The World Financial Crisis

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The collapse of market fundamentalism in economies everywhere is putting the Chicago School theology on trial. Its big lie has been exposed by facts on two levels. The Chicago Boys' claim that helping the rich will also help the poor is not only exposed as not true, it turns out that market fundamentalism hurts not only the poor and the powerless; it hurts everyone, rich and poor, albeit in different ways. When wages are kept low to fight inflation, the low-wage regime causes overcapacity through over investment from excess profit. And monetary easing under such conditions produces hyperinflation that hurts also the rich. The fruits of Friedman test are in - and they are all rotten.

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Toby Fourre wrote:

Over the past couple of weeks, I have read expert opinion that the financial crisis started in 2007.  Now, I suppose I should have expected that, but has there been a conspiracy to keep it quiet?

I don't think it was much of a secret, actually.

[url=http://en.wikipedia.org/wiki/Subprime_mortgage_crisis][u]Wikipedia[/u][/... sez:

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The subprime mortgage crisis is an ongoing financial crisis triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe. The crisis, which has its roots in the closing years of the 20th century, [b]became apparent in 2007[/b] and has exposed pervasive weaknesses in financial industry regulation and the global financial system.

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[b]Welcome to the "Third Slump"[/b]

Excerpted from a very informative and perceptive article:

Phil Hearse wrote:

Ernest Mandel called the market crash and global recession of 1974-5 the ``second slump'' - the first one being of course that of the 1930s, initiated by the stockmarket crash of 1929. [b]We now know that the crash of 2008-9 is more severe, and will have more devastating consequences than that in the 1970s; whether it will be as bad as the 1930s slump we have yet to see.[/b] But it is now clear that this is a fundamental crisis of the neoliberal ``mode of regulation'' which now is under severe pressure and probably cannot survive in its present form….

This article aims to give a brief explanation of why the crash has happened; to situate it in the history of development of capitalism; to discuss possible consequences, especially those for the working class in Britain and internationally; and to suggest political implications for the radical left….

[b]The 1930s recession, despite the ``New Deal'' in the United States, was only overcome by a world war during which huge sections of the economy in Britain and the US were nationalised. By 1938 there were 10 million unemployed in the US. It was only rearmament in the war that overcame the slump.[/b] The post-war settlement, Keynesianism, combined a mixed economy with a significant state sector, together with new social security arrangements, the ``welfare state''. These arrangements led to the so-called ``Golden Age'', the post-war boom based on the mass production of consumer goods which entered into crisis at the end of the 1960s and was plunged into full-scale crisis in 1974-5.

[b]Like all capitalist crises, that of the 1970s was a result of a decline in the rate of profit.[/b] Keynesianism was based on the idea that state spending and corresponding state budget deficits could be used to overcome the secular trend in capitalism towards declining profit levels. But state spending generated unsustainable inflation and mounting budget deficits caused big tax rises that impacted on the spending power of the working class. In the end, Keynesianism could not prevent profit levels declining.

After the collapse of the Keynesian consensus, the capitalist class internationally attempted to push back workers' living standards through austerity and tight money - so-called [b]``monetarism''[/b]. Only gradually into the mid-1980s did a new mode of regulation - [b]neoliberalism[/b] - emerge. This was characterised by the de-regulation of money markets, the dominance of finance capital, privatisation and the ``financialisation'' of all services and utilities, and a strict tying of the fortunes of companies to the value of their shares (stock) on the stock markets. [b]It is this mode of regulation that has now literally gone into massive crisis: it is an open question whether the dominance of finance capital can be rescued. It would take at least a generation for lenders and borrowers to behave again as they did in the 1990s and first part of this century.[/b]

The current financial losses, and those still to come, make a neoliberal, debt-led, reflation highly unlikely. [b]The problem is that the bourgeoisie internationally has already tried a more regulated form of capitalism, Keynesianism. Both Keynesianism and neoliberalism have failed to sustain growing profit without going into periodic crisis.[/b]

[b]The crisis of neoliberalism[/b]

So why did this mode of regulation go into a tail spin? In fact the tendency towards financial crisis inherent in neoliberalism was already announced by the stock market crash of [b]1987[/b], the Asian crash of [b]1997[/b] and the bursting of the ``dot.com'' boom in [b]2000[/b]. Indeed, it is worth remembering that when the present plunge of world markets began in late 2007, they had nothing like recovered their losses in 2000.

[b]The mechanisms of the crash have been widely discussed.[/b] The transition from the Keynesian mixed economy welfare state to neoliberalism entailed a new dominance of finance capital. The normal working of finance capital is basically money lending for interest, what in the Middle Ages was called ``usury''. In the furious competition between money lenders more and more obscure financial instruments are exchanged and some of these turn out to be worthless bits of paper - fictitious capital, like some of the US sub-prime mortgages. When however worthless lending is bundled into packages with performing lending, debts that are really being paid back, the integrity of all debt is called into question.

Moreover the frenzy to lend, make huge profits and thus big bonuses for bankers, leads banks and other financial institution to lend way above what they have by way of a capital base. They do this by borrowing money and then lending it for a profit and then paying it back, still retaining part of the interest for themselves. But if the debt turns out to be insecure, they are unable to pay it back. So they become bankrupt and are taken over or bailed out by a government.

[url=http://links.org.au/node/770][u]Source[/u][/url]

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Why should anybody on babble give a shit what right-wing libertarian Fred Thompson says?

He's using this crisis as an opportunity to bash "liberal" economists and argue for smaller government, lower taxes, and lower social expenditures. In other words, abolition of the welfare state and the social safety net. 

I don't recall Thompson complaining about the US spending trillions on the military, the wars, and the security establishment. It's easy for him to attack government spending, now that it's "unpopular". He's pandering.

He tries to pretend that the crisis could have been avoided if only the government hadn't overspent and over-borrowed. In actual fact, the crisis is a crisis of capitalism, not government. Its causes were beyond the control of governments, just as surely as there is now no governmental "cure" for it.

Don't listen to right-wing demagogues if you want to know why capitalism has fucked up. They haven't got a clue. 

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Walden Bello on [url=http://www.fpif.org/fpiftxt/5765][u]"Global Social Democracy"[/u][/url]

GSD is a concept I was not familiar with until I read this article.

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A new national Keynesianism along Sarkozyan lines, however, is not the only alternative available to global elites. Given the need for global legitimacy to promote their interests in a world where the balance of power is shifting towards the South, western elites might find more attractive an offshoot of European Social Democracy and New Deal liberalism that one might call [b]"Global Social Democracy" or GSD.[/b]

Even before the full unfolding of the financial crisis, partisans of GSD had already been positioning it as alternative to neoliberal globalization in response to the stresses and strains being provoked by the latter. One personality associated with it is British Prime Minister Gordon Brown, who led the European response to the financial meltdown via the partial nationalization of the banks….

Joining Brown in articulating the Global Social Democratic discourse has been a diverse group consisting of, among others, the economist Jeffrey Sachs, George Soros, former UN Secretary General Kofi Annan, the sociologist David Held, Nobel laureate Joseph Stiglitz, and even Bill Gates. There are, of course, differences of nuance in the positions of these people, but the thrust of their perspectives is the same: to bring about a reformed social order and [b]a reinvigorated ideological consensus for global capitalism.[/b]

Among the key propositions advanced by partisans of GSD are the following:

• Globalization is essentially beneficial for the world; the neoliberals have simply botched the job of managing it and selling it to the public;

• It is urgent to save globalization from the neoliberals because globalization is reversible and may, in fact, already be in the process of being reversed;

• Growth and equity may come into conflict, in which case one must prioritize equity;

• Free trade may not, in fact, be beneficial in the long run and may leave the majority poor, so it is important for trade arrangements to be subject to social and environmental conditions;

• Unilateralism must be avoided while fundamental reform of the multilateral institutions and agreements must be undertaken - a process that might involve dumping or neutralizing some of them, like the WTO's Trade-Related Intellectual Property Rights Agreement (TRIPs);

• Global social integration, or reducing inequalities both within and across countries, must accompany global market integration;

• The global debt of developing countries must be cancelled or radically reduced, so the resulting savings can be used to stimulate the local economy, thus contributing to global reflation;

• Poverty and environmental degradation are so severe that a massive aid program or "Marshall Plan" from the North to the South must be mounted within the framework of the "Millennium Development Goals";

• A "Second Green Revolution" must be put into motion, especially in Africa, through the widespread adoption of genetically engineered seeds.

• Huge investments must be devoted to push the global economy along more environmentally sustainable paths, with government taking a leading role ("Green Keynesianism" or "Green Capitalism");

• Military action to solve problems must be deemphasized in favor of diplomacy and "soft power," although humanitarian military intervention in situations involving genocide must be undertaken.

[b]The Limits of Global Social Democracy[/b]

Global Social Democracy has not received much critical attention, perhaps because many progressives are still fighting the last war, that is, against neoliberalism. A critique is urgent, and not only because [b]GSD is neoliberalism's most likely successor.[/b] More important, although GSD has some positive elements, it has, like the old Social Democratic Keynesian paradigm, a number of problematic features.

A critique might begin by highlighting problems with four central elements in the GSD perspective.

[b]First, GSD shares neoliberalism's bias for globalization, differentiating itself mainly by promising to promote globalization better than the neoliberals. This amounts to saying, however, that simply by adding the dimension of "global social integration," an inherently socially and ecologically destructive and disruptive process can be made palatable and acceptable….

Second, GSD shares neoliberalism's preference for the market as the principal mechanism for production, distribution, and consumption, differentiating itself mainly by advocating state action to address market failures….

Third, GSD is a technocratic project, with experts hatching and pushing reforms on society from above, instead of being a participatory project where initiatives percolate from the ground up.

Fourth, GSD, while critical of neoliberalism, accepts the framework of monopoly capitalism, which rests fundamentally on deriving profit from the exploitative extraction of surplus value from labor, is driven from crisis to crisis by inherent tendencies toward overproduction, and tends to push the environment to its limits in its search for profitability.[/b] Like traditional Keynesianism in the national arena, GSD seeks in the global arena a new class compromise that is accompanied by new methods to contain or minimize capitalism's tendency toward crisis. Just as the old Social Democracy and the New Deal stabilized national capitalism, the historical function of Global Social Democracy is to iron out the contradictions of contemporary global capitalism and to relegitimize it after the crisis and chaos left by neoliberalism. [b]GSD is, at root, about social management….[/b]

[b]Reveille for Progressives[/b]

While progressives were engaged in full-scale war against neoliberalism, reformist thinking was percolating in critical establishment circles. [b]This thinking is now about to become policy, and progressives must work double time to engage it.[/b] It is not just a matter of moving from criticism to prescription. The challenge is to overcome the limits to the progressive political imagination imposed by the aggressiveness of the neoliberal challenge in the 1980s combined with the collapse of the bureaucratic socialist regimes in the early 1990s. Progressives should boldly aspire once again to paradigms of social organization that unabashedly aim for equality and participatory democratic control of both the national economy and the global economy as prerequisites for collective and individual liberation.

[b]Like the old post-war Keynesian regime, Global Social Democracy is about social management. In contrast, the progressive perspective is about social liberation.[/b]

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