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Monthly Archives: November 2011

Great article by Ramaa Vasudevan, an economist from Colorado State University, originally published in Dollars & Sense in August 2008, explaining ‘financialisation’: “the increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy and its governing institutions” (this definition is from University of Massachusetts economist Gerald Epstein).

Vasudevan argues that traditional conceptions of finance as the ‘mediator’ of capital – ensuring its allocation to production within the ‘real economy’ – have been dramatically transformed by processes of financialisation. Instead, finance increasingly operates to transform “future streams of income (from profits, dividends, or interest payments) into a tradable asset like a stock or a bond.” For example, the packaging of multiple mortgage contracts into a new financial asset (a collateralised debt obligation) which is sold to investors – who hav essentially invested into the future income stream of the household who have taken out the mortgage contract. This has elevated the economic, political and social power of ‘rentiers’ (those who make profit from ownership not production):

“The arena of finance can at times appear to be merely a casino—albeit a huge one—where everyone gets to place her bets and ride her luck. But the financial system carries a far deeper significance for people’s lives. Financial assets and liabilities represent claims on ownership and property; they embody the social relations of an economy at a particular time in history. In this sense, the recent process of financialization implies the increasing political and economic power of a particular segment of the capitalist class: rentiers. Accelerating financial transactions and the profusion of financial techniques have fuelled an extraordinary enrichment of this elite.”

Secondly, financialisation means increased consumer debt – “credit as an individualistic means of addressing wage stagnation” – which results in a form of “social coercion that erodes working-class solidarity”.

Read the full article here.

First published in Mute Magazine, Graeber argues that to fully understand debt within contemporary society, and particularly within the context of the financial crisis, we need to examine its history. He finds it to be one inextricably bound with violence, the remnants of which we too often overlook in our present economic system:

“What follows is a fragment of a much larger project of research on debt and debt money in human history. The first and overwhelming conclusion of this project is that in studying economic history, we tend to systematically ignore the role of violence, the absolutely central role of war and slavery in creating and shaping the basic institutions of what we now call ‘the economy’. What’s more, origins matter. The violence may be invisible, but it remains inscribed in the very logic of our economic common sense, in the apparently self-evident nature of institutions that simply would never and could never exist outside of the monopoly of violence – but also, the systematic threat of violence – maintained by the contemporary state.”

See here for the full article.

Economist Duncan Weldon, on the False Economy blog, examines the Office for Budget Responsibility’s debt forecasts and finds a predicted increase of 35.5% in household debt between 2010 and 2015, with the income to debt ratio (i.e. a measure of how easily people manage to pay their debt) expected to hit an all time high. It’s not good news for us.

Duncan Weldon shows how the OBR’s own figures reflect the impact of Osborne’s cuts on public debt:

“…the OBR forecast for June 2010 (pdf) – before his [Osborne’s] first budget – predicted that household debt in 2014 would stand at £1,718bn. But following two Osborne budgets that number has now been revised up to £1,963bn – an increase of £245bn. In other words as a result of Osborne’s policies the direct debt burden on UK households is set to increase by nearly a quarter of a trillion pounds in the next three years.”

In other words, Osborne’s cuts are aimed at cutting the ‘public debt’ (government debt), but expect a rise in private household debt as people have to cover the reduction, or total disappearance, of public services.

“Back in June last year, before Osborne’s policy changes, the OBR forecast (pdf) that public sector net debt (government debt) would be £1,294bn in 2013/14. After two budgets and a spending review they have revised that (pdf) to £1,251bn – a reduction of only £43bn.

Here we can clearly see the impact of Osborne’s changes over the next three years: public debt down by £43bn BUT private household debt up by £245bn – five times as much.”

Private household debt can mean more business for the banks. This seems like yet another way that the crisis is being transfered from the private banks to the public…

Read the full article on the False Economy blog here.

David Runciman examines Nicholas Shaxson’s Treasure Islands: Tax Havens and the Men who Stole the World in the London Review of Books.

“Shaxson’s book explains how and why London became the centre of what he calls a ‘spider’s web’ of offshore activities (and in the process such a comfortable home for the likes of Saif Gaddafi). It is because offshore is the offshoot of an empire in decline. It perfectly suited a country with the appearance of grandeur and traditionally high standards, but underneath it all a reek of desperation and the pressing need for more cash…”

“…the rise of the City [of London] as the favourite place for foreigners to park their money, no matter who they were or where it came from, is related to imperial decline. After the Second World War, sterling still financed much of global trade, but the British economy was no longer able to sustain the value of the pound against the dollar. In the aftermath of Suez, which caused a run on the pound, the government attempted to impose curbs on the overseas lending of London’s merchant banks. The response of the banks, with the connivance of the Bank of England, was to shift their international lending into dollars. The result was the creation of the so-called ‘Eurodollar market’ – which was effectively an offshore haven. Because the trade was happening in dollars, the British saw no need to tax or regulate it; because it was happening in London, the Americans had no means to tax or regulate it.”

See here for the full article.

A new report by Spinwatch, titled ‘How Goldman Sachs Rigs the Game’, has been published. Revealing multiple links between the investment bank and the Conservative Party, the report exposes how the extensive lobbying activities of Goldman Sachs both in the UK and at the EU has allowed it to capture politicians and political processes to its own destructive advantage.

“…the special allure and danger of an elaborate credit system lie in its relationship to class society. If more capital has been accumulated than can be realised as a profit through exchange, owing perhaps to ‘the poverty and restricted consumption of the masses’ that Marx at one point declared ‘the ultimate reason for all real crises’, this condition can be temporarily concealed, and its consequences postponed, by the confection of fictitious values in excess of any real values on the verge of production. In this way, growth and profitability in the financial system can substitute for the impaired growth and profitability of the class-ridden system of actual production. By adding over-financialisation, as it were, to his model of overaccumulation, Harvey means to show how an initial contradiction between production and realisation later ‘becomes, via the agency of the credit system, an outright antagonism’ between the financial system of fictitious values and its monetary base, founded on commodity values. This antagonism then ‘forms the rock on which accumulation ultimately founders’. In social terms, this will take the form of a contest between creditors and debtors over who is to suffer more devaluation.”

Review of David Harvey’s The Enigma of Capital and A Companion to Marx’s ‘Capital’, by Benjamin Kunkel in the London Review of Books.

An article by Dariush Sokolov originally published by Libcom explores four dominant ‘stories’ attempting to explain the financial and economic crisis.

Overview and comparison of different theories about the crisis – Keynesians, stagnationists, Marxists, globalisation.

crisis stories
These notes come from the reading I’ve done recently trying to understand the causes of the current economic crisis. There are thousands of books, essays and articles out there now, but they all work within a few basic explanations or underlying “stories”. Here I outline and compare four of the main ones.

I’m not trying to present a new “anarchist interpretation of the crisis”, or to say anything particularly original. Just, hopefully, to help clarify some of the theoretical and ideological background to all the punditry, and bring some ideas and links together so that people can dig further for themselves.

Number one is the mainstream “Keynesian” story. Basically, corrupt and/or stupid politicians and regulators took the leash off greedy and/or irrational bankers. The more sophisticated version traces things back to problems of market psychology – as Keynes put it, the “animal spirits” of investors.

According to alternative left (mainly Marxist) theories, crises come from deeper “structural” flaws in capitalist production. There are two main variants to look at: underconsumptionist or “stagnation” theories (e.g., the “Monthly Review” school); and falling rate of profit theories (e.g., some Marxist academics, and basically any Trotskyist party line.)

All of these stories are about troubles in the developed markets of the US and the rest of the “first world”. But could the root causes lie in global economic shifts away from US dominance to a world where production is elsewhere? This is the fourth and last story.

Continue reading the article here.

Interesting Daily Mirror investigation, added to by Ann Pettifor’s investigation of the ‘bank-owned-state’, details the banking and finance backgrounds, and continuing employment, of Tory MPs and peers.

“Altogether there are more Tory MPs who have been on the banks’ payroll than the total number of Lib Dem politicians.” 134 of the 498 Tory MPs and peers “have been or are employed in the financial sector”.

And we are supposed to be surprised that the government fails to restrict bankers bonuses? Or indeed takes any longer-term, substantial, effective, world-changing action to reign in the destructive power of the banking and finance sector…?

The ethical bank? The Co-op Bank and aviation

Article from the Manchester Mule which reveals the Co-operative bank’s provision of £40 million over the next five years to the Manchester Airports Group. The bank prides itself on its ‘Ethical Investment Policy’ which places the prevention of climate change at its heart. Manchester Airport is responsible for 5 million tonnes of carbon dioxide emissions every year which will increase if plans to expand the airport and double passenger numbers by 2030 go ahead. These plans will result in the demolition of local homes.

So to that part of the population who are working, austerity means some will be working harder, longer, some will be working less, and shorter, but all will be reproducing a lesser social basis for reproduction. All that was substantial will become marginal, and the marginal will become substantially greater.

For that part of the population retired and receiving a pension, fewer will retire; fewer will receive pensions, those that do will receive less.

For that part of the population born into poverty, deprived of a basic, necessary education, of proper medical care, even more will be born into greater poverty. Even more will be cheated of and by an even poorer education. Even more will be excluded from already inadequate medical care.

All value must be devalued. “Everything must go!” is the slogan of this bourgeoisie’s staying in business forced liquidation sale.

Essential reading at The Wolf Report

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