[OPE] Two brief excerpts on the financial crisis

> From: adsl675281@telfort.nl
> Subject: Two brief excerpts on the financial crisis
> Date: Tue, 25 May 2010 19:30:16 +0200
>
> In case you have not seen this via MR e-zine,
>
>
> > Jayati Ghosh writes succinctly:
> >
> > ... there is no alternative to a major restructuring of the Greek debt,
> > involving a loss taken by the international lenders who did not exercise
> > due diligence in the act of lending in the first place. If it does not
> > happen now, it will in any case have to happen at some time in the future,
> > after creating a great deal of material distress in Greece. Why is such an
> > obvious conclusion not even being talked about? A restructuring of the
> > Greek debt would involve quite a large haircut for the German and French
> > banks who lent extensively during the boom, and helped to create the
> > imbalances that have made the Greek economy less competitive than that of
> > Germany, for example. This cannot be allowed to happen, so the burden of
> > adjustment is placed entirely on the Greek people, for several
> > generations, in what will clearly be an unsustainable process. It gets
> > worse. Other countries that are seen to have potential problems like
> > Greece are already moving towards austerity measures and contractionary
> > macroeconomic policies that are bound to threaten the frail economic
> > recovery and engender or intensify the next recession. (...) All these
> > countries are hoping that they can export their way out of this mess, but
> > that is simply not feasible as the numbers do not add up. So these
> > countries - and by association, the rest of Europe - are effectively
> > condemning themselves to a period of stagnation or declining incomes, with
> > all the economic and social problems that will generate. How can such an
> > illogical set of policies be taken so seriously? The problem is that the
> > power of finance - in politics, in media and in determining national and
> > international economic policies - remains undiminished despite its recent
> > excesses and failures. That is why the restructuring of public debts is
> > not on the agenda; that is why talk of fiscal balancing so rarely even
> > mentions taxes on capital, and much less on the same financial sectors
> > that benefited from large publicly funded bailouts and are now holding to
> > ransom the hands that have fed them.
> > http://www.guardian.co.uk/commentisfree/2010/may/17/greece-debt-restructure
>
> As I have mentioned previously on OPE-L in reply to Paul Cockshott,
> effectively the financial sector has the economy "by the balls" insofar as
> it owns or controls the largest chunk of it.
>
> Mary Mellor also writes fairly succinctly:
> >
> > At the height of the financial crisis, the total public financial exposure
> > in rescuing the world's financial systems was around $15 trillion - a
> > quarter of world GDP. Most of this was not used, but the existence of
> > public backing prevented a worldwide collapse of financial institutions.
> > (...) Why do governments feel obliged to spend untold billions rescuing
> > the banks and financial sector when other businesses are often left to
> > fail? The answer is that the financial sector is not a private sector at
> > all. It embraces a public function, the issue and circulation of money -
> > something that has been appropriated by private capital. (...) The
> > contemporary banking and financial system has hijacked this public
> > activity for its own benefit. However, when the financial system goes into
> > crisis, the need to retain this public function means that it becomes a
> > liability on the public, as represented by the state or equivalent
> > monetary authority. (...) The EU/IMF bailout is not intended to ensure
> > that Greek workers will be able to pay the bills, but purely to restore
> > confidence in the markets. Of course, the justification spouted by the
> > IMF's managing director Dominique Strauss-Khan is that market confidence
> > will "deliver the growth, jobs, and prosperity that the country needs for
> > the future", but the underlying assumption is that a placated
> > international finance sector is a precondition for this future prosperity.
> > http://www.stwr.org/global-financial-crisis/europes-bailout-economy.html
>
> Well, we could "nuance" the last bit - the purpose of restoring confidence
> in the financial markets is also, that Greek workers will be able to pay the
> bills (with additional surplus labour). The point is really that the
> aggressive austerity policy of various financial institutions and
> governments is likely to lead to social and political instability and
> lacklustre economic growth, which scares off potential investors. It is not
> really conducive to market confidence. So the exercise could turn out rather
> quixotic. I've mentioned the concept of "market confidence" before on OPE-L,
> and it turns out to be a rather central concept in the actual policy of
> governments. The bottom line is, that if people do not engage in trade, you
> don't have a market at all. Of course, if such social instability in
> response to austerity occurs in one country, placements just shift to
> another country until things have calmed down.
>
> Why have governments and financial institutions chosen to tread this path?
> Presumably because they argue, that they have to "put their foot down"
> sometime, and that if they don't do so now, their own position will only
> worsen; by starting a fight they hope to create more unity in their own
> ranks. People who own significant deposits or assets need the banks, so it's
> pretty difficult to attack the banks. The only practical option is for
> governments to reign in the financial institutions, but it is difficult for
> them to do so, given the international character of finance, and often they
> don't even know how to do it, or, they are in cahoots with the financiers
> themselves. Additionally, it is difficult to assess jurisprudentially and
> politically who exactly should pay for the credit crunch, since so many
> different interests participated in bringing it about. There are many moral
> imponderables.
>
> How will people respond to austerity? The machinations of finance are hardly
> transparent, they're not even transparent to themselves, as the record of
> crisis discussions shows. The political moods are also changeable and
> uncertain. And most leftists do not have much of a clue about finance,
> beyond rhetorics about the extraction of surplus value. A new generation has
> appeared which has very little experience of a serious political fight.
> Presumably therefore, if there is a political response, it will focus on
> "visible" targets such as particular politicians and businessmen, state
> institutions and on particular property. The ultimate weapon workers have is
> to go on strike, but the question is, whether a general strike can achieve
> anything, and how much support it can get.
>
> Jurriaan

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Received on Tue May 25 19:21:43 2010