The Age of Crises: Banks And Financialization [Part VII]
By Farooque Chowdhury
03 October, 2010
Banks, in the words of G M Bell, a Scottish bank director, the “moral and religious institutions” (The Philosophy of Joint Stock Banking, 1840, quoted in Marx, Capital, vol. III), and in the words of Marx, “esteemed bandits” (ibid.), “brutalise their own people” (Global Witness, March 12, 2009). “The … lax regulation … has let some of the world's biggest banks facilitate the looting of natural resource wealth from poor countries,” said Gavin Hayman, Global Witness Campaigns Director. “If resources like oil, gas and minerals are to truly help lift Africa and other poor regions out of poverty, then, governments must take responsibility to stop banks doing business with corrupt dictators and their families.” But the ruling machines in the world system refuse to take the responsibility. And, seeds of crisis are sown in the lives of the people in countries. So, it was found: Barclays kept open an account for the son of the dictator of oil-rich Equatorial Guinea long after clear evidence emerged that his family was heavily involved in substantial looting of state oil revenues. A British tax haven and a Hong Kong bank helped the son of the president of oil-reach Republic of Congo spend hundreds of thousands of dollars of his country’s oil revenues on designer shopping sprees. Citibank facilitated the funding of two vicious civil wars in Sierra Leone and Liberia by enabling the warlord Charles Taylor loot timber revenues. HSBC and Banco Santander hid behind bank secrecy laws in Luxembourg and Spain to frustrate US efforts to find out looting and laundering Equatorial Guinea’s oil revenues. Deutsche Bank assisted the late president Niyazov of Turkmenistan, a notorious human rights abuser, to keep billions of dollars of state gas revenues under his personal control and off the national budget. Dozens of British, European and Chinese banks have provided Angola’s opaque national oil company, Sonangol, with billions of dollars of oil backed loans, though there is no transparency or democratic oversight about how these advances on the country's oil revenues are used, and they have a recent history mired in corruption and secret arms deals. (Undue-Diligence – ‘How banks do business with corrupt regimes’, report by anti-corruption NGO Global Witness). The brutal face of banks, micro or macro, is well known to many. Readers of The Grapes of Wrath can easily identify the following lines: “…the banks were machines and masters all at the same time. Some … were a little proud to be slaves to such cold and powerful masters…. The bank – the monster has to have profits all the time. It can’t wait. It’ll die. … When the monster stops growing, it dies. It can’t stay one size…. A bank isn’t like a man. … Men made it, but they can’t control it” (John Steinbeck). Banks in company with other financial institutions are providing the evidence since long. Like monsters they have swallowed billions in monetary terms, and have trampled lives of millions in many countries, and have created a crisis. The crisis has compelled the US government to pledge $12.7 trillion, almost equivalent to the US GDP, in support of the financial system while governments of different countries have committed $18 trillion in public funds, equivalent to almost 30 percent of world GDP, to recapitalize the banks. This signifies the weakness of the system. The subsequent actions taken by the states show the undercurrents of competition and conflict among different sections of the capital involved in creating the crisis. The conflicting interests have strengthened. Engaging the states by the capital shows the depth of the crisis and the increasing conflict that underlies. “The Germans and French are hostile to the American government’s bailouts because they fear, rightly, that these will enable US banks to retain their dominant global position. The American government, for its part, opposes calls for greater regulation, because they are directed at US finance. The British government, meanwhile, does not want to introduce tougher regulations fearing that they would endanger London’s position, described by Financial Times commentator John Plender as ‘the adventure playground of the global financial system.’ This brings opposition from the German government, which harboured hopes that the crisis would offer more opportunities for Frankfurt. The various industry interventions, likewise, have sharpened national rivalries. The German government’s bailout of Opel, for example, endangers operations in Belgium, even raising questions as to whether rules governing the operation of the single European market might have been breached” (Nick Beams, “Newsweek International editor’s ‘Capitalist Manifesto’, a desperate attempt at reassurance”, World Socialist Website, July 4, 2009). The seeds of more crises lie here, in competition, also.
The financial crisis that has struck is not an overnight work of banks. Rather it started spreading its roots decades ago. It was the growth of financialization, of the monopoly-finance capital. The growth of financial sector is evident from the following facts: “In 1980, financial firms accounted for about 5 percent of total corporate profits. By 2006, this had risen to around 40 percent. On a global scale, financial assets in 1980 were roughly equal in value to world gross domestic product. Twenty-five years later they constituted 350 percent of global GDP. At the heart of this transformation has been the accumulation of finance sector debt in the US economy. It rose from 63.8 percent of GDP in 1997 to 113.8 percent in 2007—a result of the banks and financial corporations plunging ever deeper into debt in order to fund their debt-based financial operations” (ibid.). The failure of two Bear Stearns hedge funds in the late summer of 2007 was the beginning of The Great Financial Crisis. It was then not alarming to many in the mainstream. In 2008, the crisis compelled all concerned to give up complacency with mainstream analyses and assurances. The world of capital could not ignore the crisis created with financialization, with roots in the stagnation, in investment and in manufacturing. Paul Sweezy and Harry Magdoff identified in the 1970s and ‘80s that the general economic tendency of mature capitalism is toward stagnation. The stagnation worsened, and the underlying disease spread and deepened. Capital found new ways for reproduction. It prospered through the explosive growth of finance. A new hybrid phase – monopoly-finance capital came in. In 1987 and 2000, stock market bubbles burst. There were savings and loan crisis in the late 1980s and early ‘90s, the Japanese financial crisis and Great Stagnation of the 1990s, the Asian financial crisis of 1997-’98, and the dot com crash of 2000. Magdoff and Sweezy described the incredible pace of development in the financial sector through the twentieth century up until the period of the1980s as financial explosion. Stock markets and currency trading turned no less than giant casinos; every 24 days the dollar volume of currency trading equaled the world annual GDP while the current average was $1.8 trillion a day (John Bellamy Foster and Fred Magdoff, The Great Financial Crisis, 2009). These are only a few facts related to the financialization and the rise of monopoly-finance capital that have created the present financial crisis. The crisis is much deeper. At the same time, there is the aspect of government debts that signify another aspect of the crisis. By 2005 the total US debt was almost three and half times the nation’s GDP and not far from the $44 trillion GDP for the entire world (ibid.). The government debt in the US is already a much discussed issue: estimated to reach 100 percent of GDP by 2011 while in Japan it is climbing to 200 percent by 2011 and by 2014 the public debt to GDP ratios in the G-20 economies, comprising some 85 percent of the global economy, will have increased by 36 percentage points of GDP compared to the levels at the end of 2007 (Beams, op.cit.). The present situation shows “a deep-seated contradiction intrinsic to the development of capitalism itself” (Foster and Magdoff, op. cit.).
[This is the 7th part of the introduction of The Age of Crisis by Farooque Chowdhury being serialized in Countercurrents.]