 years. This is no temporary economic blip, but the precursor of an impending world slump. The headline in the ‘Financial Times’ said it all: ‘Capitalism in convulsion’. The storm is far from over, despite the announcement of an unprecedented bail-out by the American Treasury, the Federal Reserve and the Washington establishment.
And guess who’s expected to come to the rescue? Why, you and me! What fun. All the bosses got to play with the monopoly money the dollar had become, making themselves even more obscenely richer (yes, I meant to write that), while wages for the working and middle classes stagnated and were eaten away by the falling dollar and now inflation. We’ll be told, and have been that we’ll be rescuing ourselves. You know whether to believe that one or not.
This is how the ‘Financial Times’ described the events of the past week:
“Financial market conditions have now descended to the lowest point since the banking shutdown of 1932. In one 96-hour period, we saw three nearly unimaginable events. Lehman Brothers, America’s fourth-largest securities firm, filed for bankruptcy. Merrill Lynch, the best-known firm, was forced overnight to sell itself to Bank of America. And market pressurised forced the Federal Reserve into a huge $85bn takeover of AIG, our largest insurer, to avert its bankruptcy.” Added to this is the nationalisation of Freddie Mac and Fannie Mae, the US giant mortgage companies. (FT, 18/9/08) The article concluded: “We will be climbing out of this financial hole for a long time to come.”
And this is from a paper with a view from the financial heights. Think what that climb’s going to be like for everyone who’s farther down the economic ladder! It’s clear that the bosses will make out best out of our dire situation.
The capitalist guru, Alan Greenspan, the former chairman of the Federal Reserve, came to London in 2002 to pick up his knighthood as ‘The Man Who Saved the World’. His handling of the internet bubble was seen as miraculous, especially by his biggest fan, Gordon Brown, the then British Chancellor.
Let’s see…the choices are boiling in oil, tar and feathers, or running the bastard out on a rail. Maybe we should just leave him in stocks out on Wall Street for a few days (how ironic a situation that would be).
While he was here, Greenspan paid a visit to the Bank of England’s monetary policy committee. In typical upbeat fashion, he told them that the US economy was resilient following the bursting of the internet bubble. Shares had halved in value and there had been bond defaults, but no big bank had collapsed. The reason? Well according to Greenspan risk had been cleverly spread through the use of complex derivative instruments.
A dire economic situation saved by expanding our bad debt. This is what we have to thank Greenspan for. It’s time we put him into the economic hall of shame.
Greenspan’s “economic stability” was achieved by poisoning the capitalist system by the injection of billions of dollars of dodgy derivatives, described aptly by Warren Buffet as “financial weapons of mass destruction”. These derivatives, which are fictitious capital to use Marx’s words, are part and parcel of the modern market capitalist casino. As with all forms of credit, they can propel capitalism beyond its limits. However, in times of retrenchment, they provide a toxic mix. For every bank that announced huge profits on derivatives, there must eventually be losses elsewhere.
We’ve been in a time of retrenchment since the early ’70’s (if not even earlier). Instead of spending profits on building up our economic infrastructure, our capitalist friends decided to let the country go to hell while raking in a fortune while watching it happen. And we let them do it.
Greenspan had not solved the crisis, but simply postponed it with an extra large dose of fictitious capital pumped into the system. The inevitable consequence would be a future crisis of much deeper proportions. This is what is happening today before our very eyes.
There was talk of a depression early in Reagan’s administration. If I remember right, there was a series of rolling regional recessions rather than one large national one. California, much the same as today, was nearly insolvent. We put that day of reckoning off for roughly 25 years. The toxins in the system were not purged when they should have been, and those toxins have been added to a thousandfold or more (well, as Sewell points out, to the tune of upwards of $60,000 billion – or $60 trillion).
The capitalists are no longer interested in making money through production, the only real source of wealth, but through gambling and speculation. This shows how degenerate the capitalist class has become. It has become totally parasitic in its epoch of senile decay.
Why do you think they loosened the mores on gambling? To let the little guy have a small peek of the thrills they had every day. The difference, of course, was that their gambling addiction is going to send the world into a depression (almost certainly). Let’s thank them for that!
But inherent in any capitalist boom is endemic speculation. The banks, as with the rest of finance capital, were eager to seek out lucrative speculative investments, including in property. For them, house prices could never fall, so they engaged in reckless lending to people who had little hope of paying it back. The sub-prime mortgage crisis was maturing. They were all caught up in this speculative syndrome. House prices went up as people were buying them. People bought them as prices were going up. It was a typical bubble. Credit allowed the capitalist system to go beyond its limits. Today, credit plays a far more important role than in 1929.
Credit is today’s version of the Company Store. You know the song “16 tons?” It applicable right now. Instead of seeing that workers had good jobs with good wages and benefits that kept up and passed inflation, the bosses offered us credit instead. Evil bastards.
The FT editorial (19/9/08) was desperate for the central banks and government to intervene to save the capitalist system: “This is not a time for niceties… Today is about survival.”
The bosses survival. Not the poor, the working or the middle classes. Just the bosses. Are you going to allow this con?
However, as these paper prices are written-off, there will be a knock-on effect to the rest of the economy. The example of Japan is a case in point. The Japanese banks bought huge swathes of property in the bubble of the 1980s. When the bubble collapsed, the banks were saddled with enormous bad debts. This resulted in a recession in the world’s second largest economy that lasted more than a decade. The ruling class is terrified that that could be repeated in the United States and the rest of the world.
My understanding is that the Japanese government, to fight the decade long deflationary depression (or series of recessions), spent enormous sums on physical infrastructure. Imagine if the US were to spend the money proposed for the bailout on physical infrastructure? It’s needed, but we ‘can’t’ afford it. Well, we can but just didn’t and don’t want to spend it.
The present crisis is a damning indictment of capitalism. Those who preached the virtues of the free market had to swallow their words and were forced to turn to the state – namely tax-payers’ money – to bail them out. All those apologists of capitalism who said profits were a reward for risk-taking were silent as the state stepped into rescue the system from collapse. They had no money for welfare or health, but when needed, they had plenty of money to bail-out Wall Street. “It [the US government] has begun a programme of economic interventionism more typical of socialist governments in moments of utopian zeal”, commented an article in the FT. It is certainly the most extensive peacetime of government intervention in the economy since the Great Depression, which shows how dangerous the crisis has become for capitalism.
Yep. ‘Nuff said.
The proposed bail-out by the US government is said to be around 700bn to begin with. They are talking about buying bad debt in order to remove them from the company’s books. Something similar was done in the Savings and Loans crisis of two decades ago. However, this time, the sums are truly staggering, which will have to be picked up by the American tax payer. The plan is to create a ‘bad bank’ to take possession of all the toxic assets in the financial system. However, placing in effect bad debts in a deep freeze, will leave a massive burden over the US economy for years to come. In reality, the US government headed by George Bush is promising to nationalise all the bad debts.
That $700 billion is only the beginning. It’s the tip of the iceberg, and as we all know, roughly 90% of the iceberg is unseen under the water. The only problem, if the roughly $60 trillion mentioned earlier is true, the $700 billion won’t even be enough to qualify as a down payment (if it were a home loan).
The failed policy of individual fire-fighting of failed companies has given way to “a comprehensive approach to relieving the stresses on our financial institutions and markets”, to quote Paulson. But what happens if this fails too? The contradictions are immense. The chaos in the financial sector is spilling over into the other sectors of the economy. The Detroit-based car industry, for instance, has itself lobbied the government for $25bn in loans and loan guarantees to allow it to function. The construction industry is already in a slump. In America and elsewhere unemployment has jumped. We are at the beginning of a new world recession which can be far deeper than anything we have witnessed in the post-war period. It is this that terrifies the strategists of capital. A new slump will mean drastic cuts in living standards and political turmoil worldwide.
Don’t worry, the bosses will do fine. You and I, on the other hand, are at the mercy of our broken and corrupted economic and political systems. The ride ahead is going to suck, big time.
As one senior Wall Street banker commented: “The crisis is far from over, the government action will buy banks some time but they will have to act decisively otherwise they will find themselves in an even worse situation in a few months’ time.” This is correct as throwing billions of dollars at the credit markets will not resolve the underlying problems. In fact, it was the excess credit that fuelled the artificial boom and all the excesses that have accompanied it – giving rise to the present crisis, the greatest credit bubble in history.
The only way to save the broken and corrupt system is to try to reinflate the bubble. Of course, if successful, it will only postpone (probably by only months) the true popping of the bubble. One thought: How do capitalist systems manage to get back on track? Through war. Think about that for a moment.
People are having to rethink their views about capitalism. There has been a shift in the public mood everywhere, a realisation that something big has gone wrong. There is anger with the bankers. There is a growing questioning. As one newspaper commented: “Social historians will record this week as one when unhappy shoppers began discussing the potential collapse of western capitalism in the same breath as butter prices.”
I suggest reading the first chapter of the Communist Manifesto, if you haven’t. You may not agree with the theories which Marx and Engels come up with later on in the book, but their analysis of the capitalist system is spot on, and reads as if it were written yesterday. To fix this mess, we’re going to have to examine all of our preconceived notions about our economic system, and we may have to be ready to jettison that system.
In a Waitrose supermarket car park in Harborne, Birmingham, Kate Organ, 53, a freelance arts manager, described her mood as “wretched and disempowered”. She expected here income, currently at £30,000 a year, to dwindle. She said: “When I was at University, the Workers’ Revolutionary Party harangued me that capitalism would collapse. Now I know what they were on about.”
Don’t we all, don’t we all.