Socialist perspective on the current crisis
Leo Panitch and Sam Gindin of York University (CA) have a very interesting and (necessarily) long article tracing the hundred year history of the current financial crisis.
It was this long chain of events that led to the massive funding of mortgages, the hedging and default derivatives based on this, the rating agencies AAA rating of them, and their spread onto the books of many foreign institutions. This included the world’s biggest insurance company, AIG, and the great New York investment banks, whose own traditional business of corporate and government finance around the globe was now itself heavily mortgaged to the mortgages that had been sold in poor communities in the US and then resold many times over. The global attraction and strength of American finance was seen to be rooted in its depth and breadth at home, and this meant that when the crisis hit in the sub-prime security market at the heart of the empire, it immediately had implications for the banking systems of many other countries. The scale of the American government’s intervention has certainly been a function of the consequent unraveling of the crisis throughout its integrated domestic financial system. Yet it is also important to understand this in terms of its imperial responsibilities as the state of global capital.
This is why it fell to the Fed to repeatedly pump billions of dollars via foreign central banks into inter-bank markets abroad, where banks balance their books through the overnight borrowing of dollars from other banks. And an important factor in the nationalizations of Fannie Mae and Freddie Mac was the need to redeem the expectations of foreign investors (including the Japanese and Chinese central banks) that the US government would never default on its debt obligations. It is for this reason that even those foreign leaders who have opportunistically pronounced the end of American ‘financial superpower status’ have credited the US Treasury for ‘acting not just in the US interests but also in the interests of other nations.’[3] The US was not being altruistic in doing this, since not to do it would have risked a run on the dollar. But this is precisely the point. The American state cannot act in the interests of American capitalism without also reflecting the logic of American capitalism’s integration with global capitalism both economically and politically. This is why it is always misleading to portray the American state as merely representing its ‘national interest’ while ignoring the structural role it plays in the making and reproduction of global capitalism.
Their solution?
The scale of the crisis and the popular outrage today provide a historic opening for the renewal of the kind of radical politics that advances a systemic alternative to capitalism. It would be a tragedy if a far more ambitious goal than making financial capital more prudent did not now come back on the agenda. In terms of immediate reforms and the mobilizations needed to win them – and given that we are in a situation when public debt is the only safe debt – this should start with demands for vast programs to provide for collective services and infrastructures that not only compensate for those that have atrophied but meet new definitions of basic human needs and come to terms with today’s ecological challenges.
Such reforms would soon come up against the limits posed by the reproduction of capitalism. This is why it is so important to raise not merely the regulation of finance but the transformation and democratization of the whole financial system. This would have to involve not only capital controls in relation to international finance but also controls over domestic investment, since the point of taking control over finance is to transform the uses to which it is now put. And it would also require much more than this in terms of the democratization of both the broader economy and the state.
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