The horse has bolted
Current and former leaders of global agencies are leap-frogging each other with increasingly dramatic attempts to give expression to the scale and rapidity of the disintegration and collapse of the world’s financial and economic systems. Their warnings contrast sharply with the feeble efforts of national government agencies like the UK’s Financial Services Authority (FSA).
Michel Camdessus, former managing director of the International Monetary Fund (IMF) went large last week, declaring: “This crisis is the first truly universal one in the history of humanity. No country escapes from it. It has not yet bottomed out.” He was foreshadowing yet another of the IMF’s series of ever-more pessimistic forecasts published yesterday that calmly predicts that the global economy will contract this year for the first time since World War II.
Moreover, the impact in the UK will be more severe than in any other developed capitalist economy, the IMF warns. Figures on public finances confirm a rapid spiralling of state debt in the wake of the financial crisis, mounting unemployment and collapsing tax revenues. Next year, the IMF estimates that the Treasury will have to borrow a record 11% of gross domestic product – far more than has ever been borrowed before in British history and higher as a proportion of national wealth than in the United States.
Camdessus’s observation makes the otherwise stunning admission in the opening sentences of the report on the global banking crisis from Lord Turner, head of the FSA look pretty tame in comparison. “Over the last 18 months, and with increasing intensity over the last six, the world’s financial system has gone through its greatest crisis for at least half a century, indeed arguably the greatest crisis in the history of finance capitalism,” he writes.
After pointing the finger at New Labour for promoting “light touch regulation”, Turner admits that markets are irrational but then insists it’ll be OK, apparently, if we tighten regulations this time around. A phrase about shutting stable doors after the horse has bolted springs to mind.
In common with most observers and analysts, Turner mistakenly attributes the global production shutdown, with unemployment spiralling to new records in every country, to bad behaviour in the world of finance. The real source of the crisis actually lies in the system of capitalist production whose expansion is founded on debt of all kinds.
Following the 1929 crash, despite multiple failed attempts at government intervention, the crisis stretched throughout the 1930s becoming known in retrospect as the Great Depression. The Second World War reduced the no longer profitable pre-war surplus productive capacity to rubble and bloody corpses.
Then, and only then, credit expansion freed the insatiable self-movement of capital expansion in post-war spurts of growth. These produced the transnational corporations, built on cheap labour and the wreckage from a series of worsening crises, and spawned the global financial system which has now disintegrated.
Turner wants to get the carnival back on the road, replaying the same show, saying that the global economy needs “the existence of large complex banking institutions providing financial risk management products” which “inevitably involve at least some position taking”.
This is wishful thinking. The crisis is incomparably deeper than any other time in history partly because no-one knows the size of the balloons of credit which have yet to burst and the real state of bank finances. For example, no one in government can actually account for the vast sums allocated to bank bail-outs in America and the UK. They have disappeared into a financial black hole.
There’s an opportunity to discuss non-capitalist solutions and policies for this dangerous crisis at LEAP’s Capitalism isn’t Working conference next month.
20 March 2009