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Financial Crisis: A new manifestation of capitalism’s bankruptcy

Since the beginning of this year, the financial crisis has been at the forefront of the world scene. Little by little, the core of the problem and of bourgeois preoccupations has shifted to a single sector, that of America’s “sub prime mortgages” (the now famous “sub primes”) to overwhelm major banks and financial houses (Merrill Lynch, Morgan Stanley, in the USA as well as European banks such as Société Générale of France, UBS in Switzerland or Mizuho of Japan). The bursting of the speculative bubble – of which the “subprimes” are only the tip of the iceberg – can only intensify. These are the years of cheap credit, and deferral into the future of the incontrovertible blockages of a capitalism, which finds itself exposed, and at a total dead-end.

Today, following the major banks, institutions known as “bond insurers” are in the eye of the hurricane. The role of these companies is to insure loan agencies against the risks of bankruptcy and non-payment by their clients. We’ve reached a new stage where now the guarantors as well as the guarantees are threatened with collapse.

The earth shaking consequences for the world as a whole on the level of changes in the balance of forces between different imperialisms and on the level of measures which will surely be taken against the standard of living of populations in general – and the working class in particular – these consequences will have no parallel with anything we’ve seen in recent years.

In the following, we propose to trace the general lines of impact implied by this crisis on these two levels, but before this, it’s necessary to elaborate on some key points.

Economic crisis – the collapse of capitalism or reorganization?

The periods of open crisis are not accidental nor in themselves totally detrimental for capitalism – we have examined this question in the last issue of the bulletin 1. These periods also represent a breathing space for capitalism (a gasp, as it were), a way to “regulate”, albeit painfully, imbalances caused by its system. In the present situation, one also observes that though certain banks and financial institutions are threatened with bankruptcy and disappearance, other banks and institutions are (albeit for the moment), strengthened, profiting from the misfortune of the former. This was the case with investment bank Goldman Sachs whose profit increased by 80% in the third quarter 2007 to 2.8 billion dollars (according to the internet site “lesechos.fr”, 03/02/08). In this phase, enormous masses of capital will disappear as a result of the crisis and many banks and other enterprises will be ruined; but certain banks and certain companies will resist and come away reinforced. Such are the rules of the game.

Meanwhile under circumstances of generalized overproduction which has been the case with capitalism since the end of the period of post-2^nd world war reconstruction – the end of the 1960s – the destruction of capital that will result from this phase of the crisis won't be a "solution", won't avoid, nor even minimize its devastating effects. The businesses that will come out of it strengthened will absorb those that have fallen and we will witness a new concentration of business monopoly. But as severe a “purge” as capitalism will undergo this time, it will do nothing to solve the matter of overproduction. The whole experience of the 20^th century has shown us that only generalized imperialist war can play the role of regulator for the problems posed for the bourgeoisie by the endemic crisis of overproduction. Without the massive destruction of the infrastructures of production, factories, etc., the disappearance of capital by itself under its monetary or financial form can only have the effect of postponing for a few months or a few years the acute phase of the crisis. And this at the cost of a never before seen misery for the world’s population.

What capitalism has in store for us

The general mistrust that has befallen the various players in the financial system, accentuating the shortage of liquidity on the market, driven to what at first sight are surprising circumstances, is altogether significant. To meet their immediate obligations and reinflate their treasuries threatened by losses related to their involvement with risky credits, the banks are forced to have recourse to massive recapitalisation, i.e. raising funds, to borrow. Yet, it’s precisely on the North American or European markets, that capital is lacking and that suspicion rules. Thus, one sees “sovereign funds” going to the aid of financial institutions and the most prestigious banks. These sovereign funds are, in fact, from capital reserves constituted by the States which, by this means manage their financial surpluses and money supply, investing them over the long term in varied placements (stocks, bonds, real estate, etc.). The principal sovereign funds are those of Abu Dhabi, Singapore, Kuwait, China, Qatar, Russia, etc., and it is particularly interesting that these are the types of funds that will be brought in to take – at least in part – control of the financial institutions and leading banks.

This can’t but have consequences at the level of international relations insofar as the countries holding sovereign funds have every reason to want to intervene in the national policies of countries where the borrowers are located.

Will the major and middling imperialist powers tolerate this level of interference?

Financial Crisis and imperialism

We know that the USA’s enormous debt is financed to a large extent by countries such as China, India or Japan whose monetary reserves are held in US dollars and represent approximately 75% of the US debt 2. The relative stability of these countries, especially their significant rate of growth (for the first two, at least) is directly related to the USA’s domestic consumption. It is a credit driven consumption and a crisis of credit can only lead to a brutal drop in US imports, thus plunging those exporting countries into a crisis as well. Furthermore, depreciation of the dollar in relation to other currencies (the euro in particular) leads to depreciation of the reserves supported by US currency and to a marked impoverishment of the countries involved. This can only lead them to try to reorient their reserves towards other currencies (the euro obviously), which in its turn, leads to a weakening of the role and influence of the USA. They cannot continue without reacting to this threat. As well, other imperialist powers (Germany, Russia, France, etc.) fully intend to benefit from the situation to promote their own interests. The policy of Germany towards Central Europe and Russia in this instance is significant; it is the same, for example, for the attempts of France to best play its own card, in proposing in all places its nuclear reactors and its weapons, in doing its best to secure a military presence in the zones where, until now, only the US had the means to intervene (Middle East, Persian Gulf, etc.)

The current financial crisis did not create inter-imperialist competition; however it gave it a serious kick-start. For example, the question of which alliances China or India will choose becomes much more crucial and extreme if sovereign funds of these countries takes partial control of financial and banking institutions of the principle capitalist countries.

Such matters strike closer and closer to the heart of imperialist relations and can only lead to military confrontations between the principle powers – by countries interposed from the beginning.

But, whilst this competition is exacerbated, each national capital is obliged to make its population pay for the crisis, through its working class.

The anti-working class measures to come

Attacks against living and working conditions have been ongoing for years and the current financial crisis can only make them worse. American households that have endured the full wallop of the mortgage loans crisis are being thrown out of their homes, for which they already paid dearly. They find themselves with nothing, on the street and, what’s more, still with outstanding loans to pay for what’s been taken from them. These are, as it were, the first victims of this “sub prime crisis”. The companies that authorized these appropriations at risk and which are in disastrous situations will be forced either to close, or to cut their workforce. The employees of these companies are yet other victims of this crisis, which have generated enormous profits they never received any fruit of, since these profits have been distributed to the shareholders.

We mentioned above that, for capitalism, the crisis is a kind of “breathing space” and that companies that go bankrupt are repurchased by those which survive. Thus, Goldman-Sachs profits from the crisis and leaves it fortified, just as BNP plans to repurchase the General Company (see AFP dispatch of the 01/02/08),

Repurchases, mergers, acquisitions of one company by another lead in general to reduced employment, which, in technocratic terms is called “economies of scale” or “reorganization” Whoah! We have a very blatant example of this with Goldman-Sachs banks:

“A reduction of 5% of its workforce. That’s what a spokesman from Goldman-Sachs has just announced, specifying that this measure concerns 1,500 employees within this American investment bank.”(site Internet lesechos.fr. op.cit.)

But all cynicism aside, this is only an appetizer compared to what awaits the world working class. More precisely, these are specific attacks (even if they are many and widespread) which will continue of course, but which will be associated with a global generalization of repressive measures.

One of the primary consequences of this financial crisis will be and can only be yet another rise in inflation. In fact, the US policy of lowering rates and releasing liquidities on the market to prevent (or at least try to prevent) the recession, only leads to inflation, i.e. the general rise of prices (basically it takes more dollars to buy the same goods). This inflationary spiral can only extend to the world as a whole, whatever the policy adopted by the European Central Bank (ECB) which, for its part, plays the game in reverse – to fight inflation to the detriment of growth. It is more than likely besides that the result will be inflation and recession at once, both of which will have disastrous effects on the living conditions of the working masses and other exploited classes.

Then, each capital will seek, even more than it does already, to protect itself from the general storm and thus to weather the crisis better than its competitors. That implies an increase in the exploitation of the labour force, an aggravation to working conditions and the lives of workers. On the one hand, increasing working hours (weekly, yearly, etc. extending the number of working years before eligibility for pensions) for those who keep their jobs. On the other hand, layoffs and massive unemployment, deterioration of unemployment benefits, conditions more difficult to tolerate etc., for others.

And for everyone, increase in retirement contributions, for healthcare, deterioration of health services and escalating payments for care.

Here is the panorama offered to the proletariat. Tens of millions unemployed with little or no resources, an increase in work hours, brutal working conditions, diminishing wages further eroded by galloping inflation, limitation of access to the most elementary care and, above all, the escalating threats of generalized war, its current preparations made at the cost of our sweat and our tomorrows – of our blood if we do not put an end to this rotten system.

February 3, 2008

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