At the time there was an outburst of popular anger against the banks as the collapse of enormous real estate bubbles in the US, UK, Ireland, Spain, and elsewhere crushed millions of lenders while the bankers who had profited so ostentatiously by inflating the bubble were rescued without consequences. Some attempts were made to organize this discontent, one of which I was involved with, but these were notable principally for their failure to galvanize discontent. If any further evidence were needed, this showed conclusively that existing techniques of mobilizing a progressive constituency are hopelessly out of step with the times (discussion here and here).
The most notable product of this episode was the flood of opinion writing and pronouncements by politicians denouncing the banks for their crimes and positioning the interests of “Main Street” against those of “Wall Street”. Of course, crudely opposing the “real economy” and the finance sector and blaming the crisis on the banks, as these commentators generally did, marks a fundamental misunderstanding of the nature of the crisis. In terms of the immediate effects, if Europe and the US had not bailed out the banks, the escalating panic would have intensified the credit squeeze and strangled the rest of the economy.
More fundamentally, the deregulation of the finance sector was essential to the operational needs of neoliberalism as a global regime of accumulation. As Saskia Sassen has argued, the decentralization of production across the face of the globe required a recentralization of coordinating processes in global cities — the most prominent feature of which is, of course, a thriving financial nexus. In other words, so-called globalization — the form of appearance of capital’s expansion under neoliberalism — depended on the increasingly prominent role of the large banks.
By the ’00s, the increasingly bloated finance sector also sustained neoliberalism by extending ultimately unsustainable levels of debt to the population so that stagnant wages would not lead to shortfalls in consumer demand. Reckless and criminally irresponsible, yes — but the economy would have crumbled much sooner without it.
To pit good (productive) capital against bad (finance) capital is, then, to hopelessly obfuscate the causes of the crisis. Under neoliberalism, the two were symbiotic, and it is ultimately dysfunctions within productive capital and in its articulation with the system of realizing value thru sale (that is, in sustaining consumer demand) that have felled neoliberalism.
Simply attacking the banks will not end the crisis, then. Yet an adequate approach to the crisis must involve a significant restructuring of the finance sector. Taming the banks is not sufficient, but it is necessary.
Under neoliberalism financial firms have occupied a strategic position over the roaring cataract of money capital, which opened up many possibilities in addition to those that served the overall expansion of capital. From the crudest swindles in the vein of Bernie Madoff to the small price manipulations on an immense scale that made speculative arbitrage a universal moneymaker for the financial firms, a bewildering array of strategies emerged in which the banks exploited their strategic position to seize a share of the capital that they had no part in producing. These activities shift value around rather than facilitate its creation. They are fundamentally parasitic. Yet under neoliberalism this kind of profit-making assumed a central position.
Much of what appeared as GDP growth over the last decade was actually fictitious value piled up in multiple speculative bubbles, the largest of which was in real estate. Per capita net worth in the US now stands at the same level as 1999, an extraordinary collapse. It seems clear that speculation was the brains upon which the zombie economy of the ’00s sustained itself.
The collapse of the real estate bubble was like blasting off the zombie’s leg with a shotgun — it slowed down, but it’s still crawling toward us. Governments in the US and Europe threw money at the banks and they used it the only way they knew how: to inflate new speculative bubbles. These disguised the crisis for a short time, giving us the so-called recovery, but the devastating impact of the crash on consumers is now bringing the ongoing crisis back into view.
The basic problem we confront is that tensions and imbalances within global neoliberalism built up over many years and steadily closed off productive outlets for capital investment. That capital, which otherwise would have stood idle, was instead channeled into highly profitable speculations on every conceivable asset. Capital flows into speculation, swollen by the intensifying exploitation of the neoliberal era, were so great that entirely new assets had to be invented to satisfy the demand. As the production of real value stagnated, larger and larger bubbles obscured the deep dysfunctions in the sphere of production by generating growth on paper (this article provides an extremely useful account of these developments). That kind of sham growth took a beating in 2008, but it’s still the basis of our “growth” model.
Any kind of solution requires a deep restructuring of finance and production that could both choke off the opportunities for speculation and generate new opportunities for productive investment. The latter problem is not on anyone’s radar right now — how we can force it onto the agenda is a matter for future discussion. But at least some mainstream commentators already support efforts to bring finance under control.
The banks remain extremely fragile. Even the remarkably weak re-regulation that made it thru the banks’ many friends in Congress has caused them serious problems and they are now casting around for new ways to gouge consumers, like imposing fees on automatic bill payment services. The Obama administration has, despite the debilitating political effects, refused to pursue any serious attempts to prosecute the absolutely massive financial misconduct leading up to the crash, is carrying out small-scale secret bailouts of the weakest banks, and continues to sabotage attempts to punish ongoing wrongdoing. Whether the administration is doing so enthusiastically or reluctantly is beside the point — the finance sector is so brittle right now that anyone who wants to preserve it basically unchanged has no choice but to defend it from the interests of citizens and consumers lest their demands precipitate another collapse.
The basic demand should be a nationalization of the banks, which contrary to popular histrionics is perfectly compatible with capitalism. A state-run banking system would be no panacea for the dysfunctions of neoliberalism, much less a step toward socialism. But it would provide us with much more leverage in the project of reconstituting finance in service to a new regime of accumulation.
For such a demand to be credible by the next financial collapse, mobilization must begin now. Promising initiatives targeting the banks are already underway, but they will have to become much broader in their appeal if we are to be ready. New forms of education will also have to be pioneered within this movement. Many people might be drawn into organizing thru simple demonizations of the bankers, but the task before us is far more complex than locating and destroying some set of enemies. The attraction of targeting the banks is the immediate support it can generate within the population, which can be directed toward necessary economic tasks. But if it doesn’t develop beyond that then the whole endeavor will fail.