THE FAIRY-TALE OF THE END OF THE FINANCIAL CRISIS
Or Capitalism’s inability to Regulate Itself
By David Stein
[This article published on June 1, 2017 is translated from the German on the Internet, www.sozonline.de.]
The Handelsblatt German business daily recently published an article titled “Ten Years after the Financial Crisis.” The article gave the impression that the financial crisis was a past chapter of the history of international finance capitalism rich in stories.
Starting from the real estate markets, the credit bubble burst in 2007 in important capitalist countries and intensified the chronic over-accumulation underlying the credit expansion. For a time, the whole financial sector in capitalist metropolitan areas threatened to go out of control. The downward tendency could only be cushioned after enormous interventions of the central banks and governments – with the help of nationalizations (for example, Hypo Real Estate HRE in Germany) and re-capitalization measures which the banks could not carry out under their own steam.
The state concocted bailout packages for the banks: liquidity assistance, guarantee takeovers and other capital assistance. For this state aid, the EU Commission set a binding framework for competitive reasons and an approval process as earmarked in the European Community treaty. Between September 2008 and December 2010, the peak of the financial market crisis, the EU Commission approved state aid of 4.3 trillion euros (a number with twelve zeroes!). Of that, 1.2 trillion euros was actually claimed – corresponding to 10.5% of the EU gross domestic product. That included 757 billion euros for guarantees and securities.
Before the financial crisis, there were always bank bailouts and restructuring measures of the states. The IMF estimates that the individual EU states in the 1970-2011 period spend 6.8% of the EU’s gross domestic product for these bailout measures and the subsequent recessions. Banks and others insisted that the banks’ collapse would have triggered a chain reaction.
Since 2011, a hesitant upswing has been underway in most EU countries. However Germany – despite its recovery - has not completely overcome the most serious financial market and economic crisis of the postwar era. Many EU states put money in their restructuring measures since the banking institutes have high volumes of non-performing accounts receivable on their books.
The potential crisis of the global economy has grown and not declined. After the 2007 financial crisis, a system crash was prevented by the concerted actions of central banks and states. However only time was gained. A revitalization of the root and branch has not succeeded and a new thrust of massive volatility of the financial markets occurs.
The Costs of Financial Crisis
The difficult and expensive averting of the crisis led politics and the media to repress the causes of the financial crisis and encourage an upswing with words and books. So it was rumored that the bank bailouts since 2011 will not be as expensive for Germany as originally feared. On balance, the financial crisis was not so terrible because the state even earns money with its restructuring measures (through interest revenues for pledged securities and guarantees). This can only be understood as acceptance of such a risk in the future instead of putting financial institutes on a short leash with severe rules and controls.
An analysis of the Spanish Central Bank from April 2017 calculated the costs of the financial crisis for taxpayers and the increased state indebtedness throu9gh the supporting measures in the EU states on the basis of new numbers and countered the “fake news” of the faith healers of crisis intervention. At the end of 2015, the burdens for state budgets still amounted to 4.8% of the gross domestic product of the euro zone.
Since 2008, German taxpayers have paid 236 billion euros for the bank bailout… Their share is now declining since the state’s Bad Banks have reduced the debts.
The so-called Bad Banks, institutes in which the financial junk was stored, helped make rotten bank credits or junk bonds disappear from the balance sheets of the institutes. However Bad Banks under state management enlarge the public debt condition. Old debts of Hypo Real Estate and the Westphalia regional bank are stored in the German Bad Banks. The German state takes them away so they can start again. In October 2010, the Federal German government took away assets of 173 billion euros from HRE alone.
The total costs of the state crisis intervention cannot be calculated exactly since the restructuring and stabilization process is hardly concluded. A complete repayment of the state support benefits can hardly be expected. The statistics give one impression – the reality may be more blatant for citizens and taxpayers.
The other regional banks should not be forgotten like the 10 billion poured into the Bavarian regional bank. A gigantic number of schools could have been built with those funds – or kindergartens or universities or the degenerate infrastructure of transportation routes could have been revitalized.
In Germany, the so-called restructuring law was passed in 2011. High-risk businesses should be regulated and all banks should share in any necessary future bailouts according to the causation principle. That these legal rules first took effect after the child had already fallen in the well is extremely problematic. These were only revitalization measures in favor of credit institutes enmeshed in difficulties. The preventive regulatory measures were insufficient and are urgently necessary.
The challenge of the left is to free the state treasury from captivity as a hostage of the banks. The financial institutes must be consistently regulated as causal agents of the crisis and saddled with the bill. State bailouts would have hardly been necessary if bank monitors had forced the institutes to purge their balance sheets from risks and increase their capital resources.
Politicians and monitoring authorities cannot agree on higher capital holding requirements out of fear of burdening “their” banks in the competition between the states. The stricter capital holding requirements of the “Basel Agreement” (“Basel IV”) are breaking down. The US and Trump advisors from the Goldman Sachs investment bank urge national rules in bank regulation. Thus de-regulation is on the agenda again. The danger of gaps in prudential regulations increases when national regulations replace international standards. Strict capital holding requirements can even be evaded more easily.
This theme also marks Britain’s exit negotiations with the EU in favor of the financial center. Britain will try to stop the threatened exodus of financial institutes in the Brexit. The promise of the G-20 to prevent a new financial crisis with consistent rules conceded at the peak of the financial market crisis is rubbish because politicians misuse bank monitoring as a weapon for their competition policy and do not guarantee that banks are outfitted with sufficient capital resources to survive the crisis without state aid.
THE UNDEAD LIVE LONGER
By Maralona Klenk
[This book review published on 9/14/2017 is translated from the German on the Internet, http://oxiblog.de/untote-leben-laenger
Neoclassicism is still the dominant theory in the lecture halls of economics even after the crisis. The Undead Live Longer by Philip Mirowski shows why this school is still the leading school despite its much-vaunted end and what is the connection between neoclassicism and neoliberalism. The study group “What is the economy?” read and reviewed the book.
Time and again, the end of neoliberalism was conjured since the global economic crisis at the beginning of the new millennium and also now after the US presidential election. Why this could be a rash conclusion is the theme of Philip Mirowski in The Undead Live Longer. For the author, the undead are the economists at the universities. Mirowski shows how obstinately the neoclassical school holds out in university economics departments even after the crisis of 2008 – and even strengthened in a reverse effect after the crisis of 2008. He explains the relation of neoclassicism to the much discussed neoliberalism.
Crisis – What Crisis?
When I began the study of economics, crises and their causes were not part of my study despite their actuality. This left many students surprised and disappointed. Mirowski discusses this apparent paradox. Economic theory could neither predict nor explain crises and continues as before. The theme “crises” is largely ignored and avoided – as though crises did not exist.
Mirowski’s historical perspective – the book focuses on political and economic actors and connections – stimulates reflections on the development of the economics discipline in the last decades. The author shows that economics and the profession are political and disputed. This is in crass contradiction to the neoclassical approach of separating the discipline science and politics which is widespread in German universities. After reading, readers understand why economics study in Germany is antiquated, cramped, unhistorical and very restricted in its focus.
Rise of Neoliberalism
The book offers exciting reading matter. Mirowski deconstructs the omnipresent term neoliberalism. He analyzes the term in actions and basic political ideas of individual actors and describes the rise of neoliberalism as a political project.
Neoliberalism should not be equated with neoclassicism. With concrete examples, the book shows the linkages of economists at the universities, economic research institutes that are like lobbies, and political-economic institutions like the World Bank, the FED, and the IMF and with political think-tanks, particularly the Mont Pelerin Society. By uncovering the connections between science or academia and politics, the author expands and politicizes the spectrum of the actors in economics. Despite its economic history thematic, the book is interesting with its many examples and anecdotes in political-economic linkages for readers who have not studied economics. It calls to mind the film “Inside Job” recommended by Mirowski as a good presentation of the crisis.
The book demonstrates the political substance of economics. The author attacks polemically and always entertainingly individual persons and institutions of economics and economic politics. The distinction between neoliberalism, classical liberalism, and neoclassicism is explained here. The Undead Live Longer is demanding reading that is unquestionably rewarding.
NAOMI KLEIN’S SHOCK STRATEGY
By Albrecht Mueller
[This book review of Naomi Klein’s “Shock Strategy” published on September 7, 2007 is translated from the German on the Internet, www.nachdenkseiten.de.]
This book with the subtitle “The Rise of Disaster Capitalism” appeared in 2007, ten years ago. In the first reading, I found the explanations of Pinochet’s 1973 coop in Chile interesting and important. Now I have read other chapters and strongly recommend this book. It is a real eye-opener.
What can be learned and better understood
• The strategy of destroying by shocking to create the supposedly new really occurred and still occurs.
• This happened in Russia at the time of Yeltzin around 1990.
• Iraq was ruthlessly destroyed including the highly developed culture of this people. Latin American peoples were victims of this strategy.
• The destructions were carried out to enforce the neoliberal ideology.
• The demand for privatization of public institutions and public enterprises is regularly hidden behind the shock strategy. This happened in Latin America, Russia, Poland, Iraq and many other countries. War and destruction prepare the robbery.
• The US is worse than thought. One need not apologize for skepticism and opposition. I occasionally did that myself. But any pleasure in defending this leading western power passes away when one reads Naomi Klein, when one examines what was analyzed by Klein and when one does not close one’s eyes to the destruction and robbery of citizens starting from the US.
• Naomi Klein describes the special role of the Chicago school of economists – the Chicago Boys as she calls them – in using the shock strategy.
• She describes in detail the meetings and discussions of economists of this school, of representatives of the International Monetary Fund and the World Bank, of US and international politicians of the same shade and color. This circle is real and is part of what other observers of contemporary events call the “Deep State.”
• Naomi Klein’s analyses of the events at the beginning of the 1990s, particularly the US influence in Poland and Russia, make one thing clear, that Bill Clinton and his policy should not be judged differently in principle than the more open ideology and aggressiveness of Bush and other representatives of the US leadership circle. Moreover we could see how the old ideologies and persons from the Bush era lived on and continued working in Obama’s time. The works of Ms. Victoria Nuland, the under-secretary in the State Department and wife of right-wing conservative advisor and author Kagan is a typical example. Naomi Klein’s analyses recall how abstruse it is to rely on Mrs. Clinton and to now see misery on account of trump.
• We learn much about the backgrounds of the wars from Afghanistan to Libya and Central Africa. We learn much about the true reasons why so many people are seeking refuge in Germany.
• Honest persons are not associated with the representatives and users of the shock strategy. Therefore proclaiming a value community as the German chancellor and her CDU rival did in the television duel last Sunday is very inappropriate and is actually a revelation. We should not associate with people who wage war and use military and cultural shocks on other peoples to ransack them.
They have no values and therefore there is no value community. The word is an empty, hypocritical husk or shell.
This is a first introductory article on the recollection of a valuable book… This work is strikingly hushed up.