[OPE] Leo Panitch interview

> http://www.socialistproject.ca/bullet/bullet186.html#continue)
>
> Interview with Leo Panitch
> conducted by Workers' Liberty
>
> *What is your assessment of the relationship between this serious
> financial crisis emerging foremost in the U.S. and American power and
> economic decline?*
>
> I don't think that U.S. hegemony has waned, and I don't think it's about
> to wane in the very near future, despite the current financial crisis.
>
> In my view, the better term for the U.S. role in the world is Empire. That
> captures in my mind the way in which the American state plays a role of
> coordination and oversight and crisis-managing for global capitalism, in
> the absence of a global state.
>
> It managed to do that in my hemisphere, on this side of the Atlantic, by
> penetrating other, independent states, in South America and North America,
> before the Second World War. Its capital penetrated those states and
> encouraged the restructuring of those states in a way that was consistent
> with fostering trade and the protection of the property rights of U.S.
> capitalists, or in fact of foreign capitalists in general.
>
> That became generalised after the Second World War, not so much with the
> Third World as with Europe and Japan, which became increasingly
> Canadianised. European and Japanese capital, in different ways, were
> penetrated by American capitalists. Conditions for that were established
> politically. That penetration was very deep, and it was done in
> collaboration with the ruling classes of those countries. This was
> imperialism by invitation. The ruling classes saw the American state as
> the safest guarantor of capital's rights, especially in the countries
> where the labour movement was strong.
>
> From the 30s on, European capital had poured into the United States, even
> during the New Deal. So this has been a collaborative type of hegemony or
> Empire.
>
> When Europe and Japan were put back on their feet after the Second World
> War, and became competitive in terms of trade with the United States, the
> notion arose that meant American hegemony was fading. It was a very common
> view, but fundamentally misleading. It failed to understand that the
> Europeans and Japanese wanted the Americans to play a more active role in
> managing the global economy, not a lesser role. To the extent that they
> were unhappy with American policy, it was mainly for that reason.
>
> That has continued through the era of neoliberalism. There have been
> moments where in very economistic ways, based on the size of the trade
> deficit or the penetration of foreign direct investment into the United
> States, people have predicted U.S. decline as imminent. It has proved to
> be wrong in every case. The American state is still seen as the most
> important protector of global capital.
>
> Many people think that the deficit means that the U.S. economy is a basket
> case; but, through the technological revolution we've just lived through,
> in information technology and so on, it has managed to maintain its
> dynamism as a capitalist power.
>
> The deficit has reflected the fact that the United States has been the
> market for so much of what is produced in the world today. It has not
> reflected a decline in American exports, which over the last 15 or 20
> years have increased more than any other G7 country's.
>
> To read off from the size of the trade deficit a problem in terms of
> American hegemony, I think, is not to understand the role that the United
> States, and New York as a financial centre, and American banks in London,
> play in terms of the glue of international capitalism. No-one is doing a
> favour to the United States by putting short-term capital into New York,
> or holding onto dollars. They are purchasing dollars and Treasury Bills
> because they remain the most stable store of value in a highly volatile
> capitalist world.
>
> The volatile nature of international finance, in which free trade in
> currencies is a large factor, makes this a highly volatile set-up, and one
> that is prone to financial crises. Notably, not many financial crises have
> been dollar crises in the way that we saw sterling crises from the 1950s
> to the 1970s, when sterling was still a central currency. (London is still
> a big financial centre; but now it is essentially one of the great centres
> of American dollar finance).
>
> What's been quite remarkable, at least since the 1979 Volcker shock, has
> been the extent to which, for all of the size of the deficit and the free
> floating of the dollar, there hasn't been a massive run on the dollar.
> Even in recent days, we've seen a rather managed decline of the dollar,
> and a decline which is functional to reducing the size of the U.S. trade
> deficit.
>
> When the dollar got inordinately high, after the very high interest rates
> that established enormous confidence in the U.S. Treasury Bill and the
> dollar, you then had the meetings around the Plaza Accord which
> coordinated a readjustment.
>
> People are constantly observing the level of the dollar, given the role it
> plays in the international capitalist economy. But what's astonishing is
> the exent to which the dollar has not suffered.
>
> *So it's like Keynes's comment that if you owe the bank $100, you have a
> problem, but if you owe the bank a million, the bank has a problem? The
> capitalists of the rest of the world have to keep the dollar up because so
> much of their interests are tied up with it.*
>
> Absolutely. And that reflects the degree of integration.
>
> *Marxists tend to discuss crises in terms of a decline in the rate of
> profit. But, by most accounts, over the last several years, profits have
> recovered quite considerably. Are we going to see a crisis without a prior
> fall in the rate of profit, or what?*
>
> Our position – my position and that of my comrade and co-author Sam
> Gindin – has been that the profit squeeze of the late 60s and the 70s was
> resolved by the defeat of labour, and to some extent the defeat of the
> Third World national-liberation radicalism that produced a rise in
> commodity prices (though we may be seeing another surge of commodity
> prices now).
>
> With the restructuring that was brought about in the 1980s in the banking
> system and in industry, in the United States but also in Europe and
> elsewhere, the basis was established for profit rates to recover as they
> have done, especially in the last decade.
>
> That account involves a very different interpretation of the cause of the
> profit crisis of the 1960s and 70s than is offered by Bob Brenner. It
> suggests an explanation of the profit crisis much more similar to the
> "wage squeeze" explanation that was offered way back in the 1970s by
> Andrew Glyn and Bob Sutcliffe.
>
> We think you have to have a broader understanding of the factors squeezing
> profits than just wage militancy, though that was very important in some
> countries, in Britain and to some extent in the United States. There was a
> much more general range of pressures on capital that were expressed by the
> civil rights movement, the women's movement, the radicalisation of the
> students, all of which produced the fiscal crisis of the state and not as
> much room, for a period, for the state to cut back on corporate taxes.
>
> Put all that together with the wage militancy of the working class, and we
> think that had a lot to do with the profit crisis – of course in the
> context of the renewed competition which made it difficult for any
> individual firm to raise prices.
>
> We think that was resolved by breaking the back not only of the wage
> militancy but also of the tendency of the social movements to win
> extensions in the welfare state – by introducing neoliberalism.
>
> Brenner thinks the crisis was largely one of competition between national
> capitals, and that there has been a problem ever since in terms of not
> enough firms exiting. They're making some profits, not as high as they
> used to, but they stay in business.
>
> In our view, by contrast, we have been living through one of the most
> dynamic periods in the whole history of capitalism. It has been enormously
> exploitative, and has created enormous insecurity around the world,
> including in the heart of the Empire itself, but its dynamism has been
> related to its ability to be exploitative and create insecurity.
>
> It isn't only a matter of increased exploitation of the industrial working
> class, or of the low-paid service sector; it's a matter of getting the
> middle class, the petty bourgeoisie, the professionals, to work for
> corporations enormous hours.
>
> The recovery of profits that we have seen has been substantial and real,
> and not, as Bob Brenner usually explains it, a matter of ad hoc ways of
> getting out of a continuing structural crisis. In my view, it doesn't make
> sense as a Marxist to speak of a crisis that lasts for forty or more
> years.
>
> Does all that rule out another serious profits crisis? No, it does not do
> so, by any means. We need to keep looking, even if not in orthodox terms
> of the "tendency of the rate of profit to fall", for the possibility of a
> serious profit crisis.
>
> How serious a profit crisis will be depends, I think, on how much the rate
> of exploitation can be raised again – that is, on how much working-class
> resistance there is to the type of restructuring that allows capital to
> get out of it. That is why so much hinges on how we interpret all these
> things in terms of working-class renewal and working-class strategy.
>
> Capitalism is crisis-prone above all in the financial sector, but it
> remains crisis-prone in a deeper sense in the productive sector. How
> serious crises are depends, in the end, on class relations. The most
> serious crises of capitalism are those in which it is difficult to
> increase the rate of exploitation. That is why the 1970s crises was so
> protracted, because it was difficult to increase the rate of exploitation
> then, given the strength of militancy of rank-and-file labour.
>
> *Has the credit system become more crisis-prone?*
>
> The system has become larger, more complex, in some ways more efficient,
> and also more crisis-prone. The size and complexity of it are directly
> related to the neoliberal re-regulation which has allowed a lot more
> competition in the financial sector than was allowed in the New Deal type
> of legislation.
>
> The expanded credit system has been quite functional to the growth of
> global capitalism. When so much capital and trade is flowing round the
> world with free-floating currencies, you need a highly complex system of
> financial trading in order to be able to adjust the enormous risks
> involved in the marginal changes in currencies and interest rates, etc.
>
> This goes all the way back to the situation the farmer faced in the 1870s,
> and still faces today. When a wheat farmer in western Canada puts seed in
> the soil, in the spring, he doesn't know what the price of a Canadian
> dollar is going to be in October, when he will be selling the grain.
>
> One of the ways of dealing with that is by developing co-operatives, but
> the most fundamental way of dealing with it, going all the way back to the
> 1870s, when the Chicago Mercantile Exchange was established, is through a
> large, complex set of financial intermediations.
>
> That farmer would go into his little local bank and begin to hedge the
> price he might be able to sell the wheat when he was signing a contract in
> April to deliver it in October; and that would go through fifteen
> intermediaries before it would get to the Chicago Mercantile Exchange,
> where there would be a trade in wheat futures.
>
> The same was true in almost every other agricultural product. Today we see
> that all around the world in “derivatives.” They play that role in the
> management of risk. It's no accident that, with the help of Milton
> Friedman, when Bretton Woods broke down in 1971, the market in derivatives
> around currencies was established at the Chicago Mercantile Exchange.
>
> The system has become larger, much more complex. The derivatives now cover
> not only real products, but financial instruments of all kinds. There are
> a gazillion players in this market, and they are all speculating.
>
> But, as Dick Bryan argues [Capitalism with derivatives: a political
> economy of financial derivatives, capital and class, Palgrave Macmillan,
> 2006] this may be the most important development in capitalism since the
> joint-stock company in terms of its ability to smooth out the enormous
> risk that's involved in this complicated and diverse global capitalism.
>
> At the same time the system is more crisis-prone. It is more crisis-prone
> because it does involve speculation. It is enormously complex, and the
> people trading in it are operating on the basis of highly complex algebra
> that most of us don't understand and very few of them fully do. It's not
> clear, to anyone in the system, who holds a given piece of paper at a
> given time.
>
> Also, neoliberal regulation is mainly self-regulation. The banks are
> regulated through Basel and the Bank of International Settlements and the
> national or regional central banks; but they are regulated in a way that
> requires them to be self-regulating, that is, to keep a certain amount of
> capital adequacy on their books; and they are able to get around the
> regulation quite easily.
>
> What happened with the subprime mortgage market is that, going back to
> 1988, American investment banks began setting up in London the "structured
> investment vehicles" that allowed them to get round the capital adequacy
> standards that had been set up in Basel 1. They set up off-book accounts
> that allowed them to trade in risky products such as the subprime mortgage
> derivatives.
>
> On top of it all, most national banking systems are not deep. I once heard
> Volcker speak at the Board of Trade in Toronto. He had just come back from
> Argentina. This was before the Argentine crisis. He had asked the head of
> the Argentine central bank what the total capitalisation of their banking
> system was. Before coming to Toronto he had stopped in Philadelphia, at a
> bankers' dinner there, and asked the second-largest bank in Philadelphia,
> a regional bank, what its capitalisation was. It was larger than all of
> Argentina's!
>
> So he came to Toronto and said: “Look, this is impossible. What's going to
> have to happen is that Western banks are going to have to buy these
> banking systems.” The former head of the Bank of Canada got up – and this
> guy is a pure monetarist – and said: “Well, that is all well and good, but
> most countries don't want their banking systems to be owned by
> foreigners.”
>
> So there are contradictions, as well as efficiencies and functionalities,
> in this highly volatile, global financial capitalism.
>
> The central banks and the finance ministries – and the Federal Reserve as
> a proto-world-bank, and the Treasury, though it has played this role less
> under Bush than it did under Clinton – have managed to keep the capitalist
> system going; they have managed to fire-fight; the crises have been
> contained, from moment of chaos to moment of chaos.
>
> One never knows whether they can keep on doing this. Their main function
> in terms of regulation is to know enough about the players in the
> financial market that they can manage crises. We may be seeing, out of
> this crisis, a turn toward increasing mandatory regulation, which will
> also be coordinated.
>
> I still think the system would be mostly self-regulated. It would be like
> Sarbanes-Oxley, where the boards of directors are required to sign off on
> accounting papers and become legally liable.
>
> But maybe global capitalism doesn't have to continue to be neoliberal in
> the sense we have known it. I wrote an article ten years ago called The
> Social Democratisation of Globalisation, and I think that is possible out
> of the current crisis. How far it will go, and whether it means anything
> in terms of shifting the balance of class forces – that really depends on
> whether the working classes, broadly defined, manage to act to shift the
> balance of class forces from below.
>
> But I do think it's possible that out of this crisis there will be more
> directive oversight on the part of capitalist states and the American
> state, even if the crisis drags on, as it may do, for a couple of years,
> with a shake-out in the banking system that produces further concentration
> in it.
>
> *The Federal Reserve and the European Central Bank have followed sharply
> different policies in the current crisis. International coordination
> doesn't seem to be working very well.*
>
> Yes and no. Going back to the beginning of this particular crisis, last
> August, there was immediately coordination between the U.S. Treasury and
> Federal Reserve in terms of throwing liquidity into the markets, and the
> European banks threw most of it in.
>
> Some of the banks hit mostly heavily by the crisis with the subprime
> derivatives were ironically the quasi-public Landesbanks in Germany, and
> the European Central Bank, really acting for the Bundesbank, oversaw the
> remedial measures.
>
> Interestingly, most of what they pumped in then immediately made its way
> to London, to the interbank market. There was coordination then.
>
> Then there was coordination around the liquidity thrown in in December.
>
> So on that level there been quite a lot of cooperation, and the European
> Central Bank has played a central role.
>
> On the question of inflation, however – on the question of whether
> lowering interest rates is the way to go – you're right. It partly
> reflects the fact that the Bundesbank – and the European Central Bank has
> carried the same tradition forward – has always been, from the time
> Bretton Woods began, much more monetarist than any other central bank,
> much more concerned about inflation.
>
> The New York Fed has been much more pragmatic about that. And it has had
> the room to be, because of the world confidence in the Treasury Bill and
> in the weakness of the left in the United States – there is much more
> confidence in the guarantee that the American state offers against
> default. Also, the United States is more populist. The Fed does not have
> the de facto independence from the political system, that the European
> Central Bank has.
>
> The different approaches are also, I would guess, a reflection of
> different policy judgements. There's a sense that the lowering of the
> interest rate is not enough, in itself, to make the financial system ready
> to be lending, and you see this in the fact that long-term interest rates
> are not declining. People have been saying that the Fed is pushing against
> a string, and that may be the case to some extent.
>
> There is one way in which I think the Fed has acted as world central bank
> in a way that the ECB never does – so you see the hierarchy of imperial
> apparatuses here. When there were the beginnings of a stock market crash,
> in Asia and spreading to Europe, in January or early February, the Fed met
> on a Monday night and then on Tuesday morning announced the big interest
> rate reduction. The Fed felt it had to send that signal of a drastic
> reduction in interest rates, not so much for what it would accomplish, but
> for its symbolic effect in terms of reassuring the stock markets. The
> stock market has traditionally taken the view that a reduction in interest
> rates means that people shift from bonds to stocks, though I'm not sure
> how much that continues to operate today. In any case, the signal from the
> Fed did have an effect.
>
> There's a special role which the Fed plays which the European Central Bank
> does not play vis-a-vis global stock markets.
>
> *Some financial crises in recent decades have had relatively little
> knock-on effect on trade and production. Do you think that one factor in
> this is that the financial sphere is feeding much more off consumer
> credit? And then could we see this financial crisis, rather bigger than
> previous ones, feeding into a crisis in trade and production initially
> through a reduction in consumer spending rather than in investment
> spending?*
>
> So far, the indication is that it's not impossible in Europe, or in North
> America, or least of all in the Third World, to be raising funds for
> investment.
>
> If the derivatives play the central role they do, as Dick Bryan explains,
> in hedging risk, there is a question whether the financial crisis will
> affect trade in the long run.
>
> People tend to overlook the extent to which, even though real wages have
> not increased, or not increased much, since the 70s, living standards for
> workers in the advanced capitalist world have gone up. They've gone up
> primarily through those workers becoming integrated into finance.
>
> They've gone up to the extent to which those workers have become indebted
> and the financial system has been willing to integrate them through the
> enormous growth in the credit card market and in mortgages. That is also
> reflected to a certain extent in the fact that workers' savings have been
> picked up through pension funds and institutional investment so that
> workers tend to think of themselves, astonishingly, as investors whose net
> wealth will increase as they get older.
>
> That all went so far, and then it fell apart, because it penetrated, not
> only in the credit card market but also in the mortgage market, to that
> portion of the American working class which has always been the Achilles
> heel of the integration of American workers into the American dream, and
> that is the African-American working class.
>
> You don't understand it at first when you walk around Washington Heights
> in New York and you see unemployed young black men wearing $200 sneakers.
> They're doing it on credit. It seems hard to believe that capital extended
> the types of loans it did to African-Americans in Cleveland to buy
> sub-standard housing stock with the promise that it, too, would increase
> in value; but it did that.
>
> The question now is whether the ability of advanced capitalism to
> integrate workers through the credit market has run up against its limits,
> and what are the implications if it has. What are the implications in
> terms of economic crisis, and what are the implications in terms of
> workers not taking it any more.
>
> One wishes one would see much more radical protest than we have seen so
> far around the housing crisis in the United States. You hear enough about
> it in terms of politicians talking about people being affected as victims,
> but you don't yet see much mobilisation. That's not to say there won't be.
>
> There is speculation in the Wall Street Journal today that the market is
> waiting for the American state to buy up all this bad debt – whether
> directly through the Fed, or through a special agency – in other words, to
> socialise it. The Wall Street Journal quotes one analyst from a private
> investment firm saying that he is not predicting that this will be done,
> but he is saying that it is what the market is looking for.
>
> The operation would be like the British government has done with Northern
> Rock, but on a massively bigger scale. The bad debt even in the United
> States is probably in the hundreds of billions of dollars, let alone the
> total around the world.
>
> It's conceivable that might happen, and then the consumer's ability to get
> into the credit system would be replenished. But that hasn't happened yet,
> and I don't want to predict it necessarily will. It's not impossible that
> this crisis will be dealt with by Band-Aid measures, and it could lead to
> a significant shake-out whereby regional banks in the United States would
> close, intermediaries would go bankrupt, a piece of Citibank might be sold
> off...
>
> I remember the late Harry Magdoff saying to me, in his apartment, after
> the stock market crash in 1987, when the question was to what extent were
> the banks implicated by their loans to the stockbrokers: "Well, so they'll
> nationalise a couple of banks!"
>
> In this context we have to understand nationalisation in an entirely
> different way than one might have understood it as a left-wing social
> democrat in England in 1945.
>
> *It's socialism for the rich!*
>
> Exactly. In the first place for the rich. But not only for the rich...
>
> *Even the perspective of a massive bailout implies that the edges of the
> consumer credit system are pulled back in. Northern Rock is not writing
> ultra-easy mortgages any more.*
>
> Yes. And they're very worried about it. They're very worried about the
> fact that the financial system is reluctant to lend.
>
> *On the other hand, Martin Wolf in the Financial Times says essentially
> that what the Federal Reserve is doing might work, but he sort of hopes it
> doesn't, because there are fundamental structural problems with the very
> low level of savings in the USA, and if the Federal Reserve's measures
> allow things to stagger on a bit further, they are just paving the way for
> a bigger crisis down the road.*
>
> Yes. Wolf's a very smart guy. There's a more reactionary variant of the
> same argument coming from the Wall Street Journal.
>
> You hear the argument that if the Fed had not lowered interest rates in
> 2001 after the "new economy" bubble and 9/11, you wouldn't have had the
> housing bubble. But what are they saying? That they'd prefer to have this
> crisis then?
>
> *They're saying that they'd prefer to have a smaller crisis now that
> forces the resolution of unsustainable imbalances, before those imbalances
> become bigger.*
>
> But the fact is that agencies like the Fed are going to try to prevent
> crises – or, if not to prevent them, to stop them being catapulted into
> global capitalist crises. That is their nature.
>
> Ben Bernanke, the head of the Federal Reserve, wrote his PhD thesis on how
> the Fed and the Treasury could have prevented the Great Depression by
> supplying liquidity to the banking system instead of playing the orthodox
> banker role and requiring that the books be balanced. As I read all the
> inclination in the American state, and I think for the most part in
> Europe, that is the role that the central banks will try to play.
>
> Also, I don't see that the result of a bigger crisis would be that
> Americans started saving again. I don't see that people would have the
> capacity to save. On the contrary, you'd see a rundown of savings of
> wealth.
>
> The greatest imbalance that people worry about is the U.S. trade deficit.
> But that is being dealt with, so far, by this relatively managed decline
> of the dollar. There may be inflationary consequences; but the deficit was
> up at 7%, and it has fallen to 5% of GDP.
>
> Moreover, we need to remember that the world is not doing America a
> favour, as accountants seem to think, by covering the deficit with
> short-term capital inflows. People are buying Treasury Bills today because
> in this highly unstable world they are the closest things to gold that
> pays some interest rate. People are also buying gold and commodities and
> so on, and that reflects the volatility, but in so far as they are buying
> bonds, and they are, they are buying Treasury Bills.
>
> In Gindin's and my view, only the United States, by virtue of the
> asymmetrical nature of power in today's capitalism, can sustain such a
> deficit for a long time. But it can, because of the role that the dollar
> and the U.S. Treasury Bill play in the world economy.
>
> It's a bit like London, as a financial centre, and its "trade deficit"
> vis-a-vis the UK. It's a bit like New York, and its deficit vis-a-vis
> North America.
>
> Without thinking at all that national borders have been done away with, I
> think we need to look at the American deficit in the light of the special
> role of the dollar, which I don't the euro is about to displace.
>
> *What about the effect of the decline of the dollar, and the resulting
> squeeze on U.S. imports and rise in U.S. exports, on China and the other
> big new exporting countries?*
>
> I don't have a crystal ball. The people who talked about "decoupling" are
> wrong. There is no "decoupling" that China can yet do from Western
> markets, above all from the American market. In that sense, to speak of a
> realignment of forces in global capitalism, as Giovanni Arrighi does, is
> misleading.
>
> We are seeing an increasing integration of global capitalism. China's role
> in global capitalism is much enhanced. But realignment is not the right
> word, if it is understood as Chinese capital displacing American capital,
> or Chinese power displacing American power.
>
> But the decline of the dollar could have inflationary effects in those
> countries whose currencies remain pegged to the dollar.
>
> If the measures that have been introduced in China to alleviate some of
> the discontent of the working class, whereby they've offered some
> labour-standards protections and some requirements for representation by
> the party-run Chinese unions, or the promised reform of the health system,
> were to come through, and you were to get inflationary pressures, you
> might get considerable class conflict, and that might spill over into
> regional conflict inside China. The uneven development in China is
> astonishing, and people in the regions not undergoing rapid capitalist
> development are highly dependent on remittances from workers in the
> cities.
>
> The repercussions could be very real. But the different new exporting
> powers are all very different. Brazil and Russia are doing very well out
> of the high price of commodities, which represents a cost to China and
> India.
>
> I find it very difficult to gaze in a crystal ball here, given the
> enormously different social formations we are talking about, or to make
> any hard predictions.
>
> *You said that out of this crisis we will see more directive oversight by
> capitalist states, and we might even see something you called “the
> social-democratisation of globalisation.” Do you see things going that
> way? And what will it look like?*
>
> With all the calls for regulation; with states buying shares in banks, not
> taking any directive control over them, but using moral suasion the way
> Brown has been doing to get them to reduce interest rates as the Bank of
> England reduces interest rates; with the kind of fiscal stimulus
> programmes that all the governments are committed to – the British and the
> Americans, interestingly, more than the Germans – I think you are getting
> a “social-democratisation of globalisation.”
>
> Bear in mind that my view of "social-democratisation" is that it is in no
> sense the old type of reformist, gradual socialism. It is
> "social-democratisation" in the sense of what the Labour Party has become
> under Blair and Brown.
>
> *So this is not social democracy as in the 1940s, 50s, and 60s?*
>
> No. I never had a very positive view of that in any case. That orientation
> was more about corporatist arrangements with labour. I don't see much of
> that going on. I see that it's unlikely that Obama will press for the
> labour legislation that U.S. unions have been calling for. That would be
> more like an old-style social-democratisation.
>
> *The governments are trying to put into practice everything that
> economists can suggest to them, in the way of stabilisation policies, that
> they have learned from the study of the 1930s and from the depression in
> Japan in the 1990s. How would you assess the possibilities, the limits,
> and the defects of these as stabilisation policies?*
>
> We have seen massive drops of liquidity into the banking systems. We have
> seen it being decided that the problem is solvency, not liquidity, and the
> governments putting public capital into the banks, so that the banks will
> have enough trust in each others' solvency to lend to each other. None of
> this is solving the crisis.
>
> This indicates that the banks may not be able to go back to lending at
> their previous rates. The decades-long process of banking and
> financial-system securitisation, where lending has been done on the basis
> of slicing and dicing and repackaging loans so as to turn them into
> securities to be traded internationally, was a fundamental basis for the
> dynamism of financial capitalism and globalisation in the last twenty
> years or more.
>
> That system of securitisation is now weak everywhere, even in corporate
> financing, and not only in the financing of mortgages and consumer debts.
> It has largely imploded. That is in large part why the banks have not been
> lending – they have been restructured to depend on doing lending through
> that securitisation.
>
> That indicates that the crisis is really very severe. In terms of what is
> to be done about it, it raises – and we should be raising, as socialists –
> the obvious question of converting the banks into a public utility.
>
> In a complex society, you can't have banking for the masses without having
> state guarantees of deposits. The system has been kept going on the basis
> of central banks acting as lenders of last resort. The case for the banks
> being brought into public ownership properly needs to be put on the
> agenda, much more vociferously than the left is putting it on the agenda.
>
> I do not mean, as in Britain, just giving public capital to the banks and
> saying please operate on commercial lines, a move involving no executive
> powers whatsoever. I mean taking the banks properly into public ownership
> and changing the function of the banks, as Mitterrand did not do in France
> in the 1980s, so that the criteria on which they invest are redefined as
> social purposes, to be democratically determined.
>
> *Looking back on it, the subprime mortgage crisis seems to involve tiny
> sums, compared to the fall-out now. How did that subprime crisis –
> sizeable, but small compared to what is in play now – produce such huge
> repercussions?*
>
> The subprime crisis was comparatively small, but subprime mortgages were
> packaged with other mortgages and then the securities were sold on. People
> were buying general mortgage-backed securities based on a mixture of
> mortgages. When the defaults started in the subprime sector, it became
> difficult to sell, or to sell on, any mortgage-backed securities.
>
> It had the effect of making the banks more reluctant to lend for new
> mortgages, and that helped burst the house-price bubble. Then the loans
> made more generally on the basis that house prices would continue to rise
> were called into question. You got a vicious circle in the whole housing
> and mortgage sector.
>
> Once you had this loss of confidence, and inability to value securities –
> you didn't know how to value those securities any more, because you
> couldn't sell them; the formulas on which the valuations of those
> mortgage-backed securities fell down – then a whole set of questions came
> onto the books in respect to other sorts of securities and how those might
> be valued.
>
> Here there is an element of confidence and psychology. However much we as
> Marxists see that as not primary, it is an element. The banks knew damn
> well how over-leveraged they all were. They began to wonder whether even
> the people they lend overnight to – the other banks – were solvent. They
> became reluctant to lend.
>
> And so the disturbance moved beyond the original source of the problem.
> Insofar as the risk was spread so widely – and that was the point, credit
> was cheap because risk was spread so widely – it pulled in vast sectors in
> other countries and across the world.
>
> You could say that the crisis was triggered by the subprime crash. There
> is a certain racist element to the story, insofar as the growth of
> subprime mortgages was the attempt to incorporate the black working class
> through finance into the American dream. When that weakest link in the
> chain of financial capitalism went, then – unlike when Lenin used the
> metaphor of the weakest link for Russia in the chain of world capitalism –
> it began to undo the whole chain.
>
> *A few months you said that you thought U.S. hegemony had not waned, and
> would not wane in the very near future. I agreed with that then. But you
> compared that U.S. hegemony with the sort of hegemony that a financial
> centre like New York or London has in its national economy. It used to be
> the case that the global financial markets, centred in New York, centred
> round the dollar, were where any large capitalist anywhere in the world
> could go for credit. Isn't that ceasing to be true? Aren't governments and
> firms looking elsewhere for credit? Aren't we seeing the beginning of that
> process of U.S. hegemony waning?*
>
> I don't think so. I'm not sure where else people would go for credit. And
> in fact capital has flowed to the dollar and to the U.S. Treasury Bill.
> That is puzzling unless you understand that the U.S. state is the state of
> global capital. Despite everything that has happened, global capital still
> looks on the U.S. as the safest haven and the ultimate guarantor. And the
> U.S. government has behaved that way. The decisions to nationalise Fannie
> Mae and Freddie Mac and AIG were taken very much with an eye to the U.S.'s
> responsibility to honour its commitments to China and Japan and Germany
> and Britain – above all to China, because the Chinese had bought a lot of
> Fannie Mae and Freddie Mac securities.
>
> The American state is absolutely central. It is no accident that the G20
> meeting took place in Washington. Everyone sees that whatever resolution
> there is to this crisis will have to be undertaken under the aegis of the
> American state, and everyone is hoping that Obama will be able to provide
> the kind of leadership – for capitalists – that will accomplish that.
>
> So I think the American state is still very much at the centre of global
> capitalism. The material underpinnings of that hegemony have rested in
> part on New York as a financial centre. So it's a good question, what
> happens to that hegemony if New York seizes up as a financial centre? But
> I just don't see what could conceivably replace it. Certainly nothing in
> Asia could replace New York as a financial centre. People can start
> arguing that the Chinese state has financial clout, but we see how much
> the Chinese economy has been affected by this crisis originating in the
> U.S. economy.
>
> It will certainly be an enormous challenge for the Americans to hold it
> all together. But it is only the Americans that can hold it all together;
> and all the world's capital, more than ever, is looking to the Americans
> to hold it all together.
>
> *But if the U.S. government does it very imperfectly...*
>
> Yes, but I don't see any grounds for serious inter-imperial rivalry unless
> there are fundamental changes in the balance of class forces and state
> structures in other parts of the world, so that countries move in a
> national-socialist, fascist direction which would break down
> globalisation, or there is the kind of change in class relations that
> would put socialist options on the agenda, which would mean
> disarticulating from capitalist globalisation and attempting to
> re-articulate on the basis of new international socialist strategies. On
> the basis of the class configurations that exist in the regions outside
> North America, I don't see either of those things happening soon.
>
> The question remains of whether the Americans will pull it off. If they
> don't, will that produce social and political disruptions that would lead
> to something else? Maybe. But on the basis of the current configurations,
> with the types of capitalist classes and state bureaucracies that are
> oriented to maintaining the relationships that have developed over the
> last 30 years under global capitalism, I don't think we can speak
> seriously of inter-imperialist rivalry. •
>
> Leo Panitch is the Canada Research Chair in comparative political economy
> at York University. His most recently published books are American Empire
> and the Political Economy of International Finance and Renewing Socialism:
> Transforming Democracy, Strategy and Imagination. This article first
> appeared on the Workers' Liberty website.

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Received on Tue Feb 17 09:56:28 2009