FINANCIAL MARKET CAPITALISM

By Dietmar Wittich

[This foreword by the editor of Utopia Kreativ is translated from the German on the World Wide Web, www.rosalux.de/cms/index.php.]

“Panta rhei” – all things are flowing, all appearance is in constant change. This discovery of the ancient dialectician Heraclitus has not lost its validity after two- and-a-half millennia. That some named themselves as the winners of history for nearly two decades and proclaimed a glorified capitalism as the end of history cannot change this at all.

“Everything flows, everything changes.” This is also true for neoliberalism and its globalized finance market capitalism. The term “neoliberalism” does not fulfill what it promises. This current hegemonial ideology is not new. Since the Phoenicians invented money, people with the battle cry “enrichez vous!” sought to legitimate their own unrestrained self-enrichment. It is not liberal because it is not libertarian. All freedom is demanded for capital, even though human dependences are intensified and human existences destroyed.

This finance market capitalism is in a crisis. This crisis had its origin in the massive loss in value of heavily indebted real estate in the US. It isn’t limited to this sector because – as Marx knew – it doesn’t make any difference to capital (and its owners) what form it has; it is “value exploiting itself.” “This is a worldwide crisis. German banks and German capital cannot uncouple although some professional faith healers conjure this again and again. This crisis of globalized finance market capitalism obviously has not ended. It has also seized the ideology of finance market capitalism, neoliberalism. One of its chief gurus, the former chairman of the US Federal Reserve, Alan Greenspan, characterizes the present crisis as a century event and sees no light at the end of the tunnel. Many banks will be squeezed out before the “securities” are secure again.

The crises of finance market capitalism and neoliberalism do not mean their end is imminent. They are dominant modes of production and exploitation and the hegemonial forms in a quasi-naturally growing process. Their overcoming is not automatic. Strong social forces are needed. Leaders of the German Protestant church adopt the legitimation models. This shows their present dominance.

The dominant socio-economic and ideological conditions are still strong enough to reproduce dominance and further their territorial expansion. Their strength consists in governing in the most important capitalist metropolises. Essential changes in the state’s radius in these countries have occurred in the last two decades. The traditional picture of the state no longer sets t6he framing conditions for a free development of the economy. The state has become a functionary that uses its resources to enforce neoliberal concepts. This appears in the bailout of banks thrown in a whirlpool by speculative losses and in the excessive use of state power against critics and demonstrators as at the 2007 world economic summit in Heiligendamm. In the last decade, an increasing redistribution from bottom to top and a considerable deregulation have occurred simultaneously. As a result, there is now as much poverty in the richest capitalist metropolises as at the end of the Second World War. At the same time social risks are increasingly privatized and expanded.

Still this is only one side of the situation. The crisis shows that the supremacy of finance capitalism and neoliberal ideology is not “unfailing.” How should it be explained that leading managers of capital commit tax evasion in the millions, when a global player of an active conglomerate makes corruption into a quasi-official business strategy and when “investors” drive whole department stores into bankruptcy. There are also changes in the political structures. The governing parties are losing members and voters. The circle closes. Counter-actors like the German Left party must seize these possibilities.

IN EMERGENCY, NEOLIBERALS BECOME STATE SOCIALISTS

No final anchor. The US government has taken over the mammoth mortgage financiers Fannie Mae and Freddie Mac and refused Lehman Brothers

By Klaas Anders

[This article published in: Freitag 38, 9/19/2008 is translated from the German on the World Wide Web, www.freitag.de/2008/38/08380801.php.]

At the beginning of September 2008, the Bush administration resolved an unusual and necessary step. The two mammoth mortgage banks of the country, Fannie Mae and Freddie Mac, were de facto nationalized to avert the threatening collapse. Estimates of the cost to taxpayers of the nationalization of the rotten debts and serious losses of both houses vary between $200 and $300 billion.

The stock market reacted almost euphorically to this step but the joy only lasted days. This is no surprise when one sees who was bailed out and at what price. Fannie and Freddie always had a special status and could claim a quasi-state guarantee. They could take over gigantic sums of mortgage debts at extremely favorable conditions with little of their own capital resources (above all from smaller US banks). The mortgage derivatives of the two were gladly accepted and regarded as nearly as safe as US government bonds. Six trillion dollars of mortgage debts – half of all the obligations of the US mortgage market in the fall of 2008 – were in the hands of Fannie and Freddie.

When the crisis broke out in 2007, nothing happened without the two de facto state enterprises. Their shares, preferred stocks and debt instruments filled the portfolios of all US banks, including players like JP Morgan, Chase and Bancorp. They had invested dozens of billions of dollars in securities of Fannie and Freddie. Foreign investors including 66 central banks had Fannie Mae and Freddie Mac papers worth $1.5 trillion. China, Japan, Luxemburg and Belgium jumped in and were promoted as the largest creditors. Therefore Fannie and Freddie did not perish while Lehman Brothers capsized. The American state is careful when it takes over businesses.

What is happening now? The US government at the moment buys out preferred stock and obligations from Fannie Mae and Freddie Mac (according to the recovery plan it can acquire nearly 60 percent of the property title). This makes the big banks happy. The US government buys loans secured with Fannie and Freddie. This makes foreign investors happy, particularly the central banks. The US government allows Fannie and Freddie to issue new mortgage credits (worth up to $145 billion). That makes bankers and realtors happy. The joy will only last as long as the Bush administration can play its role as the last anchor for degenerate financial institutions. The debts of Fannie and Freddie - $3.7 trillion in the worst case – are added to the nine trillion dollars of debts of the American state. This is actually an impossibility. The pressure on US government bonds sought worldwide grows enormously. Theoretically no state can afford this. However the American state must afford it because it cannot afford a collapse of the private banking- and financial system.

In the past, US governments in every financial crisis acted according to the pattern – bail them out and shut them up. One thinks only of the world economic crisis of the early 1930s when President Roosevelt ordered a three-day bank closing after taking office in 1933 to reassure nervous depositors. He signed the Glass-Stegal Act in which a Federal Deposit Insurance Corp (FDIC) was created that still exists today.

However in September 2008 the morsel is larger than everything the community – especially the taxpayers – had to socialize in private losses. As the Lehman Brothers case illustrates, the pain threshold has long been crossed.