Over the next few weeks, banks have to declare their 2007 balance sheets. Already:
• The Swiss bank UBS has written off £7 billion in the US mortgage market because of collateralised debt obligations and lost a total £2 billion last year
• Credit Suisse has cut the value of its assets by £1.5bn
• Barclays bank has declared losses on sub-prime mortgages of about £1.6 billion
• The US insurer AIG found an extra £5 billion of losses on sub-prime related investments between last November and December
• The smaller Bradford and Bingley released new figures showing £144 million of sub prime related losses, only a few weeks after saying it had none.

And we can expect more losses to come as more banks declare their balance sheets over the weeks ahead.

But what will all these losses have in common? The various boards of directors will blame individual traders or back room checking staff.

A Paris court detained Societe Generale trader Jerome Kerviel earlier this month for supposedly causing SG losses of nearly 5bn euros in “rogue trading”.

Credit Suisse blames a “small number of its traders” for pricing errors. AIG says its back office staff weren’t robust enough, claiming they overvalued assets. Bradford and Bingley’s losses appeared nearly overnight (where were they hiding before?). Barclays investment arm Barcap is mired in sub-prime losses.

The Northern Rock bank fiasco has been blamed on loose regulation, poor government and dithering decisions by Brown and Darling.

What rubbish!

The bosses are offloading the blame for their crisis onto individuals’ poor regulation or trades.

No, the mounting banking crisis is not the act of a few individuals but the result of role credit plays in capitalism.
The sub-prime mortgage market, collateral debt obligations and the variety of dodgy financial packages are examples of what Marx described as “insane forms of money”- back in 1857.

Marx quoted the likes of the banker Lord Overstone and the director of the Bank of England, Mr Norman, who on the verge of the crisis of 1857 assured a parliamentary committee that the banking system was safe, that the huge rise in credit was a sign of healthiness and that their ever-greater profits in the form of interest were well-deserved. A few months later they were plunged into chaos (in fact Overstone had done exactly the same thing before the crisis of 1847, even advising on new banking laws). (See chapter 26 of Marx’s Capital volume III).

Overstone and Norman are mirrored today by the leading bankers, the press and capitalist politicians, who up to the middle of last year were arguing that globalisation had dragged capitalism out of its pattern of repeated cycles of recessions, and who even at the end of last year were saying that little was wrong with the credit system.

Then, as today, the speculation that accompanies booms was seen as an example of the near unlimited potential of capitalism and not of the swindling that is integral to the system.

The rise of the speculators
Writing in volume three of Capital, Marx described the crisis of 1845-7 in Britain and the European-wide crisis of 1857. He exposed the speculation and swindling that took place and predicted that the massive expansion of credit that is needed for the globalisation of capital would see only more cheating among the “money-dealers”.

Credit is based on the rising trade in commodities and the use of bills of exchange, i.e. it is a means of payment between buyers and sellers of commodities. Marx emphasises that credit does not rest on the circulation of metal money, i.e. gold or silver coins, or notes issued by a bank such as the Bank of England, but on the circulation of commodities (Chapter 25, Capital volume III).

Credit also creates a stratum of people whose function is to deal in money, either to lend or to borrow, and these people Marx calls the money-dealers. These people work at banks: the banks concentrate huge amounts of money via deposits and the like and loan money out to capitalists.

The difference between the interest offered by the banks on deposits and that offered on loans becomes the source of their profits: “A bank represents a centralisation of money-capital, of the lenders, on the one hand, and on the other a centralisation of the borrowers. Its profit is generally made by borrowing at a lower rate of interest than it receives in loaning.” (Marx, ibid)

Marx describes in great detail the various forms of loans: bills of exchange, cash, credit etc, and the many ways in which money is deposited or enticed into the bank such as gold, banknotes, and deeds to fixed capital or collateral. A bank only need keep in its vaults the amount of money it believes it will have to pay out to customers in any given day; it can create more money by lending credit. For example, a bank may have £10,000 in it vaults but loan out £20,000 in the form of credit. Only when people wish to withdraw more than £10,000 would there be a run on the bank such as at Northern Rock when its customers realised that their money was at risk if it stayed at the bank.

Such a system opens itself to speculation. Marx, quoting approvingly a theorist of money, says, “Trade and speculation are in some cases so nearly allied that it is impossible to say at what precise point trade ends and speculation begins.” (Marx, ibid)

Marx describes the great railway swindle of 1847, brought on in part by “overproduction in industry, underproduction in agriculture”, which “gave rise to an increased demand for money capital i.e. for credit and money.”

He describes how a massive increase in trade led to speculation, which led to a crash, the crisis of 1847 and the railway swindle. In a passage that could have been written about Societe Generale today, Marx said: “The easier it is to obtain advances on unsold commodities, the more such advances are taken, and the greater the temptation to manufacture commodities, or dump already manufactured commodities in distant markets, just to obtain advances of money on them. To what extent the entire business world of a country may be seized by such swindling, and what it finally comes to is amply illustrated by the history of English business during 1845-47. It shows us what credit can accomplish.”

How does credit lead to speculation?
In a simple commodity system, a buyer hands over money to a seller to purchase a good. There is a physical unity of the act of buying and selling that constrains the action in time and so shapes its development.

Credit separates the act of buying and selling. It allows capitalists to borrow or lend, to put off the day of payment, or to have several capitalists involved in the transaction. Marx uses the example of how a 21-day bill of payment (i.e. to be paid on a date 21-days hence) may go through several hands before it is due to be paid. During this 21-day period the bill is only a means of payment or a promissory note (a promise to pay on a certain date) and only when it is due does it become commercial money.

Marx identifies the separation between buying and selling as the basis of speculation (Chap 27 Vol III). For example, during the 21-day period the bill can be used by the possessor as a promise for more money, it can used to buy capital, borrow money or make good cheques. It is this gap that allows fictitious money to grow and multiply.

This divorce between selling and buying is necessary to capitalists when the sums are so great they cannot access enough cash to pay immediately. Cotton, ships, cargoes, machines, etc are all paid for on some future date, either through a company raising the funds itself or going to the bank for a loan, and even then it would have to pay back the loan over a period of time. Or it is necessary because of geography – commodities have to travel to be sold, tea for example would be bought in India (with money from a London bank) and then sold again in London.

Therefore the separation in time between buying and selling is necessary for capitalism but opens they way to speculation.

Marx says that credit “with the same magnitude and number of actual turnovers of commodities for consumption, a smaller quantity of money or money tokens performs the same service. This is bound up with the technique of banking. On the other hand, credit accelerates the velocity of the metamorphoses of commodities and thereby the velocity of money circulation.” (ibid)

Today of course we have billions transferred around the globe in shares, bonds and futures along with all the various forms of “insane forms” or “funny money”. They are all means of payment. The speed at which computers can trade these means of payment and the amounts involved greatly increase the trends towards speculation and swindling. Where in Marx’s time a 21-day bill would pass through say four or five hands, today sums of money can pass through many more hands as the physical limits of post, cheques, couriers, meetings between people have been abolished by computers. Computers have abolished any physical presence of money i.e. no more notes, cheques, letters, IOUs, bills of payment – and so buying and selling can become one (as it is in purchasing household goods, books online) or money can be moved in seconds around the globe at the very last moment, reducing the actual time between buying and selling and raising the number of times it can be circulated. Obliterating physical limits on the means of payment leads to far greater velocity of circulation.

Today, the same amount of money will go much further given the huge increase in turnover time; with the massive amounts of money in circulation we saw a frenzied boom – and we are witnessing the end of it now.

The money-traders
Joint stock companies have given the banks and the money traders even greater power over capital. The creation of huge stock companies has led

“The capital, which in itself rests on a social mode of production and presupposes a social concentration of means of production and labour-power, is here directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital, and its undertakings assume the form of social undertakings as distinct from private undertakings. It is the abolition of capital as private property within the framework of capitalist production itself.” (ibid)

The stock company has become social capital, an aggregate of private capitals into one large socialised form. The owners of capital become precisely that, mere owners; the other roles that they had as private property owners such as managers have been handed to the joint stock company.

Money-traders are the managers of social capital and control the capital of others. This control is put to the service of speculating in more credit as the trader risks only the property of others not his own.

“The capital itself, which a man really owns or is supposed to own in the opinion of the public, becomes purely a basis for the superstructure of credit. This is particularly true of wholesale commerce, through which the greatest portion of the social product passes. All standards of measurement, all excuses more or less still justified under capitalist production, disappear here. What the speculating wholesale merchant risks is social property, not his own. Equally sordid becomes the phrase relating the origin of capital to savings, for what he demands is that others should save for him.” (Ibid)

Kerviel and the heads of companies such as Enron are money-traders as described by Marx 150 years ago. They earn huge amounts on the basis of controlling other people’s capital. They are not aberrations or a few bad apples, rather they are personifications of the development of capitalism; greater trade hand-in-hand with greater credit leading to more speculation. It is in effect socialisation of risk and privatisation of profit.

Even today they continue to make money when those around lose. One economic commentator has calculated that traders at five top Wall Street banks were last year rewarded with an average of $350,000 for losing £274,000.

Imperialism and transition
There is another aspect of the joint stock company analysed by Marx and later developed by Lenin. This social capital is actually the abolition of private capitalism; it undermines the market and the law of value. Marx refers to the joint stock company as being:

“This result of the ultimate development of capitalist production is a necessary transitional phase towards the reconversion of capital into the property of producers, although no longer as the private property of the individual producers, but rather as the property of associated producers, as outright social property. On the other hand, the stock company is a transition toward the conversion of all functions in the reproduction process which still remain linked with capitalist property, into mere functions of associated producers, into social functions.” (chap 27, op cit)

Marx goes on:

“This is the abolition of the capitalist mode of production within the capitalist mode of production itself, and hence a self-dissolving contradiction, which prima facie represents a mere phase of transition to a new form of production. It manifests itself as such a contradiction in its effects. It establishes a monopoly in certain spheres and thereby requires state interference. It reproduces a new financial aristocracy, a new variety of parasites in the shape of promoters, speculators and simply nominal directors; a whole system of swindling and cheating by means of corporation promotion, stock issuance, and stock speculation. It is private production without the control of private property.”

It is this transition that we find in Lenin’s theory of Imperialism as being the Highest Stage of Capitalism. Joint stock companies, monopolies and so on undermine capitalism and lay the basis for the transition to socialism. Lenin called it “moribund” or capitalism “in decline” not because of any failure to grow but because the actual process of its growing was undermining capitalism’s innermost laws and even private property itself.

However this transition is not automatic. It requires the conscious act of the working class and its allies to overthrow private property, the capitalists and their supporters, and create socialism through organised action. The increasing monopolisation of capital (which has been a key feature of the current boom) may well earn greater profits for capitalists, but at the same time it creates crises in which the transition becomes a possibility.

The current crisis
We have concentrated on the credit crisis and how, rather than an aberration, it is the culmination of capitalist cycle. The credit crisis, while appearing as a function of exchange, really originates in the overproduction of commodities, not in the realm of trade but in the process of production itself. It appears at first as a crisis in the credit system as this is the main lever of “over-production and over-speculation” (Marx ibid).

The growth in US capitalism’s mass of profits has taken place alongside an even greater expansion of credit-led capitals in search of higher profit rates in more risky investments (see this website for more explanation of the current crisis). Now millions of US families face homelessness while bonuses to the money traders in US banks continue to grow.

Marx says: “The credit system accelerates the material development of the productive forces and the establishment of the world-market… At the same time credit accelerates the violent eruptions of this contradiction – crises – and thereby the elements of disintegration of the old mode of production.”

He ends with a characteristic flourish:

“The two characteristics immanent in the credit system are, on the one hand, to develop the incentive of capitalist production, enrichment through exploitation of the labour of others, to the purest and most colossal form of gambling and swindling, and to reduce more and more the number of the few who exploit the social wealth; on the other hand, to constitute the form of transition to a new mode of production. It is this ambiguous nature, which endows the principal spokesmen of credit from Law to Isaac Pereire with the pleasant character mixture of swindler and prophet.”

Rather than the actions of rogue traders, poor regulation or sleeping back office staff, the credit crisis is the result of the feverish boom. It is no accident but the expression and concretisation of the laws of the capitalism system.

We must ensure that the colossal system of “gambling and swindling” really is the transition to a new mode of production – by rousing the mass of humanity to drive the capitalist system of profiteering and swindling off the face of the earth, and replace it with a socialist society that will democratically plan the wellbeing of all, not obscene profit for the few.

The speed at which it all happened and the magnitude of the potential losses of these powerhouses was too much. So serious was the situation that the US Federal Reserve (central bank), US Treasury (government) and central banks in the European Union, Britain, Switzerland, Canada and Japan and elsewhere stepped in to provide $US180 billion ($A225 b) liquidity.

These massive rescue packages involving loans, company restructuring, sales of assets, etc, served to shore up confidence and stabilise the situation for the time being. They brought together some of the most powerful imperial rivals, who put aside their separate interests to serve an over­riding common interest — the bailing out of capitalism. The present crisis is a crisis of capitalism; the global financial crisis is a critical part of it.

New World Order

The present crisis did not come out of the blue, it has been in the making for decades, accelerated by deregulation, privatisation, and other economic rationalist policies (neo-liberalism), globalisation and the domination of larger and larger and ever more power­ful monopolies. The most powerful and greedy, the most parasitic and non-productive of these were the giant financial conglomerates. They built the shaky house of cards that spans the globe and is crumbling today.

Nobody is daring to predict the outcome of the present financial crisis, not even how many years it might take to work through. With foreign sovereign funds lined up to take the pickings and massive new debts accumulating to foreign central banks and more takeovers in the wings, the control and ownership of private investment capital is set for a very substantial restructuring and with it considerable shift in economic and political power.

Spending more on the military and starting more wars will not restore the US as the sole super power. US imperialism looks set to be substantially weakened as an international power, although not any less dangerous or desperate to assert global domination.

China is on the ascendancy, and other economic centres including, India and Russia, pose serious threats to US imperialism. Europe also poses a challenge, but it remains to be seen how well it can shore itself up against US developments.

Such shifts in power have been in process for some time; this financial crisis could see them take a new leap forward.

Nothing socialist about rescue operations

The US Treasury threw the world’s largest insurer, American International Group (AIG) a $US5 billion ($A107 b) lifeline loan as news of its collapse reverberated around the world. Its debts run into hundreds of billions of dollars. Merrill Lynch was saved from the bankruptcy courts by Bank of America’s $US50 billion takeover. On September 15 New York investment bank Lehman Brothers filed for bankruptcy protection with estimated debts of over $US450 billion — the largest in US history.

Morgan Stanley and Goldman Sachs remained standing but scarred, as investors lost confidence. On Wednesday last week, the market value of Morgan Stanley plunged almost 25 percent. Goldman Sachs’ share prices fell by almost 14 percent. Rumours abounded, fuelling fears as nobody trusted anybody any more. Who is hiding what?

The credit squeeze continues with banks having abandoned previous flexible practices of lending to each other to ensure liquidity (adequate supplies of accessible money).

Prior to that, the US government had taken control of the two mortgage giants Fannie Mae and Freddie Mac — not to help the people who had been lured and tricked into unpayable loans, but to shore up the private housing sector. Before that there was the government’s part in the rescue of big banking name Bear Stearns.

The Federal Reserve already had, since the sub-prime mortgage crisis hit over year ago, been handing out a steady stream of loans — around $US50 billion a month according to some estimates.

The various media outlets are packed on a daily basis with blow-by-blow descriptions of share price movements, corporate collapses, etc. However, very little is said about the millions of innocent people, losing homes, losing jobs, and sharp losses in retirement savings in the process. Nor mentioned are the cuts the US federal and state governments will now need to make to public health, education, welfare, etc in order to continue subsidising these corporate bail-outs?(not to mention maintaining payments on its huge military bills).

The value of retirement savings with KPMG, alone, is reported to have fallen by $500 billion. Australian workers are in the throws of receiving their annual statements from their superannuation funds. Unless they are over 55 and wish to retire, their money is locked in to superannuation.

Those who are retiring now could find that their savings have shrunk over the past 15 months, by how much depends on the performance of their fund and the choice of products they may have made. Workers take all the risk; there is no government compensation for losses in superannuation funds. The size of the losses in super funds for the last financial year varies considerably, and the news since June 30, 2008 has been bleaker. Industry funds fared better.

The relatively long stretch of economic growth was built on an unsustainable bubble of rising share prices, surplus liquidity and domestic and corporate debt.

As though determined to repeat history the regulatory and other measures adopted in the decades following the 1930s’ Great Depression were wound back by successive governments in the US, Australia, Europe and elsewhere. Analysts are now saying that the combined crashes of three of the largest financial institutions in the world last week has culminated in the worst crisis since the Great Depression. That may prove to be an understatement.

The underlying basics of the capitalist remain — its parasitic, corrupt and exploitative nature; the process of monopolisation and power of the financial sector; the attempts by capitalism to resolve crises by transferring losses onto the backs of the working class. There are also significant differences in the functioning of capitalism and the financial system since then, meaning that the financial and economic crisis which is unwinding will be very different to that of the 1930s.

The financial system itself has undergone a massive transformation since then. These changes include:

• Almost instant communications and?circulation of money.
• Monopolisation and increased global domination of all sectors of economic activity by financial conglomerates.
• Integration of stock brokers, banks,?insurance companies, investment houses, etc.
• New, highly speculative investment products that are far removed from the real economy. (There is even a product that trades bets on whether particular borrowers will default!)
• Huge amounts of capital and operations?(in secrecy) of hedge funds.
• Shift in risk from financial institutions?and capitalists to workers whose retirement savings are now a major source of investment capital.

Private profit, public risk

Last week’s bail-outs by the Federal Reserve Bank and Treasury in the US demonstrated how seriously the government and financial sector treat the current situation and that they are prepared to go to great lengths to prevent the financial system descending into total collapse and to defend the most powerful citadels of the capitalist system.

They have brought a short-term reprieve, halting the downward plunge on stock markets and partially restoring some of the most recent losses. This relatively small lift in share market indexes should not be taken as an indicator that the worst is over, as suggested by some economic commentators attempting to talk up the economy.

This was confirmed last Saturday, September 20, when the Bush administration announced that it was seeking a blank cheque from Congress of up to $US700 billion to buy up distressed mortgage-related assets from private firms. To put that amount into perspective, it is more than the annual budget for the Pentagon — more than $2,000 for every man, woman and child in the US (comparisons from New York Times, 21-09-08).

This is the same administration that preaches the free market gospels and says government has no role in social welfare. When it comes to the financial gods, Bush’s “no bail-out” policy was thrown out of the window, and the dollars gushed out of the corporate welfare tap.

“This is a big package because it was a big problem,” Bush said in defence of the $US700 billion proposal. He made the point that “the risk of doing nothing far outweighs the risk of the package, and that, over time, we’re going to get a lot of the money back.” There are, of course, other ways of doing nothing!

The Democrats have agreed to support the Bill when it hits Congress this week, on one condition: that the Bill also provides help for ordinary people in the form of an economic stimulus package. Democrat House president Nancy Pelosi said the “Democrats will work with the administration to ensure that our response to events in the financial markets is swift, but we must insulate Main Street from Wall St and keep people in their homes.” Ms Pelosi said that the Democrats would insist on “enacting an economic recovery package that creates jobs and returns growth to our economy.”

Bush portrays the bail-out of the financial sector as helping every American. In reality, it is a scheme to transfer the losses of the financial conglomerates onto American taxpayers.

Australia not immune

Australia is not immune from developments in the US and elsewhere, and sectors of the economy have the appearance that they are declining into recession. The booming resources sector is only as good as China and world commodity mineral and resource prices hold out. China is in a far stronger position to withstand the global crisis, having retained a large degree of control over its financial sector, but its massive volume of exports to the US means that China is not fully immune from developments on Wall Street either.

In Australia the Rudd government is attempting to talk down the seriousness of the crisis and its likely impact on Australia, yet at the same time it is taking measures to protect Australia’s major financial institutions and minimise political fallout from possible bank and insurance company collapses here as well. The government’s fear of a panic and a rush on savings is a very legitimate one, as there is a very strong psychological element with people living in fear of making big losses or losing everything. A number of the corporate casualties of the crisis were in themselves operating as sound businesses, and could have continued that way if they had not been hit by the credit squeeze or the reckless borrowings of an overseas parent company.

The government is introducing legislation to provide up to $20,000 compensation to customers of collapsed banks and credit unions and also pay claims from general insurance policy-holders if their insurer collapses. This might prove to be of some comfort for a pensioner with meagre savings, but for retirees and others with larger deposits it means losing virtually the lot. Many people at present are under the impression that governments guarantee bank deposits. This is not true. The Commonwealth Bank and other state-owned banks did carry government guarantees, but they have all been privatised and their customers lost that protection as a result.

The $20,000 is peanuts compared with the millions that the financial conglomerates can expect in corporate handouts from government and the Reserve Bank if they collapse.

The new “nation building funds” (for infrastructure, etc) created by the Rudd government in the 2008-09 budget along with the $60 billion Future Fund, bring the total held to around $100 billion — minus what losses they may have experienced on the markets. Treasurer Wayne Swan noted in Budget Statement No 3, “One indicator of the government’s longer term financial position and ability to withstand adverse economic shocks is its available stock of financially liquid net assets”.

These funds came from the sale of Telstra and budget surpluses at a high social cost to the people of Australia. Such funds held by governments are known as sovereign funds. As recently as last week PM Kevin Rudd was reassuring the public that these funds provided a buffer for Australia against economic collapse.

There can be no doubt as to whose class interests are being served by last week’s bail-outs and the latest proposal for another $US700 billion worth. The bail-out policy approach towards the financial crisis does not help the real victims of these collapses — the ordinary people and communities whose assets go up in smoke, who lose their jobs, are thrown out of their homes, cannot afford private health services. It not only throws buckets of money at the real criminals who created this situation but fails to take any serious measures to address the causes.

What about the people!

Why weren’t the hundreds of billions of dollars in assistance directed to the victims of the crisis, the ordinary people of America? Why are there no serious plans to tightly regulate the financial sector and take control of economic policy out of the hands of the market forces, the transnational corporations? Why aren’t the US or Australian governments nationalising the major financial corporations? Why aren’t our governments outlawing the many highly speculative products that are pure gambling and bear no relationship to the real economy?

What plans are there to deal with the totally unaccountable, secretive hedge funds? There are rumours that some of them have deliberately taken destabilising measures to pave the way for rich pickings.

The answer to these questions lies in the very nature of the capitalist system which is driven by the pursuit of private profit derived from the exploitation of workers.

The People’s Weekly World Editorial on last week’s financial earthquake said it all with the question: “The government is injecting billions to bail out failed financial companies. Don’t the nation’s communities and working families deserve the same so they don’t fail?”

Ladies and gentlemen, this is your captain speaking. The situation is under control, and help is on the way. Please remain calm. We will keep you up to date on further developments. Please keep your seatbelts fastened until further notice. There’s no need to panic!

Forgive me, but I’m starting to panic. The U.S. financial system is in meltdown and there’s no deal yet to stop it. The government now owns half the mortgages in the U.S. Wall Street as we know it is finished, leaving behind $62-trillion worth of credit-default swaps outstanding. No one knows what, if anything, they’re really worth. Investors are hunting for a fresh supply of airsick bags and politicians have been screaming at each other in the White House. Folks on Main Street just want to hang the bad guys. They’re furious that they’ll be on the hook for $700-billion, give or take, to bail out the same Wall Street fat cats who got them in this mess.

In fact, no one has a clue how the rescue plan will work or how much money it will take. “They knew they had to pick a number with a lot of zeroes,” one informed person told me earlier this week. “Eight hundred billion seemed too close to a trillion, so they picked $700-billion.”

Thankfully, the worst financial crisis of our age has not interrupted politics as usual. There’s an election going on, and John McCain, for one, has his priorities straight. His promise to “suspend” his campaign until there was a deal was, in fact, a pitifully naked election stunt. He himself would make himself available to lead the rescue! Thanks, pal. But aren’t you one of those guys who’ve argued for the past 20 years that regulation is bad and unfettered capitalism is good?

Even The Wall Street Journal wasn’t too impressed with that top-gun act. “How is it supposed to reassure people to hear Mr. McCain intone … the words ‘derivatives’ and ‘credit default swaps’ as if it’s the first time he’d ever heard of them?” it asked.

Witnesses testify that Mr. McCain’s meddling did more harm than good. Personally, I’m thinking that his stunt was a desperate effort to divert us from the catastrophe of Sarah Palin, who turns out to be the political equivalent of worthless credit default swaps. Just tune in to her disastrous interview with Katie Couric, and watch her try to answer non-trick questions about Russia and the financial crisis. She was simply incoherent. “She made George Bush look like Cicero,” said one horrified former Palin fan.

Maybe Mr. McCain hoped he could use the financial crisis as an excuse to get last night’s debate rescheduled to next week, when it would have had to pre-empt the Biden-Palin match. Too bad it didn’t work. If I were Sarah’s handlers, I would arrange for her to get the flu, preferably until Nov. 4.

The alarming thing about this crisis is that the entire political class – including Barack Obama – is out of its depth. Anyone who lacks the expertise of someone with an economics PhD must rely on the advice of the financial types. They’ve got to put their trust in Ben Bernanke and Henry Paulson, who gazed into the abyss and saw that the entire American financial system was about to fall into it.

By now, most of the political class has been scared into believing that a massive rescue is imperative to fend off worse disasters. But the political class has failed to persuade Main Street. Calls to congressional offices are “running 50 per cent ‘no,’ and 50 per cent ‘hell, no,’” one Democrat told CNBC. “Out of 100 calls, you are lucky if one of them is positive.”

So who will sell the people on this hateful scheme? Not the President. His credibility is shot. He’s the guy who scared them into believing that Saddam had nukes. So why should anyone believe him now?

In fact, no one wants to level with the people. If they did, they’d have to explain that everybody had a hand in creating the credit crisis – even Democrats. In fact, it was the Republicans who pushed for tighter regulations on Fannie and Freddie, the government mortgage lenders, and the Democrats who opposed them. “These two entities … are not facing any kind of financial crisis,” said Democratic congressman Barney Frank back in 2003. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” Mr. Frank is now a central figure in the bailout talks.

Both the Republicans and Democrats enthusiastically endorsed the idea of using government power to expand home ownership to people who had been shut out of the market. But laissez-faire capitalism made the problem much worse. Reckless lenders, operating completely free of oversight, began pushing mortgages at people who got in way over their heads. Not surprisingly, nobody on Main Street complained. People bought more expensive houses than they could afford, gambling that prices would keep going up. They maxed out their credit cards and bought more TVs and bigger cars. Why not? So long as money was free to all comers, America could gorge on debt.

Now that the great credit machine has seized up, it’s Main Street that will suffer, and poor people who will suffer most of all. Without access to credit, small businesses will fold, and people will lose not just their houses but their jobs. The main objective of the rescue plan is not to bail out Wall Street. It’s to bail out the entire U.S. economy.

By the way, that’s not the only bailout going on. Washington is also about to pass a bill that will pump another $35-billion into the beleaguered auto industry. “It seemed like a lot when we first started pushing this,” said one of the bill’s sponsors. “Suddenly, it seems so small.”

“I now believe we are in for one hell of a deep downturn,” former GE boss Jack Welch said Thursday. “Get ready for real tough times. They’re coming. There is no credit available.”

“Reckless people have deluded themselves that this was a subprime crisis,” said economist Nouriel Roubini, who, not so long ago, was accused of being overly pessimistic. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” In other words, the problem isn’t just a subprime mortgage market. It’s a subprime financial system. And whoever gets elected is doomed to wear it.

Pass the airsick bags, please. It’s going to be a long and bumpy ride.

Less than two months after the conflict in South Ossetia, the Georgian government is opening an exhibition of Russian aggression. Ironically, the exhibition will be housed in Gori in the museum of Stalin – a place dedicated to the former Soviet leader who hailed from the town and was himself accused of considerable aggression against his own people.

The new exhibition is still empty but in December within its walls visitors will be able to experience the story of the Georgian war and for many it is a tragic one.

“During the war we had the idea to have this exhibition. We will show photographs, pieces of bombs and documents about what happened in Gori. It was a very stressful time for the people of the city because in World War Two we fought with the Russians against the Nazis – Georgians, Ossetians and Jews were all on the same side. We would never have believed something like this could have happened,” said Mzia Naotchaschvili, director of research at the Stalin Museum.

Olga Topchishvili, one of the most experienced tour guides in the museum, did not escape Gori during the war. She doesn’t agree with the exhibition.

“I don’t know what they’re going to show here. Some people from the Ministry of Culture decided it. The Russian soldiers behaved very well from what I saw and as I heard from other people. We didn’t have any problems with them. They took their position at the entrance to the city and stayed there. Some people gave them food and their commanders brought supplies to the city, gave it to the churches, who gave it to us,” Olga recalls.

Indeed, in Gori, the remnants of the recent conflict are now hard to discern, apartment blocks damaged during the fighting have been repaired quickly.

While Gori remains the only city in the former USSR still hosting the statue of the controversial leader, one of the main attractions inside the museum is the personal carriage of Joseph Stalin, in which he travelled the former Soviet Union. Never would he have imagined that one day it would be part of the museum of Russian aggression in Georgia.

26.09.2008 @ 09:30 CET

Both France and Germany on Thursday (25 September) said the current financial crisis would leave important marks on the world economy, with French president Nicolas Sarkozy declaring that the under-regulated system we once knew is now “finished,” and German finance minister Peer Steinbruck saying the crisis marks the beginning of a multi-polar world, where the US is no longer a superpower.

Speaking to an audience of some 4,000 supporters in Toulon, France, Mr Sarkozy said the financial turmoil had highlighted the need to re-invent capitalism with a strong dose of morality, as well as to put in place a better regulatory system.

“The idea of the all-powerful market that must not be constrained by any rules, by any political intervention, was mad. The idea that markets were always right was mad,” Mr Sarkozy said.

“The present crisis must incite us to refound capitalism on the basis of ethics and work … Self-regulation as a way of solving all problems is finished. Laissez-faire is finished. The all-powerful market that always knows best is finished,” he added.

He accused “this system that allows the ones responsible for a disaster to leave with a golden parachute” of having “increased inequality, demoralised the middle classes and fed [market] speculation.”

A European response

The French president also criticised “the logic of short-term financial profit” and said risks were hidden “to obtain ever more exorbitant profits” – something which, he said, was not the true face of capitalism.

“The market economy is a regulated market … in the service of all. It is not the law of the jungle; it is not exorbitant profits for a few and sacrifices for all the others. The market economy is competition that lowers prices … that benefits all consumers.”

The speech by Mr Sarkozy, who is also the EU’s current president-in-office, echoes similar statements he made earlier this week, when he called for an international meeting to discuss the crisis before the end of the year.

On Thursday, he also called on Europe to “reflect on its capacity to act in case of an emergency, to re-consider its rules, its principles,” while learning the lessons from what is happening worldwide.

Mr Sarkozy said: “For all Europeans, it is understood that the response to the crisis should be a European one.”

“In my capacity of president of the Union, I will propose initiatives in that respect at the next European Council [15 October],” he added.

‘The world will never be the same again’

Meanwhile, German finance minister Peer Steinbruck criticised the US for failing to act in the wake of the crisis and said it would now lose its status of “superpower.”

“The US will lose its status as the superpower of the world financial system. This world will become multi-polar,” with the emergence of centres in Asia and Europe, he told the German parliament on Thursday.

“The world will never be as it was before the crisis,” he added.

Mr Steinbruck’s criticism of the US has been amongst the sharpest yet made since the beginning of the crisis.

He notably blamed Washington for resisting stricter regulation, even after the crisis started last summer, and said this free-market-above-all attitude and the argument “used by these ‘laissez-faire’ purveyors was as simple as it was dangerous,” the Associated Press reports.

He stressed that Germany had made recommendations last year for more rules, which Washington refused to consider.

They “elicited mockery at best or were seen as a typical example of Germans’ penchant for over-regulation,” Mr Steinbruck said.

Earlier this week, German foreign minister Frank-Walter Steinmeier also said the US should have listened to the advice coming from Europe, notably from Germany, that more control was needed.

“It is a discussion that we have had for a long time in Europe, that the completely unregulated parts of the international financial market must be more closely monitored and that we must try to reach an agreement on common regulations,” he said during a visit to the New York Stock Exchange on Wednesday, according to Forbes.

Under the terms proposed [in the bailout plan], Bush’s initiative would permit large companies to emerge unscathed from the disastrous consequences of their own greed, but would not lend an ounce of aid to citizens who have lost their homes or are about to lose them, in the midst of the real estate crisis shaking the United States.Translated By Anthony Enriquez

September 22nd, 2008

Mexico – La Jornada – Original Article (Spanish)

Last weekend, U.S. President George W. Bush sent Congress a $700 billion “bailout” proposal for the financial sector, in addition to the $285 billion from the Federal Reserve for mortgage lenders Fannie Mae and Freddie Mac. The requested money is intended for the discretional and uncontrolled acquisition, by the Treasury Department, of “bad” assets and debts and expired portfolios, especially in the housing sector. To put it in layman’s terms, the Bush initiative means that the state acquires private debts and distributes them among the general population, which represents a per capita debt of two thousand dollars.

The audacity of the request has shaken Washington’s political sector, because it is obvious that, under the aegis of the proposed “bailout,” hundreds of billions of dollars of public funds would disappear in a bottomless pit of corruption, favoritism, and complications, just like what occurred in Mexico a decade ago, when the Zedillo administration orchestrated the salvation of private banking with the general public’s money. What’s more, the White House already has a precedent of unscrupulously managing multimillion dollar sums destined for the war in Iraq, a large portion of which have gone toward the establishment of suspicious or nonexistent contracts benefiting corporations from deep within the president’s circle, particularly Halliburton, of which Vice-President Dick Cheney was CEO. Amidst the upheaval, came ringing rejections of the plan by Democratic presidential candidate Barack Obama, and even Republican John McCain, who has been encouraged to distance himself from the corruption, inefficiency, and bungling of the current administration, headed by his party mate.

A third element explaining reservations to the plan is the arrogance and despotism with which it was presented – lacking a single justification, program, or any criteria for the application of the funds – in what constitutes the actions of a president accustomed, since September 2001, to acting without counterbalances, running ramshod over basic rights, and to whom the judicial and legislative branches have granted all manner of “special powers” under the pretext of “fighting terrorism.” Moreover, under the terms proposed, Bush’s initiative would permit large companies to emerge unscathed from the disastrous consequences of their own greed, but would not lend an ounce of aid to citizens who have lost their homes or are about to lose them, in the midst of the real estate crisis shaking the United States. In that respect, the “bailout” proposed by the White House also resembles the Fobaproa-Ipab operation designed and approved by members of the PRI and PAN parties in Mexico.

Beyond ethical considerations – which have never been the strong point of the current US administration – as well as electoral, political, and social concerns, it is all too evident that the approval of the proposed “bailout” by the still-president of the United States would impose a radical reorientation of public expenses, favoring stockbrokers and executives of large financial firms, paralyzing innumerable social programs and the creation of infrastructure, and consequently multiplying factors contributing to the recession of an economy itself affected by the housing crisis and high fuel prices. That is why this proposal of the sacking of the U.S. public treasury has a long way to go before legislative approval.

Although an acceleration of U.S. economic problems would have serious, undesirable repercussions throughout the world, and particularly in Mexico – no matter how hard the highest Mexican authorities irresponsibly endeavor to minimize the worrisome connection – one hopes that common sense prevails and that the steps taken to reorganize the U.S. financial sector, which undoubtedly remain necessary, emerge very different from the proposal the White House sent to the Capital last Saturday. Indeed, the proposal itself, viewed under the historical light of the trend of private appropriation of public funds that characterizes the current administration, may emerge as a last ditch attempt at pulling off a big deal by the business mafia surrounding the current president.

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As Republican Senator John McCain and Democrat Senator Barack Obama are practicing their eloquence skills in the presidential debate, the U.S. public doesn’t hear from the third party candidate running for the office.

Independent candidate Ralph Nader is not allowed to debate against McCain and Obama. Officials say he doesn’t qualify. However, Nader’s influence on the tight election can be greater than he’s getting credit for.

Ralph Nader is on the ballot in 45 states. In his fifth run for office Nader is polling roughly five percent nationwide. His move to cement a third party system can very well swing the election – each voter Nader gains is a vote McCain or Obama loose.

In 2000 Nader received nearly three million votes. Some argue it cost Al Gore from beating George W. Bush.

The memory is causing some supporters to abandon him on the election day.

“I’m voting for Obama only because I just don’t feel Nader can win. Although I like Nader, it’s just more, I’d rather not McCain win,” a voter says.

Most opinion polls list him as the third most popular in the race. But you would not think so watching the mainstream U.S. news channels.

As Americans are inundated daily with wall to wall coverage of the two major party candidates one may find Ralph Nader giving a press conference inside a university classroom with two television cameras and around ten reporters in attendance.

Slashing the military budget, clipping power of big corporations, and renewable energy – these are views that won’t be heard during the televised presidential debates.

Nader is excluded from taking part.

The majority of voters attending Nader’s rally are under 21 years old. Their ten dollar contributions do not put a crack in the McCain or Obama piggy bank. The donations do, however, show – even young voters are disenchanted by the status quo.

Nader’s campaign is more than just about the US presidency. He and his supporters say it’s about opening up a system dominated by two parties that they say have failed the country for decades.

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This crisis has resulted in mass protests and struggles around the world as the cost of food and fuel spirals beyond the reach of ordinary people.

This special issue of Fifth International therefore focuses on the credit crunch and the emerging crisis of globalisation that it is bringing in its wake. It also represents a defence and extension of the analysis that this journal has advanced since its first issue in 2003: that the globalisation phase of modern capitalism represents not a long wave of upward development, but a period in which the structural overaccumulation of capital that has bedevilled the system since the end of the post-war boom has not been fundamentally overcome.

Is the process of globalisation itself now under threat?

The Credit Crunch 2 – Three Days that Shook the World

18 September 2008

By Nicolas Berube Translated By Louis Standish 

“There is nothing more terrifying than seeing ignorance in action,” comedian Tommy Smothers said when accepting his Emmy award last Sunday in Los Angeles.

Mr. Smothers didn’t utter any names – the organizers of the awards ceremony didn’t want any live political commentary. But then why say something everybody knows?

The smoke raised by the nomination of Sarah Palin has subsided in the United States. Almost a month later, Americans don’t like what they see. McCain’s running mate attracted passionate crowds early on, but aside from the religious Republican base, no one else seemed to take the bait. For 10 days, the favorability numbers for the McCain-Palin ticket in every poll are in free-fall.

Even undecideds seem to be fleeing from the conservative duo. That’s what the Florida newspaper, the St. Petersburg Times discovered, which has been tracking a barometer of undecided voters since the beginning of the summer.
Last week, the newspaper was surprised to see that the majority of polled undecideds felt insulted by Palin’s candidacy.

“I am truly offended by Sarah Palin,” said Philinia Lehr, 37, a Republican mother of five who voted for Bush in the previous elections. In her opinion, a mother of five children doesn’t have any time for a demanding position like the vice-presidency of the United States. “What is she going to say if her newborn has a problem? Excuse me, my fellow Americans, I’m busy?”
This week, Palin wrote a new chapter in the history of the United States: she is the first vice-presidential candidate to refuse media questioning.
You read that right: almost a month after being nominated, Gov. Palin has held only one press conference. Case in point, Obama’s running mate, Sen. Joe Biden, has held more than 50 since August.

Media Revolt

The situation has otherwise led to a mini-revolt on Tuesday: reporters who follow Palin’s itinerary have threatened to stop writing or reporting anything about her if they don’t have access to her meetings with various heads of state in New York. Journalists were finally given access for about 29 seconds before being ordered out.

The exasperation spilled over onto CNN, where anchor Campbell Brown spoke directly to the camera, telling the McCain campaign to “liberate Sarah Palin.”
“Frankly, I’ve had it up to here,” she said. “I’ve had enough of the sexist treatment of Sarah Palin. The McCain campaign keeps us from asking her questions, like she’s a sensitive little flower that has to be protected. It’s disrespectful towards her. Free Sarah Palin from the chains of chauvinism. Sexism has no place in this campaign.”

Several commentators notice that McCain’s strategists no doubt have excellent reasons to shield Gov. Palin from the media. Apparently, she doesn’t have the required knowledge to handle any prolonged questioning.

For example, Gov. Palin continued this week to assert that Alaska’s relative proximity to Russia gives her foreign policy experience.

“Anyone who dares emphasize that that explanation doesn’t make sense is an elitist,” Sam Harris wrote in Newsweek, in a long article on the depressed expectations of the Republicans. He finds it scandalous that McCain’s running mate got her first passport just last year. “What troubles me is everything that Gov. Palin does not know: markets, financiers, the environment, the Middle East, the Cold War, Islam, medical research, etc. Her ignorance doesn’t come from not having the time to read the paper in the morning. Sarah Palin’s ignorance comes from how she’s spent her 44 years on Earth,” he wrote.

It all starts looking like a sketch from “Saturday Night Live” — the audience’s laughter at least.