11-05-08, 9:49 am

Original source: The Guardian (Australia)

The mythology of unfettered functioning of markets being best for the economy and society has been blown sky high. So serious is the situation, that International Monetary Fund (IMF) head Dominique Strauss-Kahn last month warned that US and EU banks have pushed the global financial system to the 'brink of systemic meltdown.' Yet, the governments and economists of the largest industrialized nations continue to cling to their blind faith in the market gods.

Then last month US former Federal Reserve Bank Chair Alan Greenspan stunned economic commentators by saying that he may have got it wrong placing his faith in 'market capitalism.' Greenspan was the high priest of 'market capitalism' during 18 years as head of the Federal Reserve Bank from 1987 to 2006.

He said he was in 'a state of shocked disbelief,' that there was a 'flaw' in his ideology.

'This crisis has turned out to be much more than I could have imagined' he said, and described the crisis as a 'once-in-a century credit tsunami' that would require 'unprecedented measures.'

'Risk is part of life'

As head of the Federal Reserve he preached private regulation of the financial system, and sung the 'wealth-creating powers of the market' tune. 'Risk is part of life,' he previously told an earlier congressional committee. 'Risks in financial markets, including derivative markets, are being regulated by private parties,' he claimed, adding that the risk of serious crisis was extremely remote. Markets work best, government intervention is the problem, he claimed.

This from the man who played such a prominent role in serving the powerful financial institutions that control the Federal Reserve; the man and who played a prominent role in convincing Congress to remove regulations governing the financial system, and allow hedge funds and other blood suckers to operate beyond regulation or public accountability.

The US and governments of other industrialized nations have responded to calls from banks and other financial institutions with hundreds of billions of dollars of taxpayer money to rescue the largest and most powerful financial conglomerates and to stabilize a financial system facing insolvency and collapse.

Despite these massive bailouts, the purchase of bad debts and even temporary 'nationalizations' of some banks, these governments have no intention of abandoning the very free-market economic policies behind the crisis: the policies that resulted in such large mountains of unpayable debts and highly speculative financial products that bore no relation to the real economy of production, distribution and consumption remain in tact.

No conditions have been placed on operations of the banks that have lost billions of dollars of working people’s savings and are receiving public monies.

Some capitalist economists are talking in terms of 'fixing capitalism' by such means as re-regulation, some want a new type of capitalism, but the majority are still putting their faith in the markets.

Government sovereignty undermined

Over the past 20 years of economic rationalist (neo-liberal) economic policies, western governments and third world governments (under duress from the International Monetary Fund) have pursued financial and economic deregulation, privatization, unrestricted foreign investment and free trade policies. They have wound back the role – and with it the sovereignty – of governments, effectively leaving critical policy matters to the so-called free markets. This process has involved a significant transfer of power from elected governments to monopoly capital.

Decisions regarding currency, interest rates, production, trade, provision of services, price of services, etc have been handed over to the markets. Every piece of deregulation hands over more power. But who or what are these markets? Who controls them? Where is this power being transferred to?

It is being passed to the largest, most powerful transnational corporations and financial institutions. The most powerful of these monopolies are the financial conglomerates. They manipulate markets, they stand over and dictate to governments, they sit on the boards of central banks, they allocate credit, and so on, and in the case of the US, own the Federal Reserve.

The investment banks, insurance companies, managed, hedge and other funds have gone in pursuit of fast and big profits, speculating on high risk products. They gamble on movements in prices on the stock exchange, they trade in debt, bet on profit results, and a myriad of other 'products.' They relied on ever expanding markets and endless growth, on bubbles that one day had to burst.

Their empires were built on debt and much of the money they risked was not their own, but drawn from superannuation, retirement and other funds. In the process, the billions of dollars that they gambled with were withdrawn from the real economy. They were withdrawn from human needs, from social development, basic services, infrastructure, and from food production.

Every dollar directed to speculation was a dollar less spent on consumption, reducing demand for the goods and services being produced. This massive withdrawal of money from circulation in the real economy of production, distribution and exchange exacerbates an already developing crisis of over production and recession.

These crises are endemic to capitalism. They arise out of the exploitation of workers who are not paid the full value of the work they put in producing goods and providing services. The gap between the value of their labour and what they are paid is what Karl Marx called surplus value — profit. Employers never let up in their struggle to reduce the cost of labour by such means increasing output per worker, lower wages, and so on to increase their profits.

This situation creates a contradiction in that workers do not have the means to purchase what is produced — and crises of over-production occur.

As Peter Symon wrote (Guardian October 8, 2008), this crisis might be 'the daddy of them all'.

The markets have failed the people of the world, as well as the planet. Millions of people around the world are having their eyes opened. No doubt governments will be removed, and people’s movements will be exerting pressure for real change, for policies that put economic control firmly into the hands of elected governments in the interests of the people.