Sunday, March 31, 2013

The Mirage of Bankers Guilt

The 2008 banking crash was triggered by the sub-prime mortgage scandal in America. As the real estate boom was peaking, millions of poorer US citizens were lured into home ownership on the back of easy-to-get, low-interest mortgages. Seemingly ever-rising house prices held out the promise of realising their own American dream. These burgeoning sub-prime loans were then bundled together, sliced and diced, and sold on as investment grade securities all around the world. But when American interest rates started rising again and mortgage defaults soared, the music suddenly stopped.

Three economists – two at the University of Michigan, one at Princeton, Cheng, Raina and Xiong sampled attendees at the 2006 American Securitisation Forum, the largest industry conference of its type in the US. These were vice-presidents, managing directors and other executives on both sides of the trade in securitised mortgage products at the heart of this story. Using public databases covering such things as deed transfers and property tax assessments, the researchers were able to track the personal property transaction history of their entire sample. They also compared it with two other control samples, one of S&P 500 equity analysts who did not cover housebuilders, the other a random sample of lawyers who did not specialise in real estate law.

They found little evidence that their sample of these experts in securitisation knew the crash was coming. Typically they increased, rather than decreased, their own housing exposure as the boom peaked. Buying second homes. Upgrading main residences. Moving into up-market areas like Southern California. They were more caught up in grabbing their own slice of the housing action than either of the other two control samples. The homes they bought between 2004 and 2006 were among those most aggressively sold after the bubble burst. In terms of their own housing exposure, those on the sell side of securitisation plunged in deepest. Even the people purportedly orchestrating the sub-prime boom held the belief that the bubble would still grow. Confirmation to socialists that the causes of capital crises can only be detected in retrospect and that those involved and instigating them are as blind to pending crashes as everybody else.

Bourgeois economists, regardless of which school, cannot understand the crisis. According to their understanding, economic crises on principle cannot be explained by its inner contradictions but only by non-economic factors like political mistakes and financial regulation failings. Capitalism creates global crises where the effects of events which may have occurred in the past suddenly have its delayed impact on people today. It leaves people confused and looking for soemthing or someone to blame.
The ruling class are all too happy to provide scapegoats for the people to condemn, be they “lazy people,” illegal immigrants, or trade unions. Of course the “left” look for their scapegoats, and while they are slightly more deserving of blame, the focus is restricted to certain actors in the capitalist system, instead of looking at the system itself. These scapegoats have been the bankers and financial traders.
We find widespread support for the idea that finance capital, banks and ‘speculators’ are responsible for most of the evils of capitalism, because they supposedly extract their profit at the expense of “honest labour” and of “productive entrepreneurship”, without themselves lifting a finger. Thus the frequent denouncements of the e greed” of speculators who are supposedly in search of excessive rates of return, as if capitalist production were not by its very nature based on the very idea of maximisation of profit, as if it doesn’t already stop at nothing in pursuit of that aim. It is thus ridiculous to condemn banks for their losses in property speculation. They have only done what everyone expects of them in a boom: invested “their” money as profitably as possible. If they hadn’t, the same experts who are now shouting “scandal” because of the high losses would certainly have criticised them for excessive caution. For the capitalist who wants to remain in business, not turning a profit is not an option. In order to be successful as a capitalist, one must play by the rules. In this system, multiple capitalists enter the market and attempt to out-compete one another for the largest market share. This inevitably forces all the “players” to adopt certain behaviors so as to maintain their position or advance.

On the surface it looks as if the financial markets constitute the original cause of the increasing economic pressure on society as a whole. No-one will deny that the markets have taken on significant levels influence than ever on economic development. But does that amount to blaming them primarily for social misery? Focusing on particular capitalists as greedy makes it seem like the problem isn’t the system, but rather a question of the “wrong” people. The other problem with attributing society’s problems to greed is that it implies that there can be friendly, not-so-greedy capitalists who could change society in such a way that benefits everyone. This misconception leads to another gross error, whereby capitalists who express “progressive” ideals are lauded and admired without regard to how they appropriated their wealth.
Those who have for years seen the causes of every economic and social fissure – mass unemployment, pressure on wages, increased local competition and the tearing down of social security – in the fact that speculation has been set free and become an end in itself, and who see regulation and control of the financial markets as the key to solving these problems, now feel that their views have been confirmed. But this is clearly no Marxist critique of capitalism. A look at history shows that the development of large-scale speculative and credit-bubbles has never been the cause of capitalist crises; rather, it has always been simply a consequence and stage in the development of the crisis-process.This is no less true for the current financial crisis and for the long period of speculation that preceded it, even if there are certain characteristics that distinguish it from previous crises. This is not to claim that speculation and the financial markets should be placed beyond critique. There is fundamentally nothing to be said against taking money away from the rich by taxing them, cutting excessive CEO remuneration and bonuses in order to distribute it to the less well-off but the function that these demands fulfil in political debate is diversionary , because they serve only to brand scapegoats and to diffuse moral outrage, thus masking the true culprit of capitalism. Yet both the Right and Left-wing demand that capitalism be saved. The only differences lie in the detail – that is to say, whether or not it should be through the “free"-market or a left policy of nationalisation, and who should bear the cost.
Those who suggest massive public borrowing as the way out of the recession simply delay the problems. The sums needed to repay the burden of interest-payments on the amassed debts will grow equally as massive and can never be saved through restrictive policies of austerity. It will be the real the case that the mass of waged and unemployed workers will feel the effects because the debt will serve as a brutal restriction on future politics, no matter for which party. General infrastructure, social welfare, public health-care will be dismantled further, wages and pensions decreased (through cuts and as a result of inflation), and the number of ‘superfluous’ people will continue to grow. Administration of the crisis, for them, means food banks, authoritarian welfare benefit rules and more exclusions. Even political parties that are elected on promises of social reforms will follow this logic of capitalism.

The evil of capitalism is not that the system is run by greedy, cold-hearted people, but rather that it forces people to act in this manner in order to survive. Greed is rewarded, cooperation and altruism are punished. Marxists distance ourselves from any personification of it. It was not because of the “greedy bankers” who allegedly gambled and squandered trillions, and those “speculators” on the financial markets who are the problem, but the utter absurdity of a society that produces wealth only to accumulate even more wealth, rather than satisfy peoples real needs. This personification of blame overlooks the fact that a society has been impoverished in the middle of abundance simply because all wealth is produced as a commodity to sell. It is just completely insane to claim that we live beyond our means and have to tighten our belts in the face of enormously high levels of productivity. The opposite is true. We in no way have lived above our means. If we were to make full use of the possibilities of modern productive power, every person in the world could have a good life and would only have to spend a fraction of their lifetime producing material goods. The existing potentials of productivity can be used to permanently maintain the natural foundations of life The only reason that doesn’t happen is because businesses are required to obeys the compulsion to produce what Marx called “surplus value”. If we free ourselves from the idea that goods can only be produced as commodities, then a whole new perspective opens up. Specifically, we could ask how and in what ways the existing productive potential could be meaningfully be put to use for the general welfare without having to think about financial viability, marketability, or profitability. In some ways it is already happening, for instance, in the practices of some social-movements in Spain where evictions are prevented because people don’t see why anyone should have to live on the street simply because they can’t pay their mortgage or their rent anymore. Those are first steps that point in the right direction. When they become linked with a socialist critique of capitalism the then a whole new horizon of social emancipation opens up. Socialism Is not a long list of ideals about how things should be, but instead a mode of production and society which will grow out of capitalist society, once capitalism’s internal contradictions had been overcome.

The return to a supposedly more “stable” capitalism is not worth striving for.

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