by Derek Wall
The fear that virtually no-one voices is that the banking system will disintegrate. I guess that commentators are keeping silent because nobody wants to think about a generalised bank collapse, with the money in a billion citizens’ accounts disappearing.
There is a realistic chance of this happening and the ensuing chaos does not bear thinking about.
The optimists hope that we will escape with a very severe recession, but the most pessimistic believe that the economic system will move into total meltdown.
The cause of this economic turmoil is simple. Bankers no longer trust each other, therefore they are unwilling to lend each other money and, in turn, businesses that need credit to survive are finding it increasingly difficult to get hold of the necessary cash.
Banking depends on trust. If confidence disappears, the whole system falls apart.
Banks, governments, pension funds, insurers, local authorities and even charities have become increasingly dependent on derivatives, which are essentially complex financial instruments that use mathematically sophisticated gambling to generate ever more cash.
Yet derivatives are a toxic debt time bomb and no institution wants to be holding them when they blow up.
Neoliberal globalisation has allowed corporations to depress wages and an extraordinary gap between rich and poor has opened up.
This is the reason why poor people in the US, especially African-Americans in states such as Florida, have been defaulting on their mortgages in their millions. And financiers who have made literally billions are making the rest of us pick up the bill.
The danger is that governments will bail out the system, but, a few years down the line, the bankers will start the process all over again.
Capitalism is inherently unstable, it does not work economically, its demands are wrecking the planet and it currently does not even function financially.
There are two dangers at present.
First is the threat of economic collapse, which will severely damage capitalism, at least in the short term, but will bring unemployment, poverty and even hunger to billions of people.
The second is that the system will be cleaned up enough to avoid immediate disaster so that it can continue wrecking havoc into the future.
Nicholas Hildyard and his associates at The Corner House, an impressive economic think tank and grass-roots activist community based in Dorset, have produced a detailed strategy document on the crisis aimed at social movement activists, the green movement and the left.
It examines the history of the derivatives and “hedges,” looks at the speculation that underpinned this new finance and how derivatives are being used to get around finance rules. It also makes some strategic recommendations for the left.
Hildyard notes that the neoliberals have been on the ideological offensive since the 1970s, overturning regulations and creating a new economic framework which effectively put everything up for sale.
For example, private finance initiative schemes have become a way of funding public infrastructure by using derivatives and other complex financial instruments.
The left needs to challenge the logic of markets head on. There is an ideological battle for hegemony that must be won. We must, while challenging capitalism, study its mysterious workings with care.
Most politicians don’t understand the derivative markets, even though such markets determine how the economy works and effectively govern how global society functions.
Unless we understand how our increasingly complex financial system has evolved, we will continue to be hoodwinked and manipulated. The Corner House guide clears up a lot of the mystery.
Only grass-roots activism is likely to be effective. Without huge social protest, Prime Minister Gordon Brown and the rest of the political elite will reshape the economic system in ways that benefit themselves while we pick up the bill in wage cuts, forced redundancy and higher taxes.
Banks should become mutuals owned by us, making investment decisions based on social and ecological need, not the pathological greed of a few.
Yet this approach is not currently on the agenda and common sense is alien to mainstream politicians. Therefore, despite the current crisis, the neoliberal consensus may well continue.
The finance capitalists have the ear of policy-makers. For example, the World Trade Organisation is pressing ahead with measures to make it more difficult to regulate derivative markets.
Private finances fund much state activity. There is no real talk of governments using the banks that they have effectively nationalised to support job creation, fund infrastructure such as rail and the renewable energy that we need for ecological sustainability.
In Britain, all three main political parties support the neoliberal consensus and, in the US, both Barack Obama and John McCain are unlikely to challenge finance capitalism, with bank collapses being used to create new monopolies.
Hildyard argues for far greater regulation but he notes that regulation avoidance is being used to create new opportunities by finance capitalism.
What we need, according to his report, is a “new moral economy” where exploitation of one individual by another for short-term gain is rejected.
This is where the politics comes in, as such a moral economy can only be built through struggle.
The Latin American left has shown the way forward - only through the nurturing of grass-roots struggle based on real democratic participation will the necessary change become possible.
www.thecornerhouse.org.uk/pdf/document/WallMoneyOct08.pdf
Derek Wall is active in the Green Party of England and Wales.