02 September 2011

Demonize the banks

It has been my argument thus far that the illusion of continued global growth is primarily a product of the numerous speculative bubbles that were inflated as a result of the the main response to the crash of 2008, namely a massive injection of liquidity into the global economy. In the US and Europe this primarily took the form of no-strings bank bailouts. The US emerged from the bailouts seemingly unscathed economically (tho not politically) as the banks, having inflated new bubbles, were able to pay back the government; European countries like Iceland and Ireland, having shifted the crushing liabilities of the banks onto the much smaller base of their taxpayers, were economically devastated.

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.
Equally detached from the creation of new value but far more spectacular and confounding in its effects is the inflation of speculative bubbles. As a bubble grows, it seems to be producing new value at an extraordinary rate, and it seems that the financial sector itself is producing that value. In reality, the credit-creating properties of finance capital permit it to generate a mountain of fictitious value seeking a rational basis in the realm of production (for more on this process, see Ch 9-10 of David Harvey’s The Limits to Capital). Should that foundation fail to materialize, this mountain in the air will ultimately come crashing down on whoever is too slow to escape or too poorly connected to be spirited out from under it.

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 collapse can be delayed, but the political and ideological rigidities of the present mean that some other resolution is unlikely. When the collapse comes, we’ll be in a powerful position to win a complete restructuring of finance — if we are prepared. Should a new round of bailouts become necessary, the political firestorm that would follow will put us in control of the debate and the politics. The Obama administration would agree to anything as a condition for approving another bailout because the alternative would be complete economic 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.


  1. Just out of curiosity, why do we want to act "in service to a new regime of accumulation"?

    I'm not trying to suggest that some revolutionary alternative is around the corner, but that our critical work ought to be directed towards pointing out the weak points, the contradictions, but not in suggesting capital-sustaining remedies. From an ecological perspective, much less one of global human misery, a new regime of accumulation will likely only exacerbate those problems.

    We should not stop looking for practical forces expressing the contradictions of capital just because working class identity politics is pretty much dead.

  2. I agree that this framing is problematic. The argument makes some sense, that out of this crisis we will not be able to actualize socialism and so we must ensure that the regime of accumulation that becomes dominant is conducive to revolutionary organizing and ameliorates social ills like climate change and poverty. But both in our work and rhetoric I don't think it's wise to advocate for one regime over another. I'm also not sure that's what Walker is talking about here.

    As I said in another comment:
    "I don't think we need to be coy about our intentions and say "let's put the revolution on hold, let's just get out of the crisis." I think we need to say that we need to get out of the crisis in such a way that makes revolutionary practice easier. This isn't just semantic, it means that we support projects that imagine a favorable regime of accumulation, all the while at the same time figuring out and building a revolutionary movement that is adequate to that regime of accumulation. This would mean being creative in our organizational forms and also fighting to make the rules of the regime more conducive to organizing (I like to believe many of these would be those that are also better for people in the short run, I'm not a worsist). My vision is something like what Unite Students Against Sweatshops did in the late 90s by creating the Workers Rights Consortium (which has had serious impacts on the garment industry, and set them up for many future victories), on a societal scale. "

    The revolutionary orientation that I'd advocate is not establishing a coherent left position in dominant rhetoric with a clear vision for a single regime of accumulation. Instead we need to return to our communities and work places, we need to begin rebuilding the organizations that can breath both practical and theoretical life into a revolutionary movement that will be adequate to the new regime of accumulation. If we're involved in concrete struggles at the birth of a new regime we can experiment and discover what forms or organization are adequate.

    This does not mean neglecting the national debates. We need to be clear on what is acceptable or not. And what's more, we can be clever about what forms will lead to a good regime and what to bad. Austerity is bad, nationalizing banks is good. So I'd agree with Walker that articulating clear demands and constraints on the revival of accumulation is crucial and powerful. But I wouldn't be for trying to create a broad national movement around a vision for more humane accumulation.

  3. We discussed some of these issues in more detail on this post. Fundamentally I think the critical intellectual can take one of two approaches. First, we can as Chris suggests, direct our critical work toward "pointing out the weak points, the contradictions, but not in suggesting capital-sustaining remedies" - that is, a strictly negative function. Alternatively, we act in an affirmative manner, trying to create the conditions that will facilitate the emergence of a movement to overcome capital.

    The latter path requires a certain ambition, and perhaps a certain arrogance, that has been missing from the Marxian left since the advent of Stalinism. But I think that now, in light of the global experience of Leninism, Fordism, and neoliberalism, and using the theory developed by Postone, Harvey, Arrighi, Brenner, the Frankfurt School, the Régulation School, and others, we are in a position to attempt it. There are some clear dangers in this approach, but if we remain aware of them I hope we can avoid them. The alternative, I'm afraid, is to leave those dissident movements that do emerge completely rudderless, as they've been for the last forty (or one hundred?) years.

  4. I think the difference is that I remain unconvinced that we can shape "conditions that will facilitate the emergence of a movement to overcome capital" i.e. shape a new regime of accumulation, except in a determin-edly/ately negative role.

    Part of this is because I do not see a future in which capital is less irrational and destructive. A new organization of accumulation will exacerbate the contradiction between the social and material forms of wealth. Living labor will not become more necessary but less so. Even though the movement of capital is neither towards a final crisis nor of ascendancy/decadence, the resolution of each crisis of valorization still heightens the contradiction, making it more difficult to resolve. Between where we are now and a new regime of accumulation stands the massive destruction of capital (no 'reset' in accumulation in the last 100 years has involved less than a world war.) We could just as well see a long-term continuation of stagnation, as noted by Gopal Balakrishnan in his Speculations on the Stationary State http://www.newleftreview.org/A2799.

    That is, I don't see a new "regime of accumulation" as a given and for that reason I don't believe we can orient politically to it. I think we have to look for the fissures as they present themselves to us in the here and now, but to be patient. A negative critique is not against action, but rather has know how to bide its time and choose its moment and terrain, without holding its tongue.

  5. I think there's an added benefit to a negative role in that it is what embeds us in communities and builds identity and community out of struggle. Maurise Blanchot (and Ranciere to a certain extent) is interesting on this point because he takes the primary political moment as the moment of refusal. It's the refusal of an inhumane form of accumulation that will prepare people for a positive struggle for alternatives to capitalism.

    What I'm picturing here is making demands regarding what we will not allow in a new regime of accumulation. We will not allow environmental destruction, mass exclusion, or suppression of dissent. This is how fordism happened, revolutionaries never advocated for fordism, but it was the "deal" they got from their continued refusal of an inhumane economy.

    This isn't to say we couldn't ever be positive. As a new regime that we do like begins to emerge we can say "yes that's a good thing," though will some criticality of course. And we can plant seeds to resistance like my example of USAS with the WRC. But I feel that the emergence of that new regime should come from a deal being made with our refusals.

    Basically this comes from a confidence in Capital's creativity to save itself. If we establish enough lines in the sand as to what we won't take Capital will figure it out. I know it seems unlikely now but a look a emerging markets, especially if they begin to decouple (though they're not there yet) from core economies we could see new raw material for growth.

  6. I'm much less confident than Earl in capital's ability to "figure it out" this time - the Balakrishnan article that Chris cited actually makes a pretty persuasive case that getting robust accumulation going again will be extremely difficult. On that count I side more with Chris.

    But I like very much every other point Earl is making. Precisely because a viable new regime of accumulation will be so difficult to assemble - and because the capitalists themselves are mostly ideologically opposed to the steps that would be required - I think it falls to the left to save capitalism in spite of the capitalists.

    This would require, I think, a rough blueprint of what revived accumulation would entail so the left could distinguish useful initiatives from unhelpful temptations - community gardens, for example, are a waste of time. But I think that the way this should actually unfold politically is, as Earl is saying, by drawing red lines that the capitalists aren't allowed to cross. This would both give capital the flexibility it needs and leave us free to sustain a continuing and increasingly radical critique.

    All this is premised on the idea that simply leaving the economy to stagnation and decline is probably the least likely scenario for generating popular subjectivity and institutions that could transcend capital. So far developments have done nothing to dissuade me from this view, but if that should change then the possibilities open to us might greatly expand.

  7. Please excuse the informal language of this comment coming from someone outside any movement.

    Of all the institutions that make up the U.S. economy, I think the financial system and the health care system are the most obviously broken and inefficient.

    It’s easy to imagine a national financial system allocating more money long-term to energy research and efficient transportation (and away from short term asset speculation, which no current bank can do), or a national health care system with enough clout to organize effective electronic medical records which no hospital chain or insurance company can do. Of course these would also be greener and more humane, as well as being more efficient.

    Don’t you need a health care system and something that does finance-like stuff under socialism anyways?

    I suppose Health Insurance can be just as easily demonized as Banks. Both will probably get easier to demonize as long as the U.S. system stays so inefficient.

  8. I think that limiting ourselves to a negative critique means that our message will not be effective beyond a small circle of academics. If we are not using our insight to point to areas where it is possible to take action and change the existing social configuration, then I'm not sure of what use it is. I also think that if we don't risk engaging in these struggles then we won't find out the true potential for social change. This knowledge will only come about through a trial by fire.

    I share Chris's uncertainty about the future. But I also believe that Balakrishnan's article does something very useful in underlining the distinction between the collapse of capital and it's overcoming (this is reading into it a bit, as I believe he confines his comments to the idea of collapse.) As Marx argued, the incredible advances that society has seen over the past few centuries come from capitalism, not in spite of it. It is interesting to consider that the fall of capitalism might not be at all as we might like to envision it, that it might not unleash the potentialities of humanity but rather foreclose on them.

    But to say that our struggle is one through and beyond capitalism should also entail the recognition that the struggles of workers and others are really part of the engine of capitalism itself. As Earl and Walker point out, our participation in politics can take the form of a refusal that could potentially create a new dynamic of growth.

    I'm not convinced that a more humane capitalism is possible, but in my opinion our hopes hinge on just that possibility. This condition of uncertainty is, after all, entirely consistent with the fact that we are in a epochal crisis. Viewed in another way, this uncertainty we feel about the future may actually represent the opening of a field of action, an opportunity for us to influence the course of events in a significant way. This returns us to an earlier discussion about agency.

  9. I don't think that we need to conceive of agency in a traditional way as the agency of the liberal subject. If agency is the ability to alter a social structure, then we should be more apt to view it as the province of some kind of movement or coalition emerging from social contradictions. I think this also returns us to some recent comments regarding the impossibility of bringing back "the party" and Earl's question to me about the value of the UK Uncut organization.

    UK Uncut is a group that formed in response to the politics of austerity in the UK, and held public demonstrations against companies that were not contributing to the nation through taxes. I don't think that an organization like this is at all adequate to the situation we're in. Increased corporate taxes would not solve the economic crisis. But much as Walker argued in this article, such a struggle might lay the groundwork to address the crisis in a much more substantial way by engaging public participation.

    However if we want to engender public participation, to me it seems that something like a party is still necessary. By this I mean a much more solid form of organization that can provide the conditions for helping leftist thought, analysis, and research flourish, as well as funding organizers to work on issues of importance and sustain public involvement in these issues (I'm definitely not thinking of electoral politics.) Hopefully such an organization could bring together some of the efforts that are currently being put into disparate social issues. After all we would be much more able to address such issues if our efforts were united. Currently environmental groups, labor groups, identity groups, neighborhood groups, etc. are working mostly in isolation from one other. But as others have argued the collapse of working class identity has taken away what was previously the best way to organize political power on the left.

    To me this would seem to demand that we find a new way to organize opposition, but perhaps I haven't fully grasped what Earl and Walker meant when they said that the party is now an impossibility. Maybe this is more of a semantic issue regarding what a "party" is. I think that the forms of organization that we think might work would be an important issue for future discussions.

  10. Iceland defaulted. Last quarter they had 4.7% growth. There went your big chance for a commie revolution.