9-28-08, 9:28 am
What is happening in the bank crisis, what are the likely outcomes, and what should we who are activists in and for peoples democratic movements begin to do about it?
First, “greed” and “corruption” are not the main or even significant characteristics of this crisis. Both are endemic in all class-divided systems and usually become more prevalent, more visible and less tolerable to the masses of people when a system is in general decline.
This crisis specifically is not the result of 'irresponsible' people who went into debt to purchase or refinance homes (John McCain’s initial response), or even the “predatory lenders” who got them to do so. Debt means interest and interest is and has always been a major source of capitalist profit.
Debt is also a way to permit capital to carry out its cycle of reproduction (to keep the system going) without raising workers wages enough to sustain consumers purchase of its increased production. (Installment plan interest also enables finance capital to retrieve much of the wage increases that workers do receive.)
Anyone who has bought a car of a house on the installment plan knows how this works. For example, a number of banks have owned my mortgage and put different kinds of fees and penalties on it, along with manipulating escrow funds to their own advantage. Mine and everyone else’s payments are interest payments for many years, meaning that I must pay off perhaps 75 percent of the principle on a 30-year mortgage if I wish to sell the house after owning it for about 50 percent of the mortgage’s term.
And I am not by any means at the bottom of the system. I am, even with my own mortgage and credit card debt, a “solid middle class citizen,” as long as I keep working and my TIAA-CREF supplemental pension doesn’t go the way of the mutual funds in the Great Depression (a real possibility).
I don’t take any pride in the fact that I am relatively better off than tens of millions of low and lower income families, because I understand that ultimately, as they go, I go. That is something that large numbers of “middle-class” people understand intuitively, but do not yet connect it to an understanding of why polices supposedly designed to reduce their taxes and increase their financial assets have both reduced their real incomes and put them in such danger today.
In an unregulated or deregulated system, creditors routinely manipulate people of low and moderate incomes, often desperate people, to take loans which they then sell to those higher on the financial food chain, creating a house of cards based on quick profits gained from such manipulation. No one is safe, including the investors in the institutions at the top of the financial food chain, those in the higher professional and managerial strata with income significantly higher than most of the people who think of themselves as “middle class.” This dynamic creates a political economy which, to paraphrase the 17th century Philosopher Thomas Hobbes, encourages a war of all against all.
Crises of this kind, that is, instability rooted in the anarchic drive of capital to find ever bigger markets, drive out competitors, commodify all goods, services, and social relations, is the heart of the capitalist system. Each crisis grows greater with capitalist consolidation and expansion.
This specific crisis is peculiar to the capitalist system as it has evolved into bank-controlled monopoly or finance capital. In recent decades this system, or state monopoly capitalism, has substantially done away with the regulatory reforms whose purpose was to save it from itself, devolving or deregulating itself into a speculative market jungle, but one where the state funds are still available to protect speculators.
In the last few decades, “financialization,” meaning that capital itself is both defined and merchandised as a consumer product, bought and sold by banks and brokerage houses the way supermarkets or, to be more precise, importing capital the “superstores” like Wal-Mart import foodstuffs, hardware, appliances, clothing, virtually everything from the “world market” has come to characterize much capitalist development in the US.
Money is made not by creating new productive capacity in a national economy(which the old Robber Barons, with all their horrors, did do), but by financial piracy and loan sharking, manipulating stock prices, reducing dividends to general shareholders, merging companies, cutting jobs, cannibalizing pensions to repay the debts created such activities and walking away with super-profits.
At the bottom of the system, this has meant taking the personal property of people in the form of mortgage foreclosures and the way “repo men” for generations repossessed the automobiles, appliances, even household furniture that low income people purchased on the installment plan. The millions who suffer, who get hurt, who “feel the pain” don’t matter until the money stops, as it did under the 'old' capitalism in 1929 and the majority of people get seriously hurt.
In many respects this crisis signals is a return for the majority of people to the “old” capitalist economy that Upton Sinclair wrote about in The Jungle or the capitalist economy that Theodore Dreiser looked at from the top in the Cowperwood Trilogy and from the middle in Sister Carrie.
It was this “old” capitalist economy that 20th century regulatory reforms, particularly those enacted in the 1930s, in response to Communist and left-led labor and other peoples social movements, were in principal supposed to contain. It was this “old” or perhaps “born again” capitalist economy which the “Reagan Revolution” has brought back with a vengeance over the last three decades, seen in real life in declining living standards, lost jobs, a mountain of debt, and homelessness. Today's economic crisis is the new social jungle which we can see in Oliver Stone’s Wall Street and Tom Wolfe’s Bonfire of the Vanities works which update Sinclair and Dreiser in popular fiction media.
Until the last decades of the 20th century, there was an understanding in both advanced and developing capitalist countries that the development of large national and international corporations and banks required forms of state economic intervention and regulation to maintain stability. Economic “liberalism,” or the mixture of laissez-faire capitalism and Social Darwinist theories of human relations of the “old capitalism” were simply irrelevant to modern industrial society
Woodrow Wilson most succinctly described this as learning to “face the economic facts of life.” Wilson also said he was for big business but against the Trusts. His political enemy, Theodore Roosevelt, tried to distinguish between good productive big businesses and bad ones, “malefactors of great wealth.” Those who continued to support laissez-faire principles were seen as hopelessly out of date, “rural Tories,” as Theodore Roosevelt called them more than a century ago.
The question of course was what kind of state intervention and regulation would be advanced, and in whose interest or combination of interests, large corporations and big banks, small business owners and creditors, farmers, manual workers, professional employees? Except among old fashioned ideologues, it was not whether or not there would be intervention, although conservative Republicans routinely attacked “special interests” and “government bureaucracy” while they supported other government interventions like high tariffs to keep foreign goods out of the country in the interest of domestic manufacturers and a banking system that supported high interest rates which benefited large banks and domestic and foreign creditors.
In the 1930s, labor and social movements, the New Deal government, and the reformist theories of economist John Maynard Keynes interacted to produce major changes in the interest of the people. Keynesians saw “compensatory fiscal policies” to maintain mass purchasing power (employment, wages, labor based subsidies in the form of public education, housing, transportation, health care, and energy policies) as necessary to “bail out” the capitalist system from its periodic and deepening economic crisis.
Such “bailouts” were an important part of the New Deal program. The banking legislation of 1933-1935, for example “saved” most of the banks, but also established the FDIC to protect depositors. It established a much higher level of regulation and separated depository banking from investment banking so as to criminalize the sort of stock market speculation, margin buying and “short selling” which everyone saw as a significant immediate cause of the great stock market crash. Public works programs like the Works Progress Administration “bailed out” millions of unemployed workers. The National Labor Relations Act often literally “bailed out” trade unionists by protecting their right to organize and strike, actions that in the past often resulted in their imprisonment.
The crisis of capital was more than an accident or a cycle. It was a structural crisis that would continue and eventually worsen even with these forms of positive state regulation. Certainly it took World War II to end the depression. It also took a greatly strengthened labor movement, which both helped to create New Deal political majorities and which New Deal policies then strengthened, to raise general U.S. living standards from the 1940s to the 1970s. Even with Cold War repression and general economic expansion producing rightward general trends in labor and government, the regulatory reforms remained in place and served to prevent any major financial crisis
But what has occurred over the last three decades has been a standing on its head of most of the economic theory and social policy of the whole 20th century.
Instead of the rational contention that large corporations like General Motors and General Electric, banks like Bank of America, and brokerage houses like Lehman Brothers require sophisticated and constantly updated forms of regulation, the dominant ideology and state policy has been to foster “deregulation” in order expedite “economic growth.”
Instead of contending that mass production industries require a high level of employment and consumption in society, and that government must act to ensure that with public sector investments, the dominant ideology and state policy has been to “stimulate” high employment and consumption through the undermining of all forms of progressive taxation, (which reduces rather than increases public sector investments) to assume that large increases in the wealth of upper income groups and institutions at the expense of lower income groups and public sector activities would be invested wisely and efficiently for the good of all.
We are dealing with an economic philosophy, that to this day has people in power who challenge both historical record and human experience by proclaiming that markets are “self-regulating,” that there is no contradiction between large concentrations of capital and competition, that what most people call “greed” is a necessary and positive force for general economic development.
We are dealing with an economic philosophy that looks at “the markets” the way medieval theologians looked at God or Gods. Today, I heard one Republican “spokesman” on CNN supporting the Bush-Paulson bailout with the contention that “the markets are telling us that something has to be done immediately” as if he were having a séance with some spirit named Market. Other Republicans on TV today, balking at the Bush bailout out as a violation of “free market” orthodoxy, were saying that that the markets are “reviving” and would not be helped by a bailout(“markets help those who help themselves”?)
Markets like commodities have no life of their own. Economy is political and social, shaped by social interactions and relationships in political contexts. Nothing is pre-ordained. Commodities and “markets” do not control human beings, who must sacrifice to them, and “feel pain” when they are angry. Human beings create and control markets and commodities. How they do that depends on their class interests and and the structures of political economic power in the system in which they live.
Since we are not fatalistic economic fundamentalists of the left, waiting for the capitalist system to collapse of its own deepening contradictions, meaning I am not the flip side of free market fundamentalists, we can begin to demand serious reforms in the interest of the working class, the whole people, and non-monopoly sections of capital.
First, we should dispense with the facile argument that business or investor “confidence” has anything to do with the crisis. The “confidence” that conservatives are talking about today is essentially the “confidence” of speculators and confidence men who talk others into risk without end.
Thirty years of this kind of “confidence,” or “deregulation” in the interests of the capitalist class, calls for “regulation” in the interest of the working class, the repeal of Gramm-Leach and the dismembering of the whole “deregulation” policies since Reagan.
We should begin to craft a new National Banking Act to update the largely eviscerated 1935 act. It should reform the Federal Reserve system in the interest of workers, small business owners, connecting and coordinating the Federal Reserve system to and with state fiscal policy aimed at instituting full employment, increased mass purchasing power, and reducing crippling consumer debt. This would make monetary policy an enabler of public fiscal policy not a substitute for it, as the application of “Friedmanite” monetary policies has long functioned under right-wing governments in the US, other countries, and through the IMF and World Bank.
In that regard, it is time to as part of a new National Banking Act make the chair of the Federal Reserve Board a cabinet member who serves at the pleasure of the administration, not a quasi-economic Czar whose term of office overlaps administrations and whose “independence” from the elected government limits what government can do in developing economic policy.
There should be an immediate ban on home foreclosures, and a tax policy that rewards employers who maintain both jobs and wages and punishes those who profiteer in the crisis by layoffs and wage cuts.
“Economic Democracy” is an old and largely forgotten slogan, used most famously by the Wisconsin Progressive Robert La Follette, Sr. We should begin to revive it in this crisis and in this presidential campaign.
