“The news from America this week should have been about Hurricane Ike, the 900-mile-wide monster which crashed into Texas leaving millions of people without power as far north as Ohio.
“Instead it was of another hurricane, a financial one, of similarly biblical proportions”, said Philip Delves Broughton of the Daily Mail on 18 September. (‘Free-market capitalism lies shredded ... while America’s confidence is badly shaken’)
“It really does look as if the foundations of US capitalism have shattered”, said Der Spiegel the same day as it contemplated the earth-shaking collapses that have been taking place of institutions everybody thought were absolutely impregnable.
IMF First Deputy Managing Director, John Lipsky, described September 2008 as a month in which “before our eyes, financial tectonic plates shifted, wiping away an institutional form – the large, independent investment bank”. (Speech to an economic forecasting conference at the University of California in Los Angeles, 24 September 2008)
In the US, big Wall Street names have crashed – Lehman Brothers has, with losses of $613bn, filed for bankruptcy (probably the biggest bankruptcy in history), a fate its rival Merrill Lynch (the biggest investment bank in the world) has only avoided by selling itself off to its rival, Bank of America; and the biggest-ever US bank collapse, that of the US’s fourth-largest bank Washington Mutual, has just been announced.
Other iconic enterprises have only survived with huge injections of taxpayers’ money, in particular America’s two major mortgage lenders, Fannie Mae and Freddie Mac (which have been nationalised) and the insurance megalith AIG, which was given an $85bn shot in the arm by the US government unwilling to face the consequences of millions of individuals and corporations finding themselves suddenly uninsured.
In the UK, similar convulsions have been taking place, with the mighty HBOS (Halifax Bank of Scotland) being forced into a merger with Lloyds TSB, and Bradford & Bingley apparently on the point of imminent collapse.
Troubled Asset Relief Program
It is not surprising, perhaps, that after the massive commitment made to rescue Fannie Mae and Freddie Mac, the US government passed on salvaging Lehman Brothers, whose collapse was announced on 22 September.
It was, however, unable to resist demands that it step in to save AIG, and at this point Treasury Secretary Hank Paulson decided that a $700bn fund of taxpayers’ money needed to be made available through a Troubled Asset Relief Program (TARP) as a means of calming market jitters, restoring ‘confidence’ and generally calming the turbulence that was claiming so many high-profile scalps.
George Bush is all too willing to go along with this plan to save capitalism at the expense of US taxpayers – but then he is not standing for re-election. Many of the politicians who are hoping to gain high office as a result of the forthcoming US elections are nervous as to how far they can be seen to support schemes that pour billions of taxpayer dollars into the pockets of people who have lost billions through gambling on the stock markets, and have caused thousands of people to lose their homes and/or their jobs as a result of what is so obviously in retrospect the proliferation of junk bonds.
There is also ideological objection to measures seen as ‘socialism’, with Bush’s rescue plans being denounced as ‘socialism for the rich’, which in the opinion of Philip Delves Broughton, for instance, should not be countenanced under any circumstances:
“How bitterly ironic it is, then, to see these one-time freemarketeers becoming socialists overnight.
“The schoolyard bullies of Wall Street have gone running to the state for help, pleading to be saved from destruction.
“They deserve neither our sympathy nor the billions in taxpayer support they are now receiving.” (Op cit)
What is certainly ‘ironic’ is that there should be anybody who considers that the state bailing out the rich at taxpayers’ expense is in any way equivalent to socialism.
Marx long ago pointed out that the one thing that the bourgeoisie is happy to ‘nationalise’, ie, offload onto the shoulders of the masses of the people, is the national debt: “The only part of the so-called national wealth that actually enters into the collective possessions of modern peoples is their national debt.” (Capital, Vol I, Chapter 31, ‘The genesis of the industrial capitalist’)
In the US, meanwhile, various suggestions have been put forward that the proposed bankers’ relief scheme should be given features that would soften the blow for taxpayers. In particular, many are keen that it should make provision for bankrupt borrowers to be allowed to remain in their homes by being given more time to repay their mortgages. It has also been proposed that there should be guarantees that government money will not be used to fund massive ‘golden goodbyes’ for failed executives.
Neither of these suggestions have found favour with the powers that be, however, and, at the time of writing, no agreement has yet been reached for the setting up of this fund that is intended to save the world from a 1930s-style depression.
As far as the great and the good are concerned, people should be grateful that depression is being averted (if indeed the fund is able to do that), without expecting any further benefit!
The struggle against reality
So is it, in fact, possible to stave off a 1930s-style depression?
The main problem for the bourgeoisie is that there is no guarantee that, even if this gigantic TARP is set up, it will be enough. The measures taken in the recent past – in particular, the $30bn financial support given to shareholders of the stricken Bear Stearns in the US and the nationalisation of Northern Rock in the UK – were supposed to steady the market, but worked only briefly. The much bigger and more expensive step of nationalising Fannie Mae and Freddie Mac was also intended to steady the market, but gave only a few days’ grace.
The fact is that “The U.S. financial system resembles a patient in intensive care. The body is trying to fight off a disease that is spreading, and as it does so, the body convulses, settles for a time and then convulses again. The illness seems to be overwhelming the self-healing tendencies of markets. The doctors in charge are resorting to ever-more invasive treatment, and are now experimenting with remedies that have never before been applied.” (‘Worst financial crisis since ’30s, with no end yet in sight’ by Jon Hilsenrath, Serena Ng and Damian Paletta, Wall Street Journal, 18 September 2008)
Because the remedies have never before been applied, nobody can be sure that they are going to work. But even if the remedies did work, the cost to the taxpayers would be enormous.
“The cost to the U.S. taxpayer of supporting failing financial institutions is fast approaching that of the Iraq war.
Five-and-a-half years of war have cost close to $600 billion. The sum of all the credit lines issued over the past year has zoomed past $300 billion in the space of a few days.
The U.S. government was expected to run up a deficit of $500 billion this year, the largest in history, before it even began raining money on Wall Street.
America’s total debt is now nearly $10 trillion, or $30,000 per citizen. Not since the aftermath of World War II have the public finances been so depleted. This is money borrowed largely from overseas, which must eventually be paid back.” (Philip Delves Broughton, op cit)
According to Sam Fleming in The Daily Mail of 24 September, “The White House has now run up a total bill of nearly $1.8 trillion (£975 billion) supporting the financial system with rescue packages.
“Some traders are worried this burden will stretch the American government’s finances to breaking point, leading to a slump in confidence in the world’s biggest economy.”
In fact, according to the former chief economist of the World Bank, if all expenses are taken into account, the wars in Iraq and Afghanistan are estimated to have cost up to the end of last year a staggering $3tr! (See ‘The three trillion dollar war’ by Joseph Stiglitz and Linda Bilmes, The Times, 23 February 2008)
But this monster figure has been run up over the course of five years, whereas the financial rescues have in all probability only just started. It is hard to believe that the cost of these wars has not played its part in bringing America’s finance houses to their knees.
As Joseph Stiglitz and Linda Bilmes warned in February: “Most Americans have yet to feel these costs. The price in blood has been paid by our voluntary military and by hired contractors. The price in treasure has, in a sense, been financed entirely by borrowing. Taxes have not been raised to pay for it – in fact, taxes on the rich have actually fallen. Deficit spending gives the illusion that the laws of economics can be repealed, that we can have both guns and butter. But of course the laws are not repealed.”
These war debts completely dwarf defaults on subprime mortgages.
Consequences of economic meltdown
In fact, what most worries the US ruling class is that the ‘slump in confidence’ will lead to foreigners withdrawing their investments from the US, for it is purely on the basis of foreign investment, ie, loans from abroad, that the US is able to maintain a standard of living way above its means, as it has been doing for very many years now.
At the moment, investors in the US keep investing on the basis that if the US fails, its investors lose everything. So long as it can keep borrowing, it won’t fail and investors can have some ‘confidence’ that their money is, if not exactly safe, then at least still there. Part of the reason that the American taxpayer, notwithstanding the hard times, has to keep paying is to ensure that foreign credit keeps returning.
When that lifeline is eventually withdrawn, it will only be through overthrowing capitalism altogether and establishing socialism that American workers will be able to maintain the standard of living they have hitherto only been able to enjoy at the expense of the rest of the world.
Effect of the crisis on the working class
Be that as it may, the fact remains that the cost to the working class, in the UK and Europe as much as in the US, is going to be high, whether the TARP goes through or not.
Already, thousands of people in the banking sector have lost their jobs. Even corporations that have not gone to the wall have downsized their staff in the hope that by cutting costs they will be able to survive. Home repossessions from people unable to meet their mortgage payments are rising, with some 9 percent of mortgagors in the US being behind in their mortgage repayments.
Inflation has caused massive rises in the cost of basic necessities. In the UK, for instance, compared to a year ago, “the cost of basic foods has soared by nearly 10 times the official inflation rate.
“A loaf of sliced white bread and a packet of butter now add up to £2.33 – a 43 per cent rise from £1.62 last year.
“Eggs are up 27 per cent at £2.90 a dozen, cheddar cheese is 25 per cent dearer at £7.04 a kilo and best mince is up 20 per cent to £5.80 a kilo.” (‘Cost of bread and butter up 43%’ by Louise Barnett, The Daily Express, 28 September 2008)
As the masses of people have to spend more on basic necessities, while at the same time unemployment is creeping up sharply, demand for other products of capitalist enterprises – goods or services – falls, thus aggravating the crisis of overproduction which lies behind all ‘financial’ crises.
There are some who take comfort in thinking that the crises of capitalism are cyclical, so that, in a few years’ time, we can expect the good times to return – even if millions of people throughout the world will in the meantime have to pay for the crisis through severe losses in their quality of life (including the deaths of many vulnerable children and old people through lack of decent food and access to health care). But even this ‘hope’ is illusory, for it should not be forgotten that economic crises such as this also bring about changes in the relative strength of the various powers competing in the world market, and will sooner or later lead to war as the only means of redistributing spheres of influence in the world – wars such as the first and second world wars, which play out on the territories of weakening powers such as the US and Europe at the cost of tens of millions of working-class lives and the utter ruin and devastation of many millions more.
History teaches us that we must face up to the task of overthrowing capitalism if we are to escape from the vicious cycle of economic misery and war. They are the signs of incurable putrefaction of the capitalist system.
The world is ready to move on to socialism, and you, our readers, need to play an active role in this process. Our party’s main function is to train all of you who are willing to move history forward. It’s time to take up the challenge!
> Economic crisis - the dance of death - April 2008 |
