17 September 2008
After the Soviet Union collapsed, Francis Fukuyama published his now utterly discredited book, ‘The End of History’, which told of a glorious future, a capitalist paradise, where we would all be rich, eventually, when the wealth unleashed by an unfettered capitalism would ‘trickle down’ to us in that best of all possible worlds, ‘free market’ capitalism, where the market would take care of everything.
In an article by arch-conservative Arnoud de Borchgrave, titled ‘Bandit Capitalism?’, amazingly, we read of a catalog of disasters that have befallen capitalism since the days of the S&L debacle back in the 80s, yet by some sleight-of-hand, he manages to avoid connecting the dots. From Enron to Worldcom, billions have been siphoned off leaving hundreds of thousands of workers without jobs or pensions.
The Fortune 500 CEOs between them rake in about $5.75 billion dollars each year in salaries, stock options, pensions and so on, with Steve Jobs of Apple siphoning off the highest at $650 million and that’s just the tip of the iceberg.
Instead, de Borchgrave presents us with a scenario of a bunch of bandits, crooks, fraudsters, call them what you will, who have ‘taken advantage’ of a deregulated economy and milked it for all its worth, which is true enough but avoids who did the deregulating in the first place, what is laughably referred to as government, and even more importantly, why the deregulation took place.
There are two, interconnected processes at work here: on the one hand, we have the capitalist economy that inexorably finds its rate of profit falling over time, a process that can only be halted by expanding into new, lower cost production centres, finding new markets, which in turn has facilitated the spread of industrialism which in turn has led to new (and more ‘efficient’) competitors eg, China, India.
But in order to do this the leading Western capitalist economies had to deindustrialize, thus new sources of profit had to be created: enter ‘globalization’, the buzzword for an economy based on the illusory creation of wealth. Illusory insofar as it is based on financial speculation in such things as futures trading, currency speculation and that good old standby of merchant capitalism, interest accrued on loans. And given that the entire edifice runs on credit, once the credit runs out, the economy goes down the tubes (in the UK something like 60% of our so-called Gross Domestic Product or GDP is actually domestic spending, not production and in the US it’s even higher, over 70%).
The capitalist press now talks nostalgically of the ‘real economy’, you remember that place where real wealth used to be created through the jobs you used to have that built things? Yet ‘deregulation’ of the financial markets is but one strand of the disaster that now confronts us. So for example, that high street bank that holds your money, that before deregulation could only make loans based on its real assets (your deposits) instead took your deposits and invested it in all manner of fraudulent scams and speculative ventures such as the so-called sub-prime mortgage.
USG Nationalizes AIG
[AIG’s] tentacles go further in to the avenues of business, as in mortgages, as in credit, as in hedge funds, as in countless ways that affect consumers, that affect drivers, that affect homeowners, affect passengers” — The Governor of New York, David Paterson
All fine and good whilst the returns are good (for the investors that is, mostly giant insurance companies like AIG) but once the gravy ran out, well we see the result, and to add insult to injury the US government has just nationalized AIG! And only yesterday the corporate press was telling us that there was no way the government would ‘bail out’ AIG!
And take note that the ‘buy-out’ of Merrill-Lynch by Bank of America was in reality a bail-out as it was paid for by the Fed.
“With a $50 billion all-stock deal valued at $29 per share, at first glance it might appear that Bank of America doesn’t stand to lose much considering its stock is at least 50% overvalued by my analysis. However, even at an adjusted price of $25 billion, Bank of America
will be responsible for absorbing all of Merrill’s losses. Good luck. But wait. They don’t need luck, they have the Fed.
“It appears as if we are witnessing government bailouts using taxpayer money that are being deceitfully disguised as buyouts. Not just with the Merrill buyout but also this newly established $70 billion emergency bank fund, set aside to help out banks with future problems. Where do you think this money is coming from? The banks certainly don’t have it. It is coming indirectly either from the Fed or the U.S. Treasury…In addition, the amounts auctioned have been increased by $25 billion to $200 billion. The problem is that what may be investment-grade today could easily become junk next week. In fact, as I have stated in the past, we are going to see a huge junk bond market soon. Already, corporate defaults are soaring.” — ‘Bank of America, Merrill Bailout Disguised as Buyout?’ By Mike Stathis.
Worse is yet come when the disaster hits the private equity corporations, which is where much of the illusory wealth created has ended up. The enormous explosion of private equity companies has been funded by speculation and all that cash sloshing the global market had to go somewhere, for amazingly, there is a surplus of liquidity or cash but nowhere to invest it.
“Figures compiled by Thomson Financial show that in the year to June 30 last year, private equity firms spent $US1.06 trillion snapping up businesses.
“The idea was to gut them, load them up with debt and sell them into a booming stock market in 2009 and 2010 and repay the loans. That’s never going to happen now.” — ‘The next big bang is private equity’, Sydney Morning Herald, 16 September, 2008.
And that $US1.06 trillion is for just one year. Remember, every time the Federal Reserve or the Bank England hand out money to the pirates, they have to print it. That means the value of the currency drops commensurately, it’s called inflation, meaning the price of everything rises as your dollar or pound buys less with every new injection of cash.
The worst of it is the deceit being practiced by the corporate media who continue to bamboozle the public with all their BS about the ‘credit crunch’ and ‘sentiment’ or ‘maintaining confidence’ in the market when the crisis is systemic and fundamental to capitalism.
The BBC for example explains that the cause is “greed” and “trust” (or lack thereof), indeed they have a page which purports to explain the ‘credit crunch’ called “Credit crunch: The blame game” where we read all manner of ‘explanations’ for the crisis amongst which are,
“Greedy bankers like them have been running a giant con-game. They figure if they can persuade investors to buy something that’s actually worth nothing, it might appear to be worth something, which lets them persuade others to buy even more, because – after all – by this time lots of investors are buying it.”
“You see, trust is a precious commodity. And it’s eroding fast – which is why the credit crunch continues.” — ‘Blame those greedy bankers’, Robert Reich, of the University of California at Berkeley.
And of course in a world of neo-Darwinian survival of the fittest bullshit such as the one the BBC peddles, making human greed the cause neatly sidesteps the real cause which is in actuality the driving force of capitalism: expansion, endless expansion, or ‘growth’ and by any means. If driving ‘expansion’ requires creating a never-never land of cheap credit then so be it, until that is, the credit runs out.
In a world of over-the-top production, with the world’s markets glutted with a never-ending stream of products, most of which sit unsold in shops and warehouses around the planet, a return to the ‘good old days’ of the Robber Barons was the only option left. For there is no difference between those pre-29 Crash days and the disaster that confronts us now, except in its scale, made possible by the global circuit of funny money called globalization, and it’s working people who are paying the price.