Daniel Bensaïd: militant, intellectual, friend

François Sabado, in International Viewpoint

Daniel left us today, Tuesday the 12th of January 2010. Born in 1946 he gave his life to the cause of defending revolutionary Marxist ideas right to the end.

He was one of the founders of the Jeunesse Communiste Révolutionnaire (JCR - Revolutionary Communist Youth) and the Ligue Communiste Révolutionnaire (LCR - Revolutionary Communist League, French section of the Fourth International)

A leader of the May 68 movement, he was one of those people with a very sure feeling for political initiative. He had been one of the leaders of the 22nd March Movement. Grasping the dynamic of social movements, in particular the link between the student movement and workers’ general strike, he was also one of those who understood the necessity of building a political organisation, of accumulating the forces for building a revolutionary party.

The quality of Daniel’s intelligence was to combine theory and practice, intuition and political understanding, ideas and organisation. He could, at the same time, lead a stewarding force and write a theoretical text.

He was one of those who inspired a fight which combined principles and political boundaries with openness and a rejection of sectarianism. Daniel, his own political convictions deeply rooted in him, was always the first to want to discuss, to try to convince, to exchange opinions, and to renew his own thinking.

As a member of the daily leadership of the LCR from the end of the 1960s to the beginning of the 1990s, he played a decisive role in building a project, an orientation which combined daily activity with a revolutionary outlook. A good part of his theoretical and political work was focused on questions of strategy, and the lessons of the main historical revolutionary experiences.

Daniel was profoundly internationalist. He played a key role in the building of the LCR in the Spanish state in the Franco period. In those years he played a major role within the Fourth International, in particular following closely developments in Latin America and Brazil. He contributed largely to renewing our vision of the world and to preparing us for the upheavals of the end of the 1980s.

Revolutionary election campaign 1969: Daniel Bensaid, Alain Krivine, Henri Weber

From the 1990s until the end, while continuing his political fight he concentrated on theoretical work: the history of political ideas; Marx’s Capital; the balance sheet of the twentieth century and its revolutions, first of all the Russian revolution; ecology; feminism; identities and the Jewish question; developing new policies for the revolutionary left faced with capitalist globalisation. He regularly attended and followed the Social Forum and the global justice movement.

Daniel ensured the historical continuity of open, non-dogmatic, revolutionary Marxism and adaptation to the changes of the new era, with the perspective of revolutionary transformation of society always in his sights.

Although seriously ill he overcame it for years, thinking, writing, working on his ideas, never refusing to travel, to speak at rallies or attend simple meetings. Daniel set himself the task of checking the solidity of our foundations and passing them on to the young generation. He put his heart and all his strength into it. His contributions, at the International Institute in Amsterdam, in the summer universities of the LCR and then of the NPA, at the Fourth International youth camp, made an impact on thousands of comrades. Transmitting the experience of the LCR to the NPA, Daniel decided to accompany the foundation of our new organisation with a relaunch of the review Contretemps and forming the “Louise Michel” society as a place for discussion and reflection of radical thought.

Daniel was all that. And in addition he was warm and convivial. He loved life.

Although many “68ers” turned their coats and abandoned the ideals of their youth, Daniel abandoned none of them; he didn’t change. He is still with us.

Translated by Penelope Duggan

François Sabado is a member of the Executive Bureau of the Fourth International and an activist in the New Anticapitalist Party (NPA) in France. He was a long-time member of the National Leadership of the Revolutionary Communist League (LCR).

David Harvey: The Crisis Now

The ever-engrossing David Harvey, speaking at the UK SWP's 2009 Marxism conference in July, addressing the current status of the global economic crisis.



David Harvey also teaches a course on Marx's Capital, the video and audio of which are online at his website.

Capitalism or Socialism? - A forum with Michael A. Lebowitz

2pm Wednesday April 8 @ the Holme Common Room, Upstairs in the Holme Building. This meeting will be presented by Resistance (phone Simon 0421 231 011 for more info).

As the world economy spirals down into its deepest crisis since the great depression, the ideas of Karl Marx have never been so relevant. Michael A. Lebowitz is one of the world's most renowned Marxist economists. He is Professor Emeritus of Economics at Simon Fraser University, Canada, where he taught Marxian economics and Comparative Economic Systems.

Lebowitz has intimate knowledge of Venezuela's revolution: he is on the board of directors of the socialist government's think tank, Centro Internacional Miranda, in Caracas, where he directs a program on "Transformative Practice and Human Development". His writings have been widely published and distributed by the Venezuelan government.

A central theme of Lebowitz's work has been on Marx, methodology and crisis theory. He has also written extensively on the theory of a socialist economy, a topic attracting increasingly wide interest in the context of capitalism's current global crisis. He is the author of Beyond Capital: Marx's Political Economy of the Working Class (2003), which won the 2004 Isaac and Tamara Deutscher Memorial Prize for the best and most innovative writing in the Marxist tradition. His other works include Build it Now: Socialism for the 21st Century (2006), El Socialismo no Cae del Cielo and El Camino al Desarrollo Humano, both widely distributed in Venezuela. His Following Marx: Method, Critique and Crisis will be published by Brill Academic Press in 2009.

Michael Lebowitz will also be speaking at the World at a Crossroads conference. Sessions include "Capitalism's Crises and the Solutions" Friday April 10, 9.30am and "The Spectre of 21st Century Socialism" Saturday, April 11, 9.30am. For more information go to www.WorldAtACrossroads.org

Exhibit A: The Arrogance of the Neoclassical Economists

David Harvey
February 15, 2009
http://davidharvey.org

A response to DeLong.

The real mystery here is the arrogance of the economists in the face of a catastrophic situation. I would have thought that in a profession dominated by neoclassical and increasingly neoliberal theory these last thirty years, that there might have appeared at least some sliver of humility. They have collectively provided us with no guidance on how to avoid the current mess and now, when faced with a crisis, they can only say, as Marx long ago presciently noted, that things would not be so if the economy only performed according to their textbooks. Maybe it is time to revise if not change the textbooks.

The charge that I have neither read nor understood DeLong’s canonical writings is the usual technocratic hubris deployed by economists when they have nothing to say. I might as well reply that DeLong has neither read nor understood his Marx (I have a remedial course on line) and in any case I don’t see why I should go back to Friedman rather than to Galbraith, Hicks rather than Joan Robinson and why it is that he presumes that Dobb, Sweezy, Glyn, Itoh and Morishima have nothing to say of relevance to our current difficulties because neoclassical economics is a God-given truth beyond contestation?

I did once upon a time make the mistake of studying Sraffa somewhat carefully. His sophisticated mathematical proof (as yet never refuted, in spite of the best efforts of people like Peter Newman) that all of neoclassical theory is based on a tautology I found all too persuasive. Why bother with a theory that proves what it assumes to be true? At the heart of the controversy lies the question of how to value capital assets independently of market prices and since our contemporary difficulties rest on the problem of how to value paper claims to capital assets held by banks in the absence of a market, I would have thought some re-visitation of the so-called “capital controversy” of the 1970s is in order. At the time I concluded (possibly erroneously) that Joan Robinson had the better of the argument against Samuelson but that the Cambridge (Mass) neoclassicals then merely decided to ignore the problem and go on with their theorizing as if nothing had happened. But now look at the mess!

Of course, when theory is not invoked then a bit of casual empiricism about the current low and seemingly stable rate of return on long-term treasuries is thrown into the hopper as proof of my economic ignorance. I did tacitly address the problem of what happens down the road if the Chinese and other Asian countries turn inwards and find better things to do with their money than lend to the United States. A run on the dollar would indeed imply some of the dire consequences that DeLong outlines and the question then arises as to the likelihood of that.

The United States has the power of seigneurage over the world’s reserve currency and is using that power up to the hilt right now and the rest of the world has little choice except to go along. The last time the US did this in the late 1960s, to fund a war and to deal with domestic unrest, this led to collapse of the Bretton Woods system and the grand stagflation of the 1970s. I am not saying this history will be repeated but I do want to emphasize that short-run moves have longer-term consequences (well before that long term in which “we are all dead” as Keynes famously remarked).

What I was concerned about, a topic which DeLong totally ignores, is the likely uneven geographical impacts and responses to the crisis conditions and the degree to which this accelerates the scenario depicted in the NIC report. The export oriented development model that has dominated in East Asia is in deep trouble. Exports are falling dramatically and unemployment rates are soaring in South Korea, Taiwan, Indonesia and China and the likelihood of massive movements of class struggle (a category that neoclassicals will have nothing to do with but which has been demonstrably and empirically of huge historical importance even in the United States) is very much on the cards. Maoist movements are rife in India, the unrest throughout Latin America is promoting all manner of political adjustments and reports of widespread unrest in China are proliferating.

If the Chinese and other East Asian powers find themselves forced to abandon the Export-Industrialization model (which is now failing catastrophically) and to go to something like an Import-Substitution strategy (which was by no means as unsuccessful as it is usually depicted when practiced in the 1960s in Latin America) and a development of their internal markets (almost certainly coupled with internal repression of dissidence), then they will not have the money to lend to the US. The track of long-term treasury interest rates may go the way of the housing market data in just a couple of years (if not months).

My main point about the current US stimulus package is that it is too small to do the job (I am surely not alone in saying that) and that it is poorly targeted towards tax cuts rather than real stimuli for political and ideological reasons. The distinction between white elephants and real stimuli is also important and unless coupled with a real strategy (e.g. a radical transformation in urbanization patterns and ways of life) the stimuli will merely cover deferred maintenance on infrastructures rather than point to anything new. The result is a policy blockage that prevents the US from taking advantage of what may be a brief window of continued financial hegemony to bring its own economy around. I am not the only one to say our situation is all too reminiscent of Japan in the 1990s. But in our case we cannot afford a lost decade precisely because the rest of the world is bound to adjust rapidly in ways that are unlikely to be advantageous to the United States. An internal Keynesian project is far more feasible in China but this then entails a radical re-orientation of the Chinese economy towards the rest of the world.

To this must be added that a turn to protectionism is politically very much on the cards. Even some economists now recognize that the Ricardian doctrine of comparative advantage does not work and that gains from free trade are inevitably asymmetrical. Theoretically and politically the attempt of states to protect themselves at the expense of others becomes more likely. The break up of global capitalism into competing and warring factions is entirely possible and while the horrible history of the 1930s won’t necessarily be repeated either, we should at least be cognizant of the dangers. I may not be an expert neoclassical economist but I am a first rate student of geopolitics and geoeconomics, fields of study totally foreign, apparently to DeLong.

These are dangerous times and I would have thought the definition of fair and unbiased to which DeLong subscribes might go somewhat further than that given by Bill O’Reilly. What is needed is generous critique, the taking of whatever is positive in competing accounts and a real struggle to come to terms with ways we might better proceed. It will be hard enough to save capitalism from the capitalists but the real tragedy here is that the real message from DeLong’s commentary is that we need also to save capitalism from the economists.

The Credit Crunch: A Prelude to Capitalism’s Second Great Depression?

From the latest Frontline - an independent Marxist review from Scotland.

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With the collapse of banks and entire countries facing bankruptcy Raphie de Santos looks at just how bad the prospects are for capitalism.

There is no doubt about it. Capitalism is teetering on the edge of its second great depression. While a recession is defined as two successive quarters of negative growth in an economy – set by economists as all the goods and services that are produced domestically or the gross domestic product (GDP) - there is no formal definition for a depression. Here we will define a depression as a prolonged recession lasting more than two years of successive quarters of negative growth and resulting in a 10% shrinkage in GDP. How did capitalism get to the edge of the precipice? In this article we try answer that question.

First, we will shows that at the root of this crisis for the world’s economy and global finance lay a series of economic and financial policies that were used to deal with capitalism’s last great economic slump: the 1974/1975 recession. We will identify what lay behind this crisis and what policies were put forward by capitalism to solve it. We will show that these policies were later extended, modified and added to by mainly the governments’ of Clinton, Bush, Blair and Brown to pull capitalism out of a speculative bubble. We will show that the world’s central banks implemented monetary policies without understanding the complexity of the financial system and products that they had helped create and the impact of their policy changes on them

Next we will try to explain the dynamics of the current crisis. How it has interacted with the real economy and the global financial system and has created a beast that is eating up the capital of global finance. These losses are so great that the whole global financial system is frozen and is on the verge of bankruptcy.

Following this, we will look at the strategies that governments have come up with to fight the crisis. Many governments and commentators are reviving the memory of Keynesian economics with their crisis fighting policies. We will show how these policies did not work, contrary to popular myth, in the first place, what actually solved the first great depression and how Keynesian solutions are even more unlikely to succeed this time round given the dynamics of this financial crisis.

We will then examine the Marxist theories of economic crisis and see if they can explain the current crisis or if some new theory or modification of an existing theory is required to do so.

Next we will chart how capitalism is likely to evolve from this crisis and what solutions it will try to inflict on the working class and poor of the world to save itself. We will ask if there may be a further rise in fascism as a means to this end.

Finally we look at how the effects of the crisis will make the workers and poor of the world will fight back against capitalism’s offensive and how socialists could organise to help transform this great crisis of capitalism into an opportunity to create a new society based on cooperation, that is democratically run and sets out to meet the needs of people and not the needs of capital.

At The Root of This Crisis
At the root of this crisis lies:

• a bubble in housing prices;
• a liberal lending regime to everyone from the poorest in the rich north to whole countries;
• the deregulation of the financial system;
• the breaking down of the demarcation lines in finance and banking;
• the creation of new complex financial instruments that can multiply the exposure to the assets they are based on;
• independent carefree interest rate policies.

These factors evolved from solutions to the 1974/75 economic slump. This slump marked the first synchronised economic recession since the end of the second world war. The recession came about as profit rates started to decline due to more and more human labour (mental and manual) was replaced by automation. In addition there was an over accumulation of capitalist profits that could not be profitability invested. This led to a massive over production of goods and services which could not be sold.

Capitalism tried to solve the problem of declining profits by weakening the organisations of the working class, increasing productivity and moving its production base to South East Asia where the rate of exploitation was greater. The problem of the over accumulation of capital was to create new avenues for it. Some of this was done through the privatisation of state industries and housing. The deregulation of financial markets and institution allowed some of this excess capital to be invested in financial speculation. Finally, to solve the crisis of producing too many goods capitalism created an easy market for credit on the back of private home ownership and the deregulation of financial markets and institutions.

The governments of Clinton, Bush, Blair and Brown further extended these neo-liberal policies. Their central bankers made a major error at the turn of the millennium when they cut their central bank lending rates dramatically – US rates fell to 1% and UK rates fell to 3.5%,. They did this as the so called dot com bubble burst and the US economy went into recession. This created a major housing bubble and because of the liberal deregulated financial markets and institutions, a wave of credit related products were created on the back of these very low interest rates which helped feed back into the housing bubble.

The Dynamics of the Crisis
Having created a giant housing and credit bubble and a raft of products and strategies that sought to take advantage of the very low interest rate environment central bankers on both sides of the Atlantic then unknowingly burst it rapidly. Worried about growing inflation , the by product of so much credit and increased demand from China, and the housing bubble, central bankers started to raise interest rates in 2006/2007. They had no idea of the vast network of products that were linked to the US house market or the depth of poor peoples’ borrowings – the so called sub-prime market. Up to 20% of US lending is sub-prime and an incredible 60% of US mortgages are in some form of derivative security. These were repackaged around the world and sold to all sorts of banks, financial institutions and pension’s funds. The US central bankers did not realise how sensitive the sub-prime lenders were to rises in interest rates. These lenders soon started to default on payments and this helped, as well as the increase in interest rates, to bringing about a fall in house prices. Products based on these sub-prime mortgages fell in value and financial institutions who bought them started to have financial problems and suffered huge losses – Bear Sterns being a good example. Those other institutions that had borrowed short-term in the money markets and lent this money long term – Northern Rock and HBOS are good examples of this – ran into trouble as the cost of short-term borrowing rose. Nobody would lend to them either as they feared they may go bankrupt as a result of this failed business model.

The dynamic of a falling housing market has continued and now has gone beyond sub-prime loans to prime and even super-prime loans as these borrowers face the same problems as the very poorest borrowers did. The US housing market was worth over $12 trillion at its peak and 60% of this as we mentioned has been repacked as some form of derivative and sold round the world. Other types of loans such as credit cards and car loans have been repackaged this way and in other countries as well as the US most notably the UK. These are the toxic assets that have been talked about and they are becoming even more toxic.

The banks were first afraid to lend to other banks and financial institutions because these borrowers may be potential defaulters and go bankrupt. Now the lending banks are suffering such losses on these repackaged loans and something called credit default swaps (CDS) that they need their money to cover day to day losses and quarterly write downs of mortgage and loan based products.

This has caused a complete freezing of the credit markets to everyone form the individual right through to small businesses to large corporations and governments and countries. This drying up of credit has pushed the world into an economic recession as consumer demand dries up and capitalism is unable to function because it cannot service its day to day running without credit. Of course the recession feeds into lower house prices and this feeds into more bank losses and more tightening of credit and a deeper recession and so on.

On a recession companies go bankrupt and here is a further problem for the banks. They have sold insurance against companies going bankrupt called CDSs. The value of this insurance has risen in value and hit the daily cash reserves of the banks and now as companies start to go bankrupt then the banks have to make a full payout to those who have bough the insurance on the bankrupt company. Recent examples have been Lehmans and an Icelandic bank. Up to $60 trillion of CDS insurance has been sold and the losses to the global banking system could be in the region of $10 trillion if we have a long severe recession as seems likely. This of course further freezes up credit which deepens and prolongs the recession which leads to more bankruptcies which feeds into more bank losses and so on! It is literally a spiralling dynamic that will be very difficult to stop.

The interacting dynamic of recession, falling house prices and corporate bankruptcies is taking us to the edge of a great depression. It is a dynamic that governments don’t fully understand and will be sucked into with disastrous consequences.

Solutions to The Crisis
Governments and central banks, particularly outside the US, have been kept on the hop in trying to deal with the crisis. They have moved from one fire to another mainly throwing money at the banking and financial system as they tried to stop financial institutions going bankrupt or the hemorrhaging of their capital and cash.

Governments have literally thrown trillions of tax payers dollars putting these fires out – it was revealed that the US Federal Reserve (FED) have spent over $US2 trillion over the last few months under existing legislation onto top of the $US700 billion recently announced rescue plan.

Because of the dynamic of the financial system losses the FED have abandoned buying the toxic mortgage backed securities as they had spent so much on keeping financial companies from going under. They understand that they will need more money in the near future as the recession deepens and the financial system losses spiral further out of control. There in lies the seeds of another problem. Just as governments want to spend money on capital projects and giving tax cuts to try and boost demand they will have very little money left to do this as they spend so much money on the bailouts.

These bailout which lead to a huge borrowing requirements which will be difficult to meet because nobody wants to hold the assets of a weak economy as that country’s currency will also be weak. Recently the German government failed to sell all its issue of government bonds and Germany is perceived to have the best quality of state debt. Too much debt financing by governments issuing bonds will also lead to high long-term interest rates which will push up short term interest rates as well. There is the possibility that governments could go bankrupt themselves and have to be bailed out by the International Monetary Fund – global capitalism’s central bank. Of course lending of the scale needed to bring the world out of recession also fuels inflation.

The other Keynesian policies of cutting interest rates and giving tax rebates can limit the depth, length and onset of a recession but not avoid one. This is what happened this time round in the US and their policies delayed the recession starting by three months. The rest of the world was slow to follow such policies and using tax rebates and cutting interest rates will now lead to individuals hoarding money for those unexpected bills or as insurance against losing their income in the future or the future tax increases to pay for it all in the first place!.

All these policies do not deal with the two fundamental requirements for a recovery in the global economy: capitalists to invest in fresh new projects and individuals to increase their spending, leading to a need to increase the production of goods and services.

In the 1930s it was massive arms expenditure, which in itself is inflationary, and a second world war which destroyed huge amounts of capital, that created the conditions for the recovery of capitalism after 1945.

Marxists Theories of the Crisis
These broadly fall in to two camps. One camp thinks that too much profit is being produced and accumulated and this means finding fresh avenues of investment. However too many goods and services are produced and these end up being unsold leading to a crisis of an over-production of goods. The other camp believes that as workers are more and more exploited by increases in productivity that their real wages decrease and as a consequence their demand for goods and services falls. Capitalism has to do this because their rate of profit is declining as more and more of the human labour in the production process – physical and mental – is being replaced by automation. This tends to happen as capitalism’s boom cycle approaches its peak.

Accompanied by every boom particularly as the peak is being approached is speculation in credit and credit based investments. This has happened with every cycle. In this crisis governments and central banks laid the basis for a massive bubble in credit and speculation which was able to be leveraged several times by the use of complex financial instruments called derivatives. As the name suggests they are not actual physical assets but are derived from the performance of a physical assets or in some cases economic measures which only have a mathematical reality – such as inflation or interest rates.

Capitalism needed new avenues to put it’s over accumulating capital and financial speculation was one of them. It also kept demand up as a real wages fell by giving everyone from the poorest in society to the affluent middle classes unlimited access to credit.

Ultimately, it was the drying up of credit which led to a huge decrease in demand that is fuelling this slump and recession. As Marx emphasised on several occasions in Capital ‘the ultimate reason for all real crises always remain the poverty and restricted consumption of the masses, as opposed to the drive of capitalist production to develop the productive forces as though the absolute consuming power of society constituted their limit’.

But it is the complete paralysis of the financial system with its exposure to recession multiplied several times by the use of derivatives that could take the world into its second great depression. This financial crisis is unprecedented either in scope, depth and complexity in capitalism’s history.

A New State Capitalism
There is a debate emerging between the left and right wings of capitalism. The right want to let private companies go the wall and have some bank bailouts but under bankers control to keep the financial system afloat. This right wing view is represented by the Republican administration in the US and the German Christian democratic government in Germany and Cameron’s Tories. The left view is a move to state control of the financial system, tighter financial regulations and the taking over of troubled major private enterprises such as General Motors in the US. This wing of capitalism is represented by the Democratic Party in the US and Brown government in the UK. Salmond’s SNP is somewhere between theses two camps.

China is likely to emerge as a stronger capitalist power as although its economy is slowing rapidly and it may go into a light recession it has less exposure to credit or to house bubble related assets. It is keen to attract international investors and private equity firms and corporate financiers may pile their money into China. They see it as the best bet of a recovery amongst the capitalist economies after they have suffered heavy losses, and the banks that lent them the money, on their projects in the mature economies of the north.

We are unlikely to see an emergence of fascism as a capitalist tool as happened in the 1930s when it was used to break a highly organised and politically conscious working class. This has already happened with the big defeats of the working class in the northern hemisphere in the early 1980s. Capitalism too has moved its production base to Asia and other emerging countries where it has much higher rates of exploitation and a more compliant work force.

There will be many struggles world wide against capitalisms onslaught to restore profitability and save itself. Many of the struggles against factory closures, redundancies and increased productivity will be led by the emerging working class in Asia. In the rich north there will be resistance as well and the opportunity will arise to build a new combative working class rank and file current as the ineffectiveness of the unions and their leaders becomes evident to the broad mass of the population.

Socialists have the opportunity to help build such an alternative current in and outside the workers movement as well as engage in the defence of public services which will come under attack as governments’ finances become stretched with the bank and industry bailouts.

We can help generalise these struggles and question the legitimacy of capitalism, its solutions of common ownership under capitalist control. We can counter pose our vision of a society under common ownership and under common control for the common good. A rationally planned society which is democratically decided upon and meets the needs of people and not the needs of profit and can end world hunger and stop the destruction of our fragile planet.

These are exciting times indeed.

Raphie de Santos is a member of the SSP and a supporter of the Fourth International. He was the former head of Equity Derivatives Research and Strategy at Goldman Sachs International and an adviser on financial markets and derivatives to the Bank of England, London Stock Exchange, The London International Financial Futures and Options Markets and the Italian Ministry of Finance. He now works as an analyst in fund management.

Frontline. An independent Marxist review from Scotland.

Eight theses on the capitalist crisis

Via The Bullet (Socialist Project, Canada)

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From Global Finance to the Nationalization of the Banks: Eight Theses on the Economic Crisis

by Leo Panitch and Sam Gindin.

1. The current economic crisis has to be understood in terms of the historical dynamics and contradictions of capitalist finance in the second half of the 20th century. Even though the spheres of capitalist finance and production are obviously intertwined (in significant ways today more than ever before), the origins of today’s US-based financial crisis are not rooted in a profitability crisis in the sphere of production, as was the case with the crisis of the 1970s, nor in the global trade imbalances that have emerged since. Although the growing significance of finance in themajor capitalist economies was already strongly registered by the 1960s, it was the role finance played in resolving the economic crisis of the 1970s that explains the central place it came to occupy in the making of global capitalism.

The inflation that was the main symptom of that crisis had a strong negative impact on those holding financial assets and destabilized the international role of the dollar. Under the guidance of the US Federal Reserve, financial markets used very high interest rates to drive up unemployment, defeat trade union militancy and restrict public welfare expenditures in the early 1980s - all of which had come to be seen as the source of the intractable profitability and inflation problems of the previous decade. Yet it was precisely the contradictory ways finance contributed to global capitalism’s successes in the closing decades of the 20th century that laid the foundation for the massive capitalist crisis that now closes the first decade of the 21st century.

2. The spatial expansion and social deepening of capitalism in the last quarter century could not have occurred without innovations in finance.

The development of securitized financial markets and the internationalization of American finance allowed for the hedging and spreading of the risks associated with the global integration of investment, production and trade.

This provided risk insurance in a complex global economy without which capital accumulation would otherwise have been significantly restricted. At the same time, finance penetrated more and more deeply into society, integrating subordinate classes as debtors, savers, and even investors through private pensions, consumer credit and mortgages for private housing. This became especially important in facilitating the maintenance of consumer demand in a period of wage stagnation and growing inequality. In terms of directly fostering capital accumulation, finance was not only an important site of technological innovation in computerization and information systems, but also facilitated innovation more generally in high tech sectors through venture capital, especially in the US. The central role of the US dollar and Treasury bonds in the global economy as the key store of value and the basis for all other calculations of value, alongside the global institutional predominance of US financial institutions, acted as a vortex for drawing the global surplus to American financial markets and instruments.

This allowed for the mobilization of cheap global credit for the US economy, and sustained its place as the major import and consumer market in the global economy. The lowering of US interest rates was important to the macroeconomic stability reflected in the fewer and milder recessions within the US in comparison with the post-war era (‘The Great Moderation,’ as economists refer to the 1983-2007 period).

3. The competitive volatility of global finance produced a series of financial crises whose containment required repeated state intervention. Global financial competition for higher yields led to institutional and market innovations that allowed greater leveraging and therefore more credit relative to the capital base. This in fact amounted to a vast increase in the effective money supply, but rather than yielding the price inflation that monetarists predicted, the defeat of labour and the increased corporate ability to fund investments with internal funds meant that increased liquidity translated into asset inflation.

This asset inflation was uneven across sectors, producing financial bubbles from stock markets to real estate at various times, while the size of these bubbles was expanded by virtue of the material expansions in the real economy related to each of these areas.

The bursting of these bubbles became a common feature of capitalism and the state interventions required to contain them reinforced the confidence that supported future bubbles.

The alleged withdrawal of states from markets amidst the globalization of capitalism was a neoliberal ideological illusion: states in the developed capitalist countries pumped more liquidity into the banks in the face of financial crises, while they ensuring that crises in the developing countries were generally used to impose financial discipline. The neoliberal American state played the most active role as the imperial guarantor, coordinator and fire-fighter-in-chief for global capitalism.

4. Both finance’s central role in the making of global capitalism and the American state’s role in sustaining it produced the bubble that emerged inside the US housing sector. Rising demand for home ownership at all income levels, partly reflecting limits on public housing since the crisis of the 1970s, was encouraged by US government support for meeting housing needs through financial markets backed by mortgage tax deductions.

And, reflecting the increasingly unequal income distribution that was the consequence of the defeat of labour generally and the restructuring of production and employment, a broad stratum of the working class population also sustained their consumption through taking out second mortgages on the bubble-inflated values of their home.

But all this was really only made possible by the acceleration of financial securitization and the creation of a broader market for mortgage-backed securities in particular. This developed amidst rising house prices that apparently increased the wealth and credit-worthiness of those borrowing, and gave rise to the acceptance of lower standards (including for ‘teaser’ subprime mortgage rates) by regulatory agencies, largely supported by both parties in Congress.

The Federal Reserve’s low interest rate policies, especially in the wake of the bursting of the dot-com bubble, reinforced by the high demand for US Treasury securities as the safest store of value in a highly volatile global financial system, intensified competitive pressures on finance everywhere to get higher yields through greater leveraging of assets and innovative securitization to stretch the boundaries of risk. The historical safety of collateralized home loans (with such a large portion having been backed by the US government) reinforced the confidence in perpetually rising home prices and made housing debt the most attractive arena for the systemic exercise of arbitrage between low-interest US Treasury bonds and high-interest mortgage-backed securities.

5. The inevitable bursting of the housing bubble had such a profound impact because of its centrality to sustaining both US consumer demand and global financial markets. The eventual bursting of the housing bubble was inevitable once, as was the case by 2005, housing prices peaked. By this time, not only had the Fed’s low interest rate policy come to an end, but teaser rates on many subprimes had run out. The rise in foreclosures and the number of houses offered for resale had immediate effects on housing prices, new home construction and furniture and appliance sales.

Moreover, by virtue of the loss in value of the primary asset figuring in workers’ perceptions of their personal wealth, this in turn led to an overall decline in US consumer spending and import demand in a way that the bursting of stock market bubbles had not. At the same time, since the spreading of risk in subprime mortgages had been effected through their packaging into derivative securities with more highly-rated tranches of debts, the housing crisis undermined the econometric equations that valued these assets in global financial markets. Mortgage-backed securities became difficult to value and to sell, and this produced a contagion throughout financial and inter-bank markets that spread the collapse internationally.

Taken together with the impact of the housing crisis on mass consumption behaviour, and thus on the US economy’s ability to function as the key global consumer, illusions that other regions might be able decouple from the US in this crisis were quickly dispelled.

6. The crisis reinforced the centrality of the American state in the global capitalist economy while multiplying the difficulties entailed in managing it.

The rise of the US dollar in currency markets and the enormous demand for US Treasury bonds as the crisis unfolded reflected the extent to which the world remained on the dollar standard and the American state continued to be regarded as the ultimate guarantor of value. Treasury bonds are in demand because they remain the most stable store of value in a highly volatile capitalist world: illusions that foreign states were previously doing the US a favour by buying Treasury securities may finally be dispelled by this crisis.

The American state’s central role in terms of global crisis management - from currency swaps to provide other states with much needed dollars to overseeing policy cooperation among central banks and finance ministries - has also been confirmed in this crisis. Yet despite its very active interventions, the American state has proved unable to contain the effects of this particular crisis. The massive drops of liquidity that it has helicoptered onto the financial system since August 2007 have not restored the banks’ capacity or willingness to lend at anything like previous rates - even to each other, let alone to firms or to consumers. The whole system of securitized finance that has grown up over the past few decades - whereby the risk on mortgages, consumer credit and business loans is sliced, diced, repackaged and traded around the world - has imploded.

7. The scale of the crisis today is such that nationalization of the financial system cannot be kept off the political agenda.

It is increasingly apparent, that monetary and fiscal stimulation alone are unlikely to succeed in ending the crisis since the banking system’s dysfunctionality today undermines the multiplier effect, just as new regulations are supposed to make finance more cautious and prudent in their lending. Indeed, there has been an increasing realization that it may not be possible to keep off the political agenda much longer the issue of bringing large portions of the financial system into public ownership.

This is advanced today along the lines of the temporary nationalizations that took place in Sweden and Japan during their financial crises in the 1990s whereby the state took on the banks’ bad debts and then passed the banks back to the private sector. It is a measure of the severity of the crisis that nationalization is now being quite generally proposed even within the US although it poses a host of problems as a way of saving global capitalism. It is highly significant that the last time the nationalization of the banks was seriously raised, at least in the advanced capitalist countries, was in response to the 1970s crisis by those elements on the left who recognized that the only way to overcome the contradictions of the Keynesian welfare state in a positive manner was to take the financial system into public control. Now that bank nationalization is back on the political agenda (albeit now coming from very different sources), it is very important to contrast the type of band-aid nationalization now being canvassed with the demand for turning the whole banking system into a public utility, which would allow for the distribution of credit and capital to be undertaken in conformity with democratically established criteria. And it is necessary to point out that this would have to involve not only capital controls in relation to international finance but also controls over domestic investment, since the point of making finance into a public utility is to transform the uses to which it is now put.

8. The call for nationalization of the banks provides an opening for advancing broader strategies that begin to take up the need for systemic alternatives to capitalism.

The severity of today’s economic crisis once again exposes the old irrationality of the basic logic of capitalist markets. As each firm (and indeed state agency) lays off workers and tries to pay less to those kept on, this has the effect of further undercutting overall demand in the economy.

At the same time, the financial crisis exposes new irrationalities, not least those contained in the widespread proposals for trading in carbon credits as a solution to the climate crisis, which involve depending on volatile derivatives markets that are inherently open to the manipulation of accounts and to credit crashes.

In the context of such readily visible irrationalities, a strong case can be made that - to save jobs and the communities that depend on them in a way that converts production to ecologically-sustainable priorities during the course of this crisis - we need to break with the logics of capitalist markets rather than use state institutions to reinforce them.

We need to put on the public agenda the need to change our economic and political institutions so as to allow for democratic planning to collectively decide how and where we produce what we need to sustain our lives and our relationship to our environment.

However deep the crisis, however confused and demoralized are capitalist elites both inside and outside the state, and however widespread the popular outrage against them, making this case will certainly require hard and committed work by a great many activists, many of whom will see the need for building new movements and parties to this end. This is what is really needed if this crisis is not to go to waste. •

Leo Panitch is Canada Research Chair in Comparative Political Economy at York University.

His most recent books are American Empire and the Political Economy of International Finance and Renewing Socialism: Transforming Democracy, Strategy and Imagination.

Sam Gindin, formerly Chief Economist and Assistant to the President of the Canadian Autoworkers Union, holds the Packer Professorship in Social Justice at York University.

He is the author of The Canadian Auto Workers: The Birth and Transformation of a Union and (with Panitch) Global Capitalism and American Empire.

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A Financial Katrina - Remarks by David Harvey

If you're not in Greece, and need something to do this Christmas, you could do worse than check out David Harvey's website, which now includes his entire series of lessons on Volume One of Marx's Capital, both as video and downloadable audio.

As well as that great resource, he has also been putting up the audio from a number of his talks on the financial crisis, the latest of which can be found below.

[Of course, if you ARE in Greece, and are reading this instead of making new Molotov cocktails, you should be ashamed of yourself. Really...]
*******************************************************

A Financial Katrina
Remarks by Professor David Harvey
From “The Disruption: Left Interpretations of the Financial Crisis” Panel Discussion
Organized by the Center for Place, Culture and Politics, the Center for Humanities and the Brecht Forum
City University of New York Graduate Center
October 29, 2008
26 minutes 33 seconds

Listen now:

Or download MP3 file (24.4 MB)

(To download on a PC right-click on the above file and click ‘Save as’ or ‘Download to’. On a Mac Control-click instead of right-click.)

Slides:

• Slide 1
• Slide 2
• Slide 3
• Slide 4
• Slide 5
• Slide 6

(Slides 1-5 referenced beginning at 6 minutes 30 seconds. Slide 6 referenced at 10 minutes 10 seconds.)

John Bellamy Foster: The great financial crisis: causes and consequences

A public lecture given on November 3, 2008 by John Bellamy Foster, editor of Monthly Review and co-author (with Fred Magdoff) of The Great Financial Crisis: Causes and Consequences, which is due to be published by Monthly Review Press in January 2009. See also ``Financial implosion and stagnation: Back to the real economy'' , by John Bellamy Foster and Fred Magdoff (the first part of which is reproduced after the video).



Financial Implosion and Stagnation
Back To The Real Economy
John Bellamy Foster and Fred Magdoff
Monthly Review, December 2008

But, you may ask, won’t the powers that be step into the breach again and abort the crisis before it gets a chance to run its course? Yes, certainly. That, by now, is standard operating procedure, and it cannot be excluded that it will succeed in the same ambiguous sense that it did after the 1987 stock market crash. If so, we will have the whole process to go through again on a more elevated and more precarious level. But sooner or later, next time or further down the road, it will not succeed… We will then be in a new situation as unprecedented as the conditions from which it will have emerged.
—Harry Magdoff and Paul Sweezy (1988) 1

“The first rule of central banking,” economist James K. Galbraith wrote recently, is that “when the ship starts to sink, central bankers must bail like hell.”2 In response to a financial crisis of a magnitude not seen since the Great Depression, the Federal Reserve and other central banks, backed by their treasury departments, have been “bailing like hell” for more than a year. Beginning in July 2007 when the collapse of two Bear Stearns hedge funds that had speculated heavily in mortgage-backed securities signaled the onset of a major credit crunch, the Federal Reserve Board and the U.S. Treasury Department have pulled out all the stops as finance has imploded. They have flooded the financial sector with hundreds of billions of dollars and have promised to pour in trillions more if necessary—operating on a scale and with an array of tools that is unprecedented.

In an act of high drama, Federal Reserve Board Chairman Ben Bernanke and Secretary of the Treasury Henry Paulson appeared before Congress on the evening of September 18, 2008, during which the stunned lawmakers were told, in the words of Senator Christopher Dodd, “that we’re literally days away from a complete meltdown of our financial system, with all the implications here at home and globally.” This was immediately followed by Paulson’s presentation of an emergency plan for a $700 billion bailout of the financial structure, in which government funds would be used to buy up virtually worthless mortgage-backed securities (referred to as “toxic waste”) held by financial institutions. 3

The outburst of grassroots anger and dissent, following the Treasury secretary’s proposal, led to an unexpected revolt in the U.S. House of Representatives, which voted down the bailout plan. Nevertheless, within a few days Paulson’s original plan (with some additions intended to provide political cover for representatives changing their votes) made its way through Congress. However, once the bailout plan passed financial panic spread globally with stocks plummeting in every part of the world—as traders grasped the seriousness of the crisis. The Federal Reserve responded by literally deluging the economy with money, issuing a statement that it was ready to be the buyer of last resort for the entire commercial paper market (short-term debt issued by corporations), potentially to the tune of $1.3 trillion.

Yet, despite the attempt to pour money into the system to effect the resumption of the most basic operations of credit, the economy found itself in liquidity trap territory, resulting in a hoarding of cash and a cessation of inter-bank loans as too risky for the banks compared to just holding money. A liquidity trap threatens when nominal interest rates fall close to zero. The usual monetary tool of lowering interest rates loses its effectiveness because of the inability to push interest rates below zero. In this situation the economy is beset by a sharp increase in what Keynes called the “propensity to hoard” cash or cash-like assets such as Treasury securities.

Fear for the future given what was happening in the deepening crisis meant that banks and other market participants sought the safety of cash, so whatever the Fed pumped in failed to stimulate lending. The drive to liquidity, partly reflected in purchases of Treasuries, pushed the interest rate on Treasuries down to a fraction of 1 percent, i.e., deeper into liquidity trap territory. 4

Facing what Business Week called a “financial ice age,” as lending ceased, the financial authorities in the United States and Britain, followed by the G-7 powers as a whole, announced that they would buy ownership shares in the major banks, in order to inject capital directly, recapitalizing the banks—a kind of partial nationalization. Meanwhile, they expanded deposit insurance. In the United States the government offered to guarantee $1.5 trillion in new senior debt issued by banks. “All told,” as the New York Times stated on October 15, 2008, only a month after the Lehman Brothers collapse that set off the banking crisis, “the potential cost to the government of the latest bailout package comes to $2.25 trillion, triple the size of the original $700 billion rescue package, which centered on buying distressed assets from banks.”5 But only a few days later the same paper ratcheted up its estimates of the potential costs of the bailouts overall, declaring: “In theory, the funds committed for everything from the bailouts of Fannie Mae and Freddie Mac and those of Wall Street firm Bear Stearns and the insurer American International Group, to the financial rescue package approved by Congress, to providing guarantees to backstop selected financial markets [such as commercial paper] is a very big number indeed: an estimated $5.1 trillion.”6

Despite all of this, the financial implosion has continued to widen and deepen, while sharp contractions in the “real economy” are everywhere to be seen. The major U.S. automakers are experiencing serious economic shortfalls, even after Washington agreed in September 2008 to provide the industry with $25 billion in low interest loans. Single-family home construction has fallen to a twenty-six-year low. Consumption is expected to experience record declines. Jobs are rapidly vanishing. 7 Given the severity of the financial and economic shock, there are now widespread fears among those at the center of corporate power that the financial implosion, even if stabilized enough to permit the orderly unwinding and settlement of the multiple insolvencies, will lead to a deep and lasting stagnation, such as hit Japan in the 1990s, or even a new Great Depression. 8

The financial crisis, as the above suggests, was initially understood as a lack of money or liquidity (the degree to which assets can be traded quickly and readily converted into cash with relatively stable prices). The idea was that this liquidity problem could be solved by pouring more money into financial markets and by lowering interest rates. However, there are a lot of dollars out in the financial world—more now than before—the problem is that those who own the dollars are not willing to lend them to those who may not be able to pay them back, and that’s just about everyone who needs the dollars these days. This then is better seen as a solvency crisis in which the balance sheet capital of the U.S. and UK financial institutions—and many others in their sphere of influence—has been wiped out by the declining value of the loans (and securitized loans) they own, their assets.

As an accounting matter, most major U.S. banks by mid-October were insolvent, resulting in a rash of fire-sale mergers, including JPMorgan Chase’s purchase of Washington Mutual and Bear Stearns, Bank of America’s absorption of Countrywide and Merrill Lynch, and Wells Fargo’s acquiring of Wachovia. All of this is creating a more monopolistic banking sector with government support. 9 The direct injection of government capital into the banks in the form of the purchase of shares, together with bank consolidations, will at most buy the necessary time in which the vast mass of questionable loans can be liquidated in orderly fashion, restoring solvency but at a far lower rate of economic activity—that of a serious recession or depression.

In this worsening crisis, no sooner is one hole patched than a number of others appear. The full extent of the loss in value of securitized mortgage, consumer and corporate debts, and the various instruments that attempted to combine such debts with forms of insurance against their default (such as the “synthetic collateralized debt obligations,” which have credit-debt swaps “packaged in” with the CDOs), is still unknown. Key categories of such financial instruments have been revalued recently down to 10 to 20 percent in the course of the Lehman Brothers bankruptcy and the take-over of Merrill Lynch. 10 As sharp cuts in the value of such assets are applied across the board, the equity base of financial institutions vanishes along with trust in their solvency. Hence, banks are now doing what John Maynard Keynes said they would in such circumstances: hoarding cash. 11 Underlying all of this is the deteriorating economic condition of households at the base of the economy, impaired by decades of frozen real wages and growing consumer debt.

Read the rest of this article (with graphs) here