the Voice of
The Communist League of Revolutionary Workers–Internationalist
“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx
Sep 22, 2008
The following article is translated from the September 19th issue of Lutte Ouvrière [Workers Struggle], the newspaper of the revolutionary Trotskyist group of the same name, active in France. It was written before the announcement of the monster bail-out centering on U.S. mortgage-securities.
The bankruptcy of Lehman Brothers bank, one of the pillars of Wall Street, and the rescue of the AIG insurance company from its death throes, show that the crisis of the capitalist economy, which began with the subprime mortgage crisis and grew into a financial crisis, has entered a serious phase.
Because of its financial system, the entire capitalist economy is failing. Capitalism's economic experts have stepped up their international meetings. Clearly they have no control over events. Their economy, whose control they monopolize and from which they are the only ones to profit, is completely escaping them. They indulge in assuring everyone that everything is under control. Or they speak like Alan Greenspan, the former head of the Federal Reserve, who said that the current situation is a "once-in-a-half-century, probably once-in-a-century type event," the worst in his career. The stock market crash of 1929, the beginning of the longest economic depression the capitalist system has known so far, casts its shadow over even those responsible for the situation.
The nervous twitches of the U.S. government reflect the panic and hesitations of the leaders of the capitalist world. Last March, the Federal Reserve provided 29 billion dollars to aid Bear Stearns, one of the leading U.S. investment banks, pushed to bankruptcy by the crisis.
A little over two weeks ago, the U.S. government announced it was nationalizing Freddie Mac and Fannie Mae, the two giants specializing in real estate loans. The take-over meant that the U.S. government put up the colossal sum of two hundred billion dollars.
But then, with a 180-degree turn, it refused to come to the aid of Lehman Brothers. The next day there was a new turn, when once again it opened its treasury vaults to save AIG, one the largest insurance companies in the world, which teetered on the edge of an abyss.
With deregulation, insurance companies, like any businesses with money on hand, became completely free to devote themselves to financial operations. All of them have speculated in the infamous securitized subprime mortgages, which for several years brought in a big return before they collapsed last summer. All the banks have these rotten securities on their books, which today are worth no more than the paper they"re printed on. As a result, the balance sheet of bank after bank has plunged into the red.
This terrified all those involved in this business. Money fled. The mistrust of the banks toward one another dried up the circulation of money. Panic pushed the holders of stock in affected banks or businesses to get rid of these shares as quickly as possible. Stock prices fell. Lehman Brothers' shares went from $60 a year ago to 20¢! And the stock prices of the two remaining big investment banks tumbled.
For several months since the beginning of the banks' crisis of confidence, the heads of the central banks and economic ministers put out soothing declarations, while pouring tens of billions of Euros and U.S. dollars into saving the stakes of the speculators, refilling the money circuits among the big banks. But they didn't succeed in reestablishing confidence.
The Fed seemed to hesitate, zigzagging day-by-day between two strategies, one as risky as the other and completely contradictory.
To let a bank like Lehman Brothers collapse means that the failed bank won't be able to pay back debts it owes to other banks. In turn, that could risk pushing those other banks toward bankruptcy.
But when the Fed or the Treasury gives many billions of dollars to save one bank, aren't they encouraging all the speculators, including the wildest? Why not speculate? In this giant casino game, when you win, you get the money, but when you lose, it's the state that pays off your debts!
There is another reason which restrains the Fed from its urge to run to the aid of any threatened bank. However powerful the financial means of the Federal Reserve are, they have limits. Just the two hundred billion dollars spent to nationalize Freddie Mac and Fannie Mae, that is, to compensate the speculators, represents a quarter of the Fed's reserves.
When it costs several tens of billions of dollars just to save one bank, if the Fed used its reserves to help out all the banks lacking cash, it would quickly use up all these reserves.
The U.S. state certainly could print money or create money in the modern, computerized fashion. But this would demonstrate to everyone, both the big banks of the world and the nation-states, that the dollar is no longer worth anything, that the U.S. treasury bonds they are holding in their reserves are only pieces of paper. By trying to restore the confidence of the U.S. banks toward one another, the U.S. government may only create distrust of the dollar itself and of the entire U.S. economy.
The states of the big imperialist powers turn out to be completely incapable of restoring confidence among the big banks, even when they pour billions of dollars into the economy, that is, by making the entire population pay to save the skin of the financiers.
And what would happen if this panic extends into the entire bourgeoisie, small and big? What if all those who have money deposited in banks panicked and sought to get back their deposits? The most optimistic of the economic and political leaders of the capitalist world, while evoking the comparison with 1929, add that the financial world today has an experience and instruments to curb the crisis. For the moment, the only incontestable fact is that they haven't prevented the crisis from breaking out!
In the nearly 80 years since the crash of 1929, crises keep reappearing, despite all those who pretend that capitalism has changed.
But it hasn't changed. In any case, not in its fundamentals. The motor of this economy still remains the rivalry to realize the maximum private profit in a blind market. Capitalism's fundamentals haven't changed since Karl Marx analyzed its mechanisms and denounced not only the injustices of this economic system and the inequalities that it constantly expands, but also its irrationality and its anarchic character.
For over 30 years, the capitalist system seems to have found the remedy for what is ironically called a "crisis of overproduction." It's an ironic expression, because the problem isn't that we produce too much, but that purchasing power doesn't develop at the same rhythm of growth as the capacity for production.
Capitalism's remedy was to turn to the financial sector, which appeared more profitable than production. But all profits, including those in finance, come from production. The elevated profits of the last ten or fifteen years came in reality from an ever growing exploitation of the working class. The share of labor's income from production decreased while capital's share grew wildly.
Reducing the purchasing power of the working class by unemployment and by stagnation or lowering of wages, the capitalist class certainly assured itself of several years of higher profits, but it did this by weighing on consumption, that is, on the market.
The development of finance masked this reality and pushed back the due date of this crisis. But the current financial crisis has only boomeranged back into a crisis of the whole capitalist economy.
Starting as a consequence of the whole economic crisis, the financial crisis becomes in turn a cause of a widening crisis. Over the past year, by aggravating speculation, accentuating its erratic character, this financial crisis has led to completely erratic movements in the prices of raw materials, especially oil. It caused exchange rates between currencies to jump up and down, causing disruptions in international trade. It has led to credit becoming expensive and to worsening conditions for obtaining it. All of this weighs on the productive economy. Not only are banks, insurance and real estate companies going bankrupt or threatening to do so, but so are construction companies and airlines. And there is a real threat for certain auto companies – including the biggest, General Motors – and in the chemical industry.
It's not one bank or one insurance company going bankrupt. It's not even the financial system alone. It's the entire capitalist economy.
For many years the capitalist class has intensified its permanent war against the working class, in order to save itself from the crisis of its economy. It made worse the conditions of life for the laboring classes. The expansion of the crisis will inevitably lead to an intensification of this war against working people. It will inevitably result in still more layoffs, lower wages, growing poverty even in the rich countries and famine in the poor countries.
The only real question for the working class doesn't revolve around calculations about the consequences of the aggravation of the current crisis.
The immediate question for the working class and more generally for the laboring classes is how to defend themselves against "the two basic economic afflictions, in which is summarized the increasing absurdity of the capitalist system, that is, unemployment and high prices," to use Trotsky's expression.
But, beyond that, the question of the future is posed. In the face of growing crisis, we already hear some opinion makers take on not capitalism and its functioning, but "neo-liberalism," "deregulation" and "globalization," proposing to return to more state ownership, accompanied by more protectionism. But state intervention, which at this moment the very conservative Bush government is engaged in, turns out to be only another way to make the burden of saving capitalism fall on the workers. All the reformist, social democratic and anti-globalization currents can be heard in this chorus of supposed solutions. All these people are involved in theorizing and putting forth as an alternate program what in fact Bush is already practicing: offering a state crutch to save failing private capitalism.
The workers have no other worthwhile program when faced with the crisis of the capitalist economy than a policy aimed at destroying this economic system, that is, to accomplish the social revolution. Is this utopian? Certainly not as much as believing, while remaining in the framework of capitalism, that it's possible to avoid catastrophe!