A Sunday crash on Wall Street
It has come to something when the right-wing Daily Telegraph starts talking about the possibility that "capitalism is collapsing under the weight of its internal contradictions". But with Lehman Brothers, one of the world’s biggest investment banks going to the wall overnight, and another, Merrill Lynch, disappearing in a rescue takeover on the same day, you can understand the paper’s concerns.
Sunday’s Wall Street crash with its echoes of 1929, followed by a sea of red on the London stock market, is a qualitative turning point in the debt-driven financial crisis which surfaced in the summer of 2007. The US government took the ailing mortgage companies Freddie Mac and Fannie Mae – both created by Washington in the 1930s – under its a wing only a week ago. Seven days later, the Federal Reserve was not prepared or able to save Lehman Brothers or Merrill Lynch. Instead, America’s central bank is allowing securities firms to swap shares for short-term loans, which sounds like a recipe for further disaster.
With one of the world's biggest insurers, AIG, seeking a $40bn bridging loan after reeling from losses on its exposure to property and financial insurance deals, the global financial system has entered into the unknown. The crisis has developed a momentum all of its own, where state interventions are unable to deal with the outcome of those infernal “internal contradictions” referred to by the Telegraph (which doesn’t, however, acknowledge Karl Marx’s analysis of capitalism as its source).
The Telegraph is unable to explain what these contradictions are, preferring instead to lambast central bankers for keeping interest rates too low as the cause of the crisis. But as A House of Cards explained, the contradictions are more profound. They centre around capital’s need for constant expansion and the spawning of incalculable amounts of corporate, state and personal debt in the process. Converting debts like mortgages into credit seemed an easy way to make money – until the economy went into reverse.
In the end, the Telegraph cannot grapple with the contradiction of being a paper of big business and the Tory party and insists that “the free market remains our best hope” for coming out of the crisis. This is not such an outrageous view as it first appears. In the absence of a non-capitalist alternative, global capitalism will eventually emerge from the crisis – at a price. This is the crucial lesson of the history of capitalism.
Previous slumps and crisis were “solved” – through the destruction of capital and jobs (25,000 worked for Lehman Brothers and 2,500 the XL holiday company), homelessness and poverty, authoritarian rule, fascism and world wars with their tens of millions of dead and injured. This is how the “free market” sorts out the internal contradictions of capitalism and is a price we cannot afford to pay. The growing political instability in Britain, with New Labour in permanent turmoil, the Lib Dems moving sharply to the right and the ugly face of state-sponsored racism coming to the surface, are intimately connected to the economic and financial crisis.
These are the issues that have to be addressed, for example, by this weekend’s Convention of the Left in Manchester. Building a movement that can mobilise to create not-for-profit, commonly-owned enterprises and banks as an alternative to the capitalist market economy is the priority. This is the focus of A World to Win’s Stand Up for Your Rights festival on October 18 which you are warmly invited to take part in.
15 September 2008