The global banking crisis – ten years on

August 9, 2017 at 8:25 am (banks, capitalism, capitalist crisis, economics, history, Marxism)

Ten years ago, the worst global financial crisis financial crisis since the 1930’s began. Major companies went bankrupt, people lost their homes on both side of the Atlantic, and the banks that were too big to fail, did fail – only to be rescued with taxpayers’ money.

Governments and their financial regulators were completely wrong-footed and found themselves lacking the regulatory framework to mitigate the crisis and to prevent it from spreading.

Martin Thomas surveys the path, the causes and the sequels of the crisis.


The story started in finance. In June 2005 mortgage interest rates in the USA started rising sharply. They levelled off and declined after July 2006, but in the meantime house prices had reversed their giddy rise of previous years. House prices would continue to fall until January 2012, when they would be on average 33% down on their May 2006 peak. From mid-2006 the proportion of deliquent mortgagees (those with payments seriously overdue) rose, and it would keep rising until early 2010.

By late 2015 around six million households would have their homes foreclosed (CoreLogic 2015). Unlike, for example, the UK house-price crash of 1989-92 (in which about 188,000 homes were repossessed), the US mortgage crash fed into a financial, industrial, and international crash. It revealed that “the bond bubble [had been] by no means limited to mortgages. It was ubiquitous”. Building on the mortgage bubble, “risk spreads were irrationally small”, i.e. small extra revenues had been needed to attract buyers to risky securities, and so once financiers realised those securities were risky, their prices were likely to drop sharply. (Blinder 2013, p.45-6, 90-1).

On 9 August 2007, a French bank, BNP, told holders of stakes in three of its investment funds that they could not have their money back. The bank held mortgage-backed securities — bits of paper which entitled holders to a slice of the income from payments on mortgages made in the USA — and now, as one financier put it, those “securities… simply [could]n’t be priced because there [was] no trading in them. There [were] no bids for them. Asset-backed securities, mortgage loans, especially subprime loans, [did]n’t have any buyers” (Bloomberg 2007). The freezing of credit flows between banks escalated.

On 14 September 2007 queues of people fearing collapse and wanting to get their money out formed at the branches of a British bank, Northern Rock; the British government nationalised the bank in February 2008. Read the rest of this entry »

Permalink 1 Comment

Corbynomics – a friendly critique

July 27, 2016 at 7:37 pm (AWL, banks, capitalism, economics, labour party, left, posted by JD)

Based on a pamphlet from the Alliance for Workers Liberty:

There is a buzz about “Corbynomics”. That’s positive. For the first time in ages the neo-liberal economic orthodoxies insisted on by the Blairite Labour Party are up for debate and discussion.

What Corbynomics means, though, isn’t clear yet. It remains to be defined, not just in detail but even in broad outline. The left should plunge into the debate – and be bold.

There is a problem about the lack of left-wing Labour economic policy for Jeremy Corbyn and Shadow Chancellor John McDonnell to draw on. On ssues like the NHS, say, or renationalising the railways and Royal Mail, there is policy and they should do more to promote it – a lot more. On wider economic policy,there is more of a vacuum on the left, and a need for socialist ideas to fill it. But some of what Corbyn has said points in the wrong direction.

So, for instance, in the steel crisis, Corbyn and McDonnell said that if no capitalist buyer for Tata’s plants was found, they would support nationalising them – but only in order to find a buyer, and then sell them off again! Why didn’t they take the opportunity to argue to nationalise steel permanently, safeguard jobs, workers’ terms and conditions and communities, and run things differently to produce what we need for social purposes, like building housing, public service and public transport infrastructure?

Fiscal responsibility?

In his speech on 11 March, John McDonnell talked about “fiscal responsibility” – presumably in order to buy space to attack George Osborne’s 16 March Budget cuts. But anxious promises that a future Labour government will balance current spending with current revenues – which Osborne had not done after six years as chancellor! – only feed the superstition that the economic problems since 2008 are due to the Blair and Brown governments overspending” on public services. They aren’t. The reason for the crash and the slump was giddy profiteering and speculating by the banks, not public spending.

Now, there is no special merit in a government increasing its debt burden. However, a rigid rule of balancing current spending with current revenues is foolish. As Simon Wren-Lewis, professor of economics at Oxford University and an adviser to McDonnell, has pointed out, “the rule is likely to make the deficit much less of a shock absorber, and so lead to unnecessary volatility in taxes or spending”. Also, since raising taxes is politically difficult, often slower in effect, and involves running uphill in times of economic crises which reduce the tax base, the rule has a built-in bias towards panic “volatility” (cuts) in spending. McDonnell has long campaigned against cuts. It looks as if he was pushed into these statements by the conservative elements in the Labour leadership office – part of a more general problem.

Who are the “wealth creators”?

Probably also a reflection of that section of the Labour leadership office were McDonnell’s off-key statements about “the wealth creators”.

“The Labour party are the representatives of the wealth creators — the designers, the producers, the entrepreneurs, the workers on the shop floor.” He claimed that his policy “has been welcomed this morning by [people] right across the business sector, business leaders, entrepreneurs as well as trade unions. The wealth creators have welcomed it”.

According to Mike Savage, a researcher at the LSE, inherited loot is 70% of all household wealth in Britain today, and is rising towards 80% by 2050. One of the most booming industries in slump-ridden Britain is the rise of “family offices”, where financiers work fulltime on managing and conserving the wealth of rich families. “Wealth creator” is conservatives’ pet term for capitalists. In fact capitalists’ riches come from the exploitation of the real wealth creators, the wage working class – or from active exploitation done not by the capitalists, but by their parents and grandparents.

McDonnell added “the workers on the shop floor” atthe end of his list of “wealth creators”, and put“designers” (i.e. some particularly skilled workers) at the start of the list. But the idea that a good economic policy can be pursued in alliance with the whole “business sector” is false. It can only prepare the way for a collapse when the CBI and other bosses’ groups denounce left-wing policies from Corbyn and McDonnell, which they will.

Is a National Investment Bank a left-wing policy?

Similarly, the leadership has focused on the call for a “National Investment Bank”, a publicly-owned bank able to borrow more cheaply than commercial banks because of its government backing, and lending for infrastructure and industrial projects.

The model must be the KfW, the German state’s federal investment bank, set up under the Marshall Plan in the 1940s and still going strong. It’s a safe, conservative model, maybe useful as a capitalist technique, but in no way anti-capitalist or socialist. The current chair of the KFW Supervisory Board is German finance minister Wolfgang Schäuble, Europe’s sternest austerity-hawk and central to the crushing of the anti-austerity rebellion in Greece.

There is nothing really socialist or even left-wing about the proposals for a Schäuble-bank in Britain. In fact it seems more like a way of avoiding a clear left policy about what to do about the banks.

Expropriate the banks!

Replacing capitalism with socialism requires public ownership, democratic and workers’ control and planning of the giant corporations and enterprises central to the economy. That is hardly even conceivable without an insurgent workers’ movement challenging the capitalist class on every level – which is what we must work for, rather than damping it down with appeals to “wealth creators”.

To even move in this direction requires transitional demands to campaign for. An obvious one to make central is public ownership and democratic control of the banks and high finance – a sector central to the economy’s functioning and to the economic chaos which has engulfed us over the last decade.

Banking should become a unified, democratically run public service providing banking, pensions and mortgages for everyone who needs them, and funds and resources for investment in public services and all areas of social need – instead of acting as an engine for devastating them while promoting inequality.

Public ownership of the banks has been official TUC policy since it was proposed by the Fire Brigades Union in 2012, but left dormant. We should fight to activate it, and make it active Labour policy too.

All this poses the question of what kind of Labour government we want. In place of an alternative capitalist administration, the left should set ourselves and shape our campaigning around the goal of a workers’ government, accountable to and drawing strength from the mass organisations of the labour movement, and willing and able to force through measures like expropriating the steel industry and the banks – and much more.

More
Motion for expropriation of the banks and a workers’ government, passed at Labour Representation Committee conference, 20 February 2016, here

Permalink 9 Comments

Panama: the way capitalism works

April 8, 2016 at 7:32 pm (banks, capitalism, corruption, posted by JD, Tory scum)


A squirming Cameron finally admits to having profited from his late father’s offshore investment fund

By Martin Thomas (edited by JD: the full article appears in the current issue of Solidarity)

Each week the capitalist economic system pumps new wealth, created by the labour of workers across the whole economy, into the pockets of owners and shareholders and their associates, advisers, bankers, lawyers, and so on.

No-one denies that. Those who defend capitalism as the best system available reply only that it is a manageable problem.

The greed for riches (so they say) motivates the capitalist class to innovate and improve efficiency. And the rich pay taxes. And they put their wealth into new investments which create new jobs. The Panama Papers show that in fact the rich hide their money in offshore tax havens and often pay little tax. They invest productively only when they feel fairly sure of large private gains, and much of their loot is spent on luxury and on swindling.

The papers, revealed on 3 April, are a stash of documents from just one law firm, Mossack Fonseca, based in Panama, which specialises in helping the rich by setting up for them obscure companies in which to hide their wealth, based in low-tax areas.

Many of these companies are in the British Virgin Islands, a tiny group of Caribbean islands which is a British Overseas Territory, but outside British tax laws. The islands are home to just 28,000 inhabitants, but to 950,000 companies.

As lawyer Geoffrey Robertson says: “Britain is at the heart… of international tax avoidance by allowing these little remnants of empire to have tax secrecy laws and enable offshore trusts and offshore companies to operate without transparency”.

Not all “shadow banking” (banking-type operations by non-banks) is offshored, but a lot is.
Still booming in fact, according to a recent Financial Times report, doubled in numbers in London since the 2008 crash, are family offices, firms of lawyers and financiers employed by wealthy families to manage their loot and save it from taxes.

The working class, which produces that wealth, should keep it in common ownership and under democratic control.

As the socialist Jean Jaures said in the French parliament when a great financial scandal of the 19th century, also called Panama, broke: “It isn’t enough to brand and denounce the scandals… It would be a sad contradiction not to take up the struggle against that power that holds the railroads, the banks, and all the large enterprises…It’s the beginning of the trial of the dying social order, and we are here to substitute for it a more just social order”.

The 19th century scandal has another lesson. To go beyond indignation to propose socialist solutions, taking the loot back into common ownership may also be necessary to stop the scandal being exploited by right-wing demagogues who are in fact the looters’ friends.

Frederick Engels wrote about the 19th century Panama: “This business brings the moment considerably nearer when our people will become the only possible leaders of the state in France. Only, things ought not to move too quickly; our people in France are not ripe for power by a long way…In the meantime, that ass Boulanger [a proto-fascist anti-semitic demagogue who had come close to seizing power in 1889] had not shot himself [which he did, literally, in 1891, first having fled to exile], he would now be master of the situation… If only some general or other does not swing himself to the top during the interval of clarification and start war, that is the one danger”.

Permalink 3 Comments

“It batters down all Chinese walls”

October 17, 2013 at 5:29 am (banks, capitalism, China, economics, grovelling, Human rights, Jim D, London, Tory scum)

“The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilisation. The cheap prices of its commodities are the heavy artillery with which it batters down all Chinese walls, with which it forces the barbarians’ intensely obstinate hatred of foreigners to capitulate. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilization into their midst, i.e; to become bourgeois themselves. In one word, it creates a world after its own image” – Marx and Engels, Communist Manifesto, 1848.

Chancellor of the Exchequer George Osborne addresses staff and students at Peking University in Beijing.

Listening to George Osborne grovelling to the Chinese ruling class while his Tory sidekick Boris Johnson capered like a jester at the court of an all-powerful monarch, brought to mind Marx’s vivid descriptions of capitalism and the bourgeoisie sweeping aside outmoded social forms and cultural traditions. Just how strong, one wonders, is the Tory commitment to bourgeois democracy?
 
As Osborne and Johnson pleaded for Chinese investment and announced a simplified visa procedure for Chinese tourists, you can be damned sure no mention was made, even behind the scenes, of human rights or political prisoners. Britain must “show some respect” to the Chinese leadership, Osborne told BBC Radio 4, adding “of course we can bring up issues that we have concerns about. But we have to respect the fact that it is a deep and ancient civilisation that is tackling its own problems. We have to show some respect for that.”
 
As for the Dalai Lama: we’ve “no plans to meet him again.”

Nothing must stand in the way of Osborne’s “personal mission” to make London a Chinese offshore banking centre and a global renminbi hub.

The Torygraph‘s Michael Deacon gives a pretty fair account of Osborne’s grovelling:

“Long gone, thankfully,” said George Osborne, “are the days when Western politicians turned up here and simply demanded that China open up its economy to Western economies.”

He’s right. Our politicians no longer demand.

They beg.

The Chancellor’s speech at Peking University, on the first of his five days in China, was almost magnificently obsequious. Lavishly he praised “your great country”, “the depth and sophistication of the Chinese culture”, “the value you place on consistency and stability and on friendship”, and “your Vice Premier Ma Kai, whose reputation for economic reform and diligence impresses all”.

According to his script, available on the Government website, Mr Osborne is delighted that Britain and China have grown more “complimentary”. At first I thought he meant complementary, but on second thoughts I suspect not.

Normally when Mr Osborne encounters something he considers Left-wing – for example, Ed Miliband’s idea to freeze energy bills – he derides it. For some reason however his speech today contained no jokes at the expense of China’s ruling Communist Party. Perhaps he’s saving up those jokes for later in the trip. Although if he does tell them, he may find that the local authorities generously extend his visit. By, say, three or four decades.

Britain, gushed the Chancellor, would be only too delighted to welcome lots of lovely Chinese investment. We couldn’t get enough of the stuff. Not like those rotten Europeans, who “find all sorts of ways of making clear that Chinese investment is not welcome” – heavens, no, don’t invest in their snooty little countries! Invest in Britain! Do come in, sirs! May we take your coats, sirs? And may we recommend a bottle of the Chateau Margaux? On the house, sirs, of course!

His audience was largely made up of students. It was, he gurgled, “an honour” to be among them, “the students who are going to shape the future of the world”. Students who would make advances in technology, build new businesses, create jobs around the world – but more than that. “You,” said Mr Osborne, almost sighing with admiration, “are the students of today who will write the poems of tomorrow.”

And with any luck, they’ll come and open a vast new poem factory in Britain, employing thousands of British youths to mass-produce state-of-the-art villanelles at competitive prices…

Or, to put it another way:

“All that is solid melts into air, all that is holy is profaned, and man is at least compelled to face with sober senses, his real conditions of life, and his relations with his kind.”

Above: from the Financial Times

Permalink 7 Comments

Diamond Bob and the Barclays gang

June 28, 2012 at 5:36 pm (banks, capitalism, crime, Jim D, parasites, profiteers)

 I’m worried about Bob Diamond.

Barclays‘ new boss first came to my attention in January when he told MPs that the “period of remorse and apology for banks … needs to be over”. I didn’t like that, partly because I hadn’t really noticed any period of remorse and apology, unless you count “I’m sorry our various scams didn’t work” as an apology; and partly because it’s not for him to say. If you’re really sorry for something, you should just keep being sorry. It’s for others to decide when you can be let off the hook. If you’re the first to be asking whether you’ve apologised enough, then you haven’t David Mitchell, The Observer, 18 Dec 2011

From the FSA:

Barclays fined £59.5 million for significant failings in relation to LIBOR and EURIBOR

 
 
 
 
Newspaper Image

FSA/PN/070/2012
27 Jun 2012

The Financial Services Authority (FSA) has today fined Barclays Bank Plc (Barclays) £59.5 million for misconduct relating to the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR). This is the largest fine ever imposed by the FSA.

Barclays’ breaches of the FSA’s requirements encompassed a number of issues, involved a significant number of employees and occurred over a number of years. Barclays’ misconduct included:

  • making submissions which formed part of the LIBOR and EURIBOR setting process that took into account requests from Barclays’ interest rate derivatives traders. These traders were motivated by profit and sought to benefit Barclays’ trading positions;
  • seeking to influence the EURIBOR submissions of other banks contributing to the rate setting process; and
  • reducing its LIBOR submissions during the financial crisis as a result of senior management’s concerns over negative media comment.

In addition, Barclays failed to have adequate systems and controls in place relating to its LIBOR and EURIBOR submissions processes until June 2010 and failed to review its systems and controls at a number of appropriate points.

Barclays also failed to deal with issues relating to its LIBOR submissions when these were escalated to Barclays’ Investment Banking compliance function in 2007 and 2008.

Tracey McDermott, acting director of enforcement and financial crime, said:

“Barclays’ misconduct was serious, widespread and extended over a number of years. The integrity of benchmark reference rates such as LIBOR and EURIBOR is of fundamental importance to both UK and international financial markets. Firms making submissions must not use those submissions as tools to promote their own interests.”

“Making submissions to try to benefit trading positions is wholly unacceptable. This was possible because Barclays failed to ensure it had proper controls in place. Barclays’ behaviour threatened the integrity of the rates with the risk of serious harm to other market participants.”

“The FSA continues to pursue a number of other significant cross-border investigations in this area and the action we have taken against Barclays should leave firms in no doubt about the serious consequences of this type of failure.”

The BBA is currently undertaking a review of the way LIBOR is set and will publish its findings shortly. The FSA, along with the other tripartite authorities, is working to support market-led reviews of existing arrangements, with the goal of ensuring such arrangements continue to command the confidence of all stakeholders.

Barclays co-operated fully during the FSA’s investigation and agreed to settle at an early stage. The firm qualified for a 30% discount under the FSA’s settlement discount scheme. Without the discount the fine would have been £85 million.

This was a significant cross-border investigation and the FSA would like to thank the U.S. Commodity Futures Trading Commission (CFTC), the U.S. Department of Justice (DoJ) (together with the Federal Bureau of Investigation (FBI)) and the Securities and Exchange Commission (SEC) for their co-operation.

The CFTC brought attempted manipulation and false reporting charges against Barclays for similar failings, which the bank agreed to settle. The CFTC imposed a penalty of US$200 million. In addition, as part of an agreement with the DOJ, Barclays admitted to its misconduct and agreed to pay a penalty of US$160 million.

Notes for editors

  1. The Final Notice for Barclays Bank Plc.
  2. LIBOR and the EURIBOR are benchmark reference rates that indicate the interest rate that banks charge when lending to each other. They are fundamental to the operation of both UK and international financial markets, including markets in interest rate derivatives contracts.
  3. LIBOR and EURIBOR are used to determine payments made under both over the counter (OTC) interest rate derivatives contracts and exchange traded interest rate contracts by a wide range of counterparties including small businesses, large financial institutions and public authorities. Benchmark reference rates such as LIBOR and EURIBOR also affect payments made under a wide range of other contracts including loans and mortgages. The integrity of benchmark reference rates such as LIBOR and EURIBOR is therefore of fundamental importance to both UK and international financial markets.
  4. LIBOR is published on behalf of the British Bankers’ Association (BBA) and EURIBOR is published on behalf of the European Banking Federation (EBF). LIBOR and EURIBOR are calculated as averages from submissions made by a number of banks selected by the BBA or EBF. There are different panels of banks that contribute submissions for each currency in which LIBOR is published, and for EURIBOR.
  5. LIBOR and EURIBOR are by far the most prevalent benchmark reference rates used in euro, US dollar and sterling OTC interest rate derivatives contracts and exchange traded interest rate contracts. The notional amount outstanding of OTC interest rate derivatives contracts in the first half of 2011 has been estimated at 554 trillion US dollars. The total value of volume of short term interest rate contracts traded on LIFFE in London in 2011 was 477 trillion euro including over 241 trillion euro relating to the three month EURIBOR futures contract (the fourth largest interest rate futures contract by volume in the world).
  6. Until February 2011 the US dollar LIBOR panel consisted of 16 banks and the rate calculation for each maturity excluded the highest four and lowest four submissions. An average of the remaining eight submissions was taken to produce the final published LIBOR.
  7. Throughout the Relevant Period, the EURIBOR panel consisted of at least 40 banks and in each maturity the rate calculation excluded the highest 15% and lowest 15% of all the submissions collated. A rounded average of the remaining submissions was taken to produce the final published EURIBOR.
  8. The FSA Enforcement Conference 2012 – ‘Credible deterrence: Here to stay’ takes place on Monday, 2 July, 2012.
  9. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
  10. The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013. The Financial Services Bill currently undergoing parliamentary scrutiny is expected to receive Royal Assent by the end of 2012

**************************************************************************************************

Peston’s Picks here

 

Permalink 3 Comments

Talking sense on Europe

December 9, 2011 at 8:19 pm (banks, capitalism, Champagne Charlie, David Cameron, economics, Europe, Tory scum)

One whole day before Mr Cameron’s triumph in Brussels (Britain completely isolated, the rest of Europe antagonised, but the interests of the financiers of the City protected and the Tory Europhobes, little-Englanders and outright racists appeased), our prescient friends over at Representing the Mambo analysed the scenario thus:

representingthemamboin Politics

composite-of-a-british-bulldog-with-david-cameron-s-face-grafted-on-386040379.jpg

Cameron, for all of the bullish talk earlier this week, is right now looking a bit of a fool at the Brussels summit. He’s probably wondering what he has done to deserve being placed in such a pickle. Plenty, actually, but I can still see his dilemna.

On the one hand he has to face up to the fact that the leading Eurozone governments want full fiscal union to prevent another sovereign debt crisis and are not very interested in his opinions or his agenda (repatriation of powers back to Britain). They don’t trust him and there is no appetite to give Britain special privileges or a veto over any new/amended treaty. The summit is being billed as ‘the last chance to save the Euro’ and if it is, it’s hardly likely that France and Germany are going to be interested in the debate being bogged down in discussions of the British government’s interests and desire to claw back the right to sack people more easily. ’Merkozy’ and the rest of the EU bureaucracy seem quite happy to tell him to piss off if he gets too mouthy. As a non-member of the Euro, Britain doesn’t really have many cards to play, especially as he has pulled his MEPs out of the EPP grouping that Sarkozy and Merkel’s parties are members of, much to their consternation and bemusement. Cameron is perfectly aware of this of course. He is no fool. It’s a pity that a large proportion of his MPs aren’t blessed with similar powers of self-awareness.

On the other, the eurosceptic squad, that make up a large majority of the parliamentary and lay membership of the modern-day Tory Party, see this as a golden opportunity to start the process of pulling Britain out of the EU, as, if they’re honest, that’s what they want to do. They want Cameron to go over to Brussels with the ‘bulldog spirit’ (as the rabid, utterly boneheaded Tory MP Andrew Rosindell suggested earlier this week in Parliament) , give it large, and come back with lots of concessions and returned powers, heralding a new dawn of British sovereignty. Like that’s going to happen.

Read the rest here.

This is pretty sensible as well…

…whereas this is all too typical of what passes for “thinking” on the “left”…

…though not as goddam awful as this.

Permalink 4 Comments

The banks’ crisis…and the left’s crisis

September 15, 2011 at 10:48 pm (banks, capitalism, capitalist crisis, economics, Jim D, Marxism)

What follows is an article by the veteran Canadian Marxist Leo Panitch, arguing for a bolder response by the left to the financial crisis:

A common response of the left to the financial crisis that broke out in the USA in 2007-08 was often a kind of Michael Moore-type populist one: Why are you bailing the banks out? Let them go under.

This kind of response was, of course, utterly irresponsible, with no thought given to what would happen to the savings of workers, let alone to the paychecks deposited into their bank accounts, or even to the fact that what was at stake was the roofs over their heads.

On the other hand, the even more common response was all about asserting state responsibility: This crisis is the result of the government not having done its duty: governments are supposed to regulate capital, and they didn’t do so. But this response was in fact fundamentally misleading. The United States has the most regulated financial system in the world by far if you measure it in terms of the number of statutes on the books, the number of pages of administrative regulation, the amount of time and effort and staff that is engaged in the supervision of the financial system. But that system is organized in such a way as to facilitate the financialization of capitalism, not only in the U.S. itself, but in fact around the world. Without this, the globalization of capitalism in recent decades would not have been possible.

It was indicative of the left’s sorry lack of ambition in the crisis that its calls for salary limits on Wall Street executives and transaction taxes on the financial sector were far more common than demands for turning the banks into public utilities. It was, of all people, the mainstream LSE economist Willem Buiter (the former member of the Bank of England’s monetary policy committee, appointed in November 2009 by Citibank as its chief economist) who in his Financial Times blog on September 17, 2008 a few days after Lehman Brothers’ collapse endorsed the “long-standing argument that there is no real case for private ownership of deposit-taking banking institutions, because these cannot exist safely without a deposit guarantee and/or lender of last resort facilities, that are ultimately underwritten by the taxpayer.” And he went further: “The argument that financial intermediation cannot be entrusted to the private sector can now be extended to include the new, transactions-oriented, capital-markets-based forms of financial capitalism… From financialisation of the economy to the socialisation of finance. A small step for the lawyers, a huge step for mankind.”

CREDIT IN THE HANDS OF THE STATE?

This sounds a little bit, if you’ve ever read the Communist Manifesto, like the call that Marx made — among his list of ten reforms — for the centralization of credit in the hands of the state — which just goes to show that in a crisis you don’t have to be a Marxist to have radical ideas if you have any sort of ambition or self-confidence.

Most Marxists don’t have that ambition and self-confidence today. But you do have to be a Marxist to understand that this is not going to happen by bringing some lawyers into a room and signing a few documents. What Buiter was putting forward was the technocratic notion of how reform happens. But fundamental change can only really happen through a massive class struggle, which would involve a massive transformation of the state itself.

Even in terms of calls for better regulation, with a working-class that is not mobilized to put pressure on, you can’t expect this state to simply follow policy guidelines that come from technocrats, progressive liberals or social democrats. So we at least ought to be using our opportunity to do more than offer left technocratic advice to a policy machine; we ought to be trying to educate people on how capitalist finance really works, why it doesn’t for them and why what we need instead is a publicly owned banking system that is part of a system of democratic economic planning, in which what’s invested and where it’s invested and how it’s invested is democratically decided.

The sort of bank nationalizations undertaken in the wake of the fallout from the Lehman’s collapse — with the lead of Gordon Brown’s New Labour government in the UK being quickly followed by Bush’s Republican administration in the U.S. — essentially involved socializing the banks losses while guaranteeing that the nationalized banks would operate on a commercial basis at arm’s length from any government direction or control. All they asked was that these nationalized banks seek to maximize the taxpayers returns on their ‘investment.’ As sagely put in the 2010 Socialist Register essay on “Opportunity lost: mystification, elite politics and financial reform in the UK,” this really represented “not the nationalisation of the banks, but the privatisation of the Treasury as a new kind of fund manager.”

The most important reason for taking the banks into the public sector and turning them into a public utility is that you would remove thereby the institutional foundation of the most powerful section of the capitalist classes in this phase of capitalism. That’s the main reason for nationalizing the banks in terms of changing the balance of class forces in a fundamental way.

A second socialist reason for nationalizing the banks would be to transform the uses to which finance is put. Let’s take an example. Where I come from in Canada, the backbone of the southern Ontario economy, apart from banking, is the automobile industry.

With the layoffs that occurred and the plants that have been closed (this has been going on for three decades, but it was heightened during this crisis very severely) you are not just losing physical capital .You’re losing the skills of tool and die makers. A banking system that was turned into a public utility would be centrally involved in transforming the uses to which credit is put, so those skills could be put to building wind turbines, so they could be used to develop the kind of equipment we need to harness solar energy cheaply rather than expensively.

We cannot even begin to think seriously about solving the ecological crisis that coincides with this economic crisis without the left returning to an ambitious notion of economic planning. It’s inconceivable. It can’t be done.

We’ve run away from this for half a century because of command planning of the Stalinist type, with all of its horrific effects — its inefficiencies, but even more its authoritarianism. But we can’t avoid any longer coming back to the need for planning. The allocation of credit is at the core of economic planning for the conversion of industry. When we on the left call for capital controls, we can’t just think about that in the sense of capital controls that would limit how quickly capital moves in and out of the country.

We need capital controls because without them we can’t have the democratic control of investment. It’s not just capital controls at the border that matter; what matters all the more for socialists is control over capital to the end of directing, in a democratic fashion, what gets invested, where it gets invested, how it gets invested.

Read the full article, here.

H/t: Workers Liberty

Permalink Leave a Comment