The official story is that the origins of the current crisis lie in the collapse of the US subprime mortgage market - i.e. poor people not paying their mortgages. Although this may have been the trigger event, it is not the real cause. The real cause lies in pyramids not houses. Specifically the enormous debt pyramid built up by the Western countries, particularly those following the Anglo-saxon economic model - which, unfortunately for us, includes Ireland.

The financial framework constructed to support the globalisation of trade and production, has enabled the growth of a huge, unregulated credit sector known as the “Shadow Baking System” which has allowed the ballooning of credit not backed up by any capital reserves.

Now this system is collapsing and banks are having to take the bad debts back onto their balance sheets. This means that most US and European banks are in danger of not having enough of the reserve cash required by law to back up the loans – many of them dodgy property loans.

The result has been the biggest wave of nationalisations in the Western world since the aftermath of WW2. However we are not nationalising railways, mines or manufacturers but banks.

Nationalisation = Socialism!

Some blowhards in government and media have labelled this outbreak of nationalisations as a return to socialism. Nothing could be further from the truth. Here the only thing that’s being socialised is the risk and the losses while the profits remain privatised. Socialism is about redistribution from the parasites to the producers, not the other way around.

Some commentators on the Paulson Plan’s $700 billion bail-out have noted that the figure almost exactly matches the amount the US has spent on its wars in Iraq and Afghanistan, but only in passing, as a coincidence. In fact, there is an indirect connection here. After the burst of the tech bubble and 9/11, the Fed Secretary Alan Greenspan, lowered the dollar interest rate right down below 2% to prevent a crash. He then kept interest rates very low, right through to 2004, dropping down to 1% just after the US invasion of Iraq. It was this ultra-low rate, in part motivated by the need to provide cheap money to fund the Iraq adventure, which contributed to the growth of the property bubble.

In the American neo-cons’ original plan, the Iraq adventure was supposed to pay for itself with seized Iraqi oil. Now it looks like the US taxpayers will have to pick up the bill. But they will not be the only ones to pay. As the collapse of this debt pyramid drags us into a global recession, we will all end up paying.

Normal service will not be resumed

“Raw capitalism is a dead end”, US Treasury Secretary Hank Paulson now says. The political and business establishment are suddenly agreed that government intervention and regulation are not only a good thing, but a vital necessity. Well they’ve sure changed their tune. These are the very same people who have been bashing us over the head since the 1970s with the neoliberal dogmas that regulation is bad, that markets can look after themselves far better without government interference. The whole neoliberal catechism is now in shreds. So we will not be going back to the way things were before this crisis.

Nor will we be going back to the way things were before neo-liberalism. Globalisation has meant the shift of industrial power to the East. China is now the workshop of the world. With its failure to seize control of the world’s oil reserves, US power to continue to dictate the terms of trade and the global economy is waning.

What’s next?

Capitalism is no stranger to crises. In many ways crises are seen as an opportunity to overcome obstacles to profitability that tradition or popular resistance have established over time. The capitalist solution to the crises they create is always to try and make the workers pay. In concrete terms this means an all-out assault on wages through the rotten partnership process and further assaults on public services like health, education and public transport. Our response must be to fight back and not let them saddle us with the bill for their screw-ups.


From Workers Solidarity 106, Nov 2008

Northern Issue Southern Issue

Click on one of the thumbnails for an PDF version of the northern or southern edition of Workers Solidarity 106 which can be printed out on eight A4 pages.

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