23 September, 2010
Review of Plunder – the crime of our time directed by Danny Schecter
The spirit of graft and lawlessness is the American Spirit. – Lincoln Steffens, The Shame of the Cities, 1902
Capitalism – it’s a racket, literally:
“I’d like a fair shake at the American Dream” – foreclosure victim
This quote comes from near the beginning of Plunder – the crime of our time and illustrates one of the problems of dealing with the capitalist nightmare: everybody wants a piece of the action, even those who have lost everything they own believe incorrectly that everyone can share in the ‘American Dream’ if only they work hard enough. Worse, one victim of the sub-prime crisis even believes that it was his own fault!
Hedging your bets
Selling short, credit default swaps, credit derivatives, collateralized debt obligations (CDOs), mortgage backed securities…the same companies who created these exotic financial ‘instruments’ are also the same companies that profited from selling these worthless products to unsuspecting investors worldwide.
Even worse, these same companies, knowing that their ‘products’ were in fact worthless, actually bet on them being worthless! This is called hedging your bets, so they made money, trillions of dollars in fact out of betting against their own worthless bits of paper (actually nothing more than electrons).
“trading the paper…essentially creating liquid cash from nothing”
Plunder paints—after a couple of viewings—a very accurate picture of how the financialization of capitalism actually works. And this is part of the problem of getting the message across, it’s fiendishly complex, and this is also the problem with Plunder as I hope to show, crime though it may be, the criminal activities of the speculators are symptoms, not causes of a much deeper malaise that affects capitalism.
All those university trained whizzkids, the brightest of the bright, eager and hungry to succeed, were given free rein by their masters to dream up these complicated investment packages. So complicated in fact that even the bosses of companies such as Bear Stearns, Learmann Brothers, AIG, and the like, didn’t understand them either. But then they didn’t need to as long they worked, as long as they made a profit.
I have very mixed feelings about Plunder as Danny Schecter has decided to present the crisis of capital as a crime and Wall Street as the crime scene and investment brokers and hedge fund scam artists as the criminals. It’s a clever analogy but is it actually true? Is the crisis all down to a bunch of criminal fraudsters? Has there ever been a ‘free market’? Is not capitalism fraudulent by definition?
In 1929 the same scene unfolded, albeit using different ‘instruments’ (the computer didn’t exist in 1929, nor was the global circuit of capital up-to-speed). The crash resulted in the US government instituting some controls over how capitalism worked (largely because of the fear of a socialist revolution occurring).
And then, just as now, it was the banks that were at the centre of the crisis. One of the main reforms was to split off investment banking from retail banking as it was the banks, using depositors money, invested in all kinds of speculative schemes, that triggered the crisis. The deregulation that took place in the 1980-90s, reversed this, setting up the system for a fall all over again. Or is this really true? Is it lack of regulation or something systemic to capitalism itself, with or without regulation that is bound to happen? Crashes such as the current one have been occurring for hundreds of years with the same awful results.
It’s always happened this way and eventually it always pops” – Jim Rogers, George Soros’ hedge fund partner, talking about how financial speculation works.
“gambles on the market versus gambles in the market”
Jim Rogers knows of what he speaks. Rogers and Soros founded the very first hedge fund company, knowing full well that betting on the future ‘value’ of a share or securities package created money out of nothing. This is what hedge funds are all about. The creation of value is not predicated on the production of goods and services but on what a piece of paper will be worth in the future.
“$140 trillion of nothing”
There is no doubt in the minds of many who have actually tried to untangle the complex processes employed, that fraud has been and still is, being committed. Some, like Bernie Madoff whose multi-billion dollar Ponzi scheme finally unraveled, ended up in the slammer, but as Plunder points out, the federal oversight body charged with ‘regulating’ the financial sector (SEC), knew about Madoff’s fraud for at least ten years and did squat about it. And as one of the people in Schecter’s video points out, he only got thrown in jail because he’d ripped off the rich! The offending corporations that did get busted, got let off with fines, not even admitting to their criminal culpability. The ruling class looks after its own.
“$596 trillion, AIG’s total loan guarantees”
“$54 trillion, the world’s total gross national product”
The AIG figure needs some explaining: AIG was using investors’ money to guarantee loans made to all those fraudulent hedge funds on the basis that the investments were solid. Money would be made, and for a while money was made until the banks, pension funds etc who had bought the fraudulent financial ‘instruments’ realized they’d bought trillions of dollars of toxic debt, at which point the bottom fell out of the market and AIG was broke.
Insider trading and betting on ‘shorts’ (that a share price will fall) are intrinsic to the way the stock market works and insider trading especially, is impossible to stop no matter what regulations are in place as it’s extremely difficult to prove that an individual had inside information on a company’s activities except in rare cases.
“Criminal prosecutions over insider dealing have had an unhappy history in the UK. The Serious Fraud Office and the Department of Trade and Industry were involved in a series of flawed cases until the responsibility for prosecuting was handed to the FSA in 2001. But the City regulator has fared little better, mounting just one case in almost eight years. That ended earlier this month in the first conviction for Ms Cole and her team.” — ‘Net tightens on insider trading‘, The Independent, 6 April, 2010
And this is the one problem I have with Plunder. It accurately explains what triggered the current crisis and documents the awful consequences for millions of people around the world but ultimately it implies that had capitalism been properly regulated, the crisis would not have occurred.
However, buried in the movie are inklings of what really happened and the causes and herein lies the one, crucial weakness of the movie namely, unpacking why exactly, capital instead of investing in real products and services ‘chose’ instead to bank on financial speculation in all its weird and wonderful forms in order to maintain the level of profit.
Financialization of capitalism
Capital needs to keep on reproducing itself either through finding new markets or through keeping down the cost of wages (or both), hence the relocation of manufacturing to cheap labour areas such as China.
By the time Reagan had been elected at the beginning of the 1980s, the ‘neo-liberal’ agenda was well underway and the process of deindustrializing the economy was established.
Accompanying this was the (fortuitous?) arrival of the IT revolution that enabled the true, real-time globalization of the financial sector, that along with its deregulation created exactly the right conditions for the invention of the above-mentioned financial ‘instruments’, all of which are based on the invention of wealth but without adding any real value to the economy. Trillions sucked out of the real economy and transferred to hedge funds, private equity companies and the results are all around us: massive unemployment, collapse of entire sectors of the real economy.
The paradox is surely obvious: as capital fled into the fantasy world of speculation, the entire basis of the economy that produced the capital in the first place, collapsed. Without consumption, fueled not only by credit but by the incomes from (the now non-existent) jobs, the real economy collapses. It’s so obvious that it’s inconceivable that the ‘experts’ were not aware of the consequences and undoubtedly they were aware as the comments by Jim Rogers above illustrates.
The question to ask of Plunder is: without recognizing the fundamental contradictions of capitalism, that regardless of whatever ‘safeguards’ are put in place, or removed for that matter, does Plunder convince viewers that capitalism is a broke-down system that needs to be replaced?
Watch the trailer for the movie here.
1. For an historical overview of capitalism as organized crime see my review, ‘Gangster Capitalism – The United States and the Global rise of Organized Crime‘ by Michael Woodiwiss.