Tuesday, November 18, 2008

Thinking about the financial crisis

I am taking this opportunity to think out loud. I don't know much about finance: what I know I learnt mostly in the past month. Beyond the prospects of a recession or even depression, there are questions of history and politics that I am thinking about.

In the last fifteen years' debates on globalisation and its discontents, I can't remember anyone mentioning finance as a serious issue. The evils of multinational corporations, the harsh realities of migration, imperial wars and neo-colonialism, the spreading epidemic of neo-liberalism: all these are well familiar by now. Certainly the transfer of wealth and dispossession were discussed. But not the implications of an unregulated global financial system. We all have been looking at the real effects: the degradation of our environment, the exploitation of people, resource depletion. But the greatest Ginnie of them all, the global credit bubble and its financial weapons of mass destruction, seemed to have escaped us.

In retrospect, it comes as no surprise that financial systems were among the most daring in this brave new world. Unlike goods or workers, capital weighs nothing and does not need passports to cross borders. It's transparent, fluid, and always eagerly received. There are fewer and fewer limits on its circulation, and the limits that are still in place have been circumvented by the new forms of non-state money - the whole array of innovative financial products that very few seem to understand, and whose total value is now more than ten times the size of the global economy.

Speed is a key factor, and one of the things that make this crisis different from previous ones. Today all it takes is a laptop and a wireless broadband connection to trade in the world's stock exchanges. With so many people online, and very few out of reach of a mobile phone, the effects of information and news are almost immediate. Crises unfold in hours, rather than in weeks. Stampedes become deadlier.

Deregulation enabled the financial sector to consolidate its grip on capital. Money always passed through bankers' hands, and was very much created by them. But in the last twenty years their aspirations grew and grew. If you wanted to become filthy rich, the best way was to be a banker, a solicitor, or a real estate developer. My guess - I do not have the numbers to back it up - is that more and more, bankers and their associates, not industrialists or retail magnates, are the alpha males of the capitalist class.

This is important at a moment of crisis. Governments say they are bailing out the banks because without them, this economic system would collapse. And it is no doubt true that the capitalist economy cannot function without the financial sector. But the bankers' main point is different: it is to ensure that they don't lose out. There is an obvious contradiction there, and the issue is far bigger than yearly bonuses. The crisis is still unfolding and could get much worse. To expect governments in liberal states to protect the large public, or even the middle class, is to expect them to turn against the bankers - an unlikely scenario. At times of crisis the state does not turn against the most powerful class; it follows its orders. Certainly not in our day and age - when the demise of trade unions left no real opponent in the ring.

But even if governments wanted to do something about it, it is questionable if they could, because of the global nature of the Ginnie: no one government could put it into the bottle. There were indications of this in the last few weeks, when capital outflows brought states to their knees within days (Iceland, Hungary, Ukraine, Pakistan). The frightening weakness of global frameworks is exposed, they are slow and ineffective, with endless discussions and concerns over loss of national sovereignty. At the same time, the strongest global players - the world's banks, insurance companies and co. - are making the notion of sovereignty a sad joke.


bad botten said...
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mink said...


In what way did inventing the state prevented the nightmare scenarios you reffered to? in that it locked the state into debt, regardless of its government?

you seem to suggest that the very notion of national sovereignty was invtented to facilitate global finance - and in that sense it was always a sad joke? Do I understand correctly?

Historiography is often a debate whether a change is quantitative or qualitative. What is clear is that the ability of governments to exercise sovereignty was greatly reduced with the growing dependence on global free markets and capital flows. Much of what governments could do thirty or fifty years ago they cannot today; they recognise this, but are more than reluctant to give powers trans-national bodies that could counter this. It would be interesting to see if trans-national frameworks emerge stronger or weaker from this crisis. The chances of disintegration are probably higher.

bad botten said...
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bad botten said...
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