AFTER THE FALL

Writing in the London Review of Books earlier this month (Volume 40, number 13), John Lanchester reminds us how much the world has changed – and in some respects how little is different – ten years after the credit crunch and the beginning of the Great Recession.

Lanchester is one of our smarter contemporary thinkers. He’s the author of one of the best books on the credit crunch – Whoops! Why everyone owes everyone and no one can pay and the only novel i can recall about the resulting London property boom, Capital – you may have seen the television drama made from it even if you have not yet read the book. Although there is very little explicit Marxism in either book, Lanchester is one of the few contemporary writers who knows his Marx . This was apparent when he gave a talk to promote his book Capital to the London Review of Books – much of his talk was about the more famous book of this name.

Lanchester describes in the article the climate of intellectual over-confidence that preceded the crisis in 2007. He points out that most of the time, in conventional economic thinking, debt and credit don’t present a problem. Every credit is a debit, every debit is a credit. The problems arise when no one is sure who owns what. As he points out, on a global scale there are billions of pounds more credits than debits. Why? The rich have hidden their assets in off-shore tax havens to avoid paying tax.

Lanchester reminds us that, following the bail out of banks, no one has addressed the too big to fail problem. Furthermore, the risk of failing remains high. We have previously commented on how John Vickers fluffed the opportunity to ring fence banks’ more risky business from their socially useful activity of providing credit to businesses and consumers. Another problem Lanchester highlights is the failure to rein in shadow banking – all the things banks do but which are done by institutions that don’t have a formal banking licence.

Is another banking crisis on the way? Probably, but one thing is clear. Each new crisis in capitalism shows a different face, a different mix of problems. Into the mix sooner or later global warming is going to feature. This is why the Communist University in South London, CUiSL, is working on a discussion paper looking at how classical Marxist theories of crises and social revolution relate to this new threat. If you wish to see how this is progressing, and, even better, to join in, follow https://communistuniversity.wordpress.com/.

Advertisements

WHEN IT PAYS TO SETTLE

Earlier this month, Bernie Ecclestone was able to terminate the prosecution for bribery against him in a German court by agreeing to pay £60 million. His lawyers insisted, of course, that this payment was not an admission of guilt.

 

£60 million is a lot of money to pay when you are innocent. It is, however, considerably less than another out-of-court settlement this month:  that by Bank of America following a charge by the US Justice Department of “misconduct in the production of mortgage-backed securities”. This was for $16.65 billion. Like the settlement of the German court case, it is intended to ‘wipe the slate clean’ and forestall any further prosecutions or claims for damages. As in the Ecclestone settlement, there was no admission of guilt.

 

We will probably never know whether Bernie Ecclestone’s payment of £60 million represented value for money for him. As he risked a jail term if the prosecution was successful, perhaps, it did. After all, he is not a young man and he might have been required to serve his sentence in one of our grubby, under-funded and over-crowded prisons rather than in a more humane German lockup. We do know, however, that Bank of America’s settlement of $16.65 billion represented a real bargain for them. According to the US Government Accountability Office, the 2008 Financial Crisis triggered by the mortgage backed securities scam cost the US economy alone $22 trillion. The cost to the world economy must be a multiple of this huge sum.

 

Crises are endemic in capitalism. While Marxists have a good understanding of this phenomenon, capitalists and their advisers tend to ignore it until it happens. Even if they are interested in anything beyond mere personal and family accumulation, the economists to whom they listen fail to see beneath the surface of the economy and mistakenly conclude that the system can be managed and boom and bust avoided. The snake oil remedy they invariably peddle is ‘more competition’ as, for example, did John Vickers in his report on UK banking. It would be more honest to admit that capitalism is a casino for the rich who must get out of the market before the bubble bursts.

 

If the Bank of America had not decided to peddle worthless mortgage-backed securities, another trigger would eventually have kicked off the recession. Thus the real remedy is for ordinary working people to own the banks and all the other major undertakings in the economy, not the other way round. Until that day dawns, however, let’s kick up a fuss about the inadequacy of the fines and penalties, such as they are, on those banks whose reckless behaviour triggered the financial crisis.