Criminal banks, criminal capitalism?

Notes on an abstruse debate

by Gerd Bedszent

[This article is translated from the German on the Internet, http://bcc.businesscrime.de/3/#more-100.]

Before the crisis is after the crisis?

Until ten years ago, the world still seemed to be in order. The economy was flourishing. The left was marginalized. The once strong ecology movement had largely allowed itself to be absorbed into the system. Vicious dictators and international terrorist organizations were shut up militarily. Capitalism had once again triumphed. Really?

Since the 1970s, the real economy and the financial economy have been increasingly diverging. Gigantic assets vagabond around the globe, desperately looking for profitable investment opportunities and, in the absence of such opportunities, forming ever larger financial bubbles that burst every few years with a mighty bang, leaving behind legions of crying and feeling cheated investors.

At the same time, private and public debt has increased almost immeasurably, also since the 1970s. The former are the hallmark of a structural base of poor people - even in the developed industrialized countries. Even in the still comparatively "rich" 1990s, there were hundreds of thousands of foreclosures annually in the Federal Republic. After a red-green government pushed through the repressive Hartz laws shortly before the turn of the millennium, this poverty grew massively once again. And every private insolvency, every execution by a bailiff leaves behind an embittered family that not infrequently blames rapacious finance capital for their plight.

The economic crisis of 2007 to 2010 seemed to confirm the simmering unease about the ever-growing financial sector. As a result of the bursting of a gigantic real estate bubble (subprime crisis), numerous financial institutions began to falter and threatened to drag the financial system as a whole, which had been nested in each other through countless joint transactions and mutual lending, into a bottomless abyss.

Much has already been written about the criminal side effects of the subprime crisis. This financial crash was by no means the first crisis of global proportions to seriously shake the capitalist economic system, and it will certainly not be the last. But its scale was already unusual. Naked panic prevailed in the top echelons of the economy, and even avowedly market-radical hardliners suddenly cried out loudly for economic intervention by the state. Which then promptly followed.

As is well known, the global financial system did not collapse at that time. Various banks were allowed to fall into the abyss, but the majority were financially supported. However, the already existing over-indebtedness of the U.S. and other countries reached ludicrous proportions, partly due to this "bank bailout. In various economies, an absurd disproportion between the oversized financial sector and a comparatively tiny real economy came to light. The usual recipe of neoliberal cruelty toward the population of indebted countries - cutting social benefits and rabidly "streamlining" the state bureaucracy - could hardly have any effect with such a degree of over-indebtedness.

What now? Debt cancellation? Not exactly. Economic gurus and governments were almost unanimous in their view that such a move would severely damage the lenders concerned and once again shake up the global financial system. And since sovereign credit and speculative finance capital are inextricably intertwined, a devaluation shock to the financial superstructure could also drag government securities into the abyss and plunge the budgets of the economies concerned into indescribable chaos. Apparently, the only solution was a combination of lending to economies that were no longer creditworthy in themselves and the application of fiscal thumbscrews. The latter mainly hit the poorest. By now, the Greek population has probably given up counting the number of pension cuts it has had to endure on the instructions of the EU, the World Bank and the IMF, and still has to do so.

Of course, there was and still is general indignation about the fact that governments, which are implementing the most brutal austerity measures and orgies of cuts in the social sector in the name of the "black zero," are throwing gigantic sums into the unfathomable jaws of insolvent financial institutions as part of their efforts to overcome the crisis. As a result of the crisis, neoliberalism had in any case become ideologically bankrupt. Even if the personnel of governments and various international organizations immediately after stabilization of the situation fell back into their usual vocabulary and continued the execution of social cruelties.

Is the next crisis on the way? Most certainly. Structurally, nothing has changed in the capitalist economic system. A small example: Under Barack Obama, who was elected president of the United States at the height of the crisis, the U.S. financial sector was subjected to state control - albeit extremely timidly - through the passage of a law on this subject. Donald Trump and his supporters saw this as an inadmissible intervention in economic activity. During the election campaign, Trump announced that he would completely deregulate the financial industry again. And was elected regardless of that announcement. In February of this year, he signed a decree on the review and challenge of said law.

Greedy bankers, clean real economy?

As has often been the case, unease about the gigantic growth of the financial sector was first expressed in literature. For example, in the 1991 novel "American Psycho" by U.S. author Bret Easton Ellis. A Wall Street banker who is young and dynamic during the day slaughters young women in a bestial manner at night. Are financial sharks all sadistic serial killers? The bestseller was scandalized - quite unjustly. For the drastically described gruesome murders turned out to be a figment of the novel's hero's imagination at the end of the plot. The hero had subconsciously rebelled against the dullness and dreariness of life in a bank, and as a result dream and reality were confused.

The media reactions to the last financial crash are interesting. Was the capitalist economic system as a whole questioned? But not at all. The search was on for alleged and actual culprits who could be thrown to the dogs of public anger. Who was best suited for this? Does anyone like bankers? Of course not. There you go...

Even at the height of the crisis, it was already clear who had caused the debacle: greedy financial sharks who had gambled away their customers' money in highly speculative and criminal transactions and in return had allowed themselves huge salaries and bonuses. And partly to blame, of course, were incompetent politicians who had failed to rein in the speculators and bank robbers in time.

Of course, the management personnel of financial companies are usually not likeable personalities. To get into such a position, you either have to display a fair amount of intrigue, brutality and contempt for people, or you have to be born with a golden spoon in your mouth and therefore have the necessary connections. And of course, such characters are first and foremost interested in lining their own pockets. But who isn't? We have capitalism.

In this context, here is a little anecdote about the mental state of our economic elite: Shortly after the turn of the millennium, the results of a study were circulating in the mass media. Psychologists had found out that socio-pathically predisposed persons have the best prerequisites for making a career in higher positions in the economy. The economy, mind you, not just banking. "Violent lunatics conquer the executive floors!" was the headline in the tabloid press at the time. Of course, this study did not have any consequences.

But this is not primarily about character traits and personal qualities of the management personnel of large companies. It is about the structural constitution of the financial sector. It is part of the capitalist economy and is therefore subject to market competition. Banks invest huge sums in the real economy and derive profit from it. And large companies park their profits in bank accounts if they do not need them themselves in the form of investments. The real economy and the financial economy are inextricably linked.

The involvement of the financial sector in particular in criminal racketeering is well known. Bankers have never seriously shied away from managing the funds of mafiosi, bloody dictators, drug cartels and ordinary bandits for profit as well-paid service providers. Nevertheless, it is characteristic that time and again in crisis situations the people's souls boil up, the anger of allegedly or actually aggrieved persons turns exclusively against "speculators," "greedy bankers" and "rapacious capital." A banker who launders the money of drug lords and coerces governments that have carelessly fallen into the debt trap into orgies of cuts in the social sector is of course - purely in terms of personality - a swine. But is he in fact - if the term can be used more broadly - more criminal than, say, a CEO who, in the interest of maximizing profits, grossly disregards legally prescribed safety standards and, as a result, has his poorly paid female workers burned alive? This has happened several times in recent years in the Asian textile industry. The worldwide outrage in these cases was very limited and quickly died down again.

Do criminal machinations have their cause in the unscrupulous character of the bankers and financial sharks acting in each case? Or are they, in the final analysis, only the agents of a system in which we are all involved? As a reminder: Capitalism differs from non-capitalist societies by the capital fetish. And a fetish is characterized by the fact that it forces its bearers to act irrationally - completely independently of the person of the person or persons affected. So if a company does not participate in any criminal smut, it is usually committed by another company. Unless the state, in the form of the police and the judiciary, intervenes massively. Which it usually does not do.

Note: In his works, Karl Marx never shied away from dubbing the bearers of financial and speculative capital as "crooks" and "stock market wolves". And his buddy Friedrich Engels wrote in one of his very early texts about the "immorality of interest lending." This criticism of the two old fathers of the workers' movement, however, always moved within the framework of their analysis of the "hideous immorality" of the capitalist system as a whole.

Interest-bearing capital as parasitic capital?

The aversion to interest-bearing capital is old - even in the Bible we find passages to this effect. If one is in a predicament from which one cannot extricate oneself by one's own efforts, one naturally borrows money or material assets. But who likes to return what they have borrowed? And then even more than you borrowed before?

In any case, the Catholic Church banned the taking of interest early on, preferring instead to propagate charity and the giving of alms as pleasing to God. But since borrowing was an already occasionally necessary part of trade at that time, merchants and craftsmen had to resort to non-Catholic banking houses. Which led a certain

Martin Luther in the 16th century to furious outbursts against Jewish moneylenders - a target for anti-Semites in modern times. The fact that Jewish businessmen threw themselves primarily into finance because they had previously been excluded from large parts of "normal" economic life by means of discriminatory laws did not occur in the crude world of thought of Luther and other notorious Jew-haters.

In fact, credit under capitalist conditions is nothing more than a paid service, an interim provision of necessary sums of money. And interest is nothing else than the price for this service. Credit and interest are - as already said - older than capitalism. They are probably even older than the invention of the general exchange equivalent "money". The latter, however, simplified the taking of interest considerably.

As philosopher Robert Kurz wrote: "Pre-industrial agrarian society probably knew merchant capital and interest-bearing capital as niche forms, but no productive capital utilization; there were markets, but no market economy; and there was money, but no money economy." (Kurz 1995, page 29) The crucial difference between capitalism and pre-modern societies was the emergence of the capital fetish: the compulsion to multiply money just for the sake of multiplying money. In order to multiply capital, investment was then required. Consequently, with the emergence of the capitalist mode of production, the credit system, which had previously vegetated only in niches, exploded. If a merchant or manufacturer did not have the means for an investment, he had to borrow them and pay the previously agreed price for them. The prohibition of interest became an anachronism with the development of capitalism.

Credit was initially given in the early capitalist phase for the military buildup of the early nation-states. The borrower was mainly the then emerging state apparatus. The collateral for the repayment of the loan was taxes, customs duties and other sources of revenue of the respective state system. In the course of the Industrial Revolution, mass lending then expanded into civil sectors of the emerging economies and thus into the private sector. And in the form of consumer credit, it finally reached the consumer as well.

What is the source of interest? Is financial capital really "parasitic capital," a "bloodsucking vampire," as it is repeatedly referred to in various publications? Karl Marx, who dealt with this question in detail in the 3rd volume of "Capital", described interest as a "conceptless form of capital" (Marx, page 428). Elsewhere he writes: "Since interest is merely a part of the profit which, according to our previous presupposition, is to be paid by the industrial capitalist to the money capitalist, the maximum limit of interest appears to be profit itself, where the part which would accrue to the functioning capitalist would = 0." (Marx, page 391)

Thus Marx has summed up the function of interest as a component of profit in the context of capitalist economics. The financial service provider as lender, however, does not care how much residual profit is left for the actual entrepreneur in the end. Conflicts between banks and corporate management are in fact nothing other than distribution battles over the share of the expected profit. And if in the end the realized profit is below the previously agreed interest rate, the capitalist has a problem, called loss. Sometimes it is his entrepreneurial risk to incur such a loss.

Smaller companies or those that enter new technical territory are particularly at risk of permanently incurring losses and having to take out new loans to service them. They are then caught in a debt trap. Insolvency is a frequent consequence. Early on, small producers in particular blamed their economic misery on the allegedly parasitic "rapacious capital," which, as the organizer of material production, was burdening them with the entire risk and shamelessly enriching itself from the interest rate demanded.

In each case, the fact that a lending bank also bears an entrepreneurial risk, albeit usually a small one, was ignored. If a borrower goes into insolvency, the bank can help itself from the bankruptcy estate. But what happens if the borrower is completely over-indebted and the accumulated debts exceed the value of the bankruptcy estate? Where there's nothing, you can't get anything... So even banks can incur losses as a result of quite normal credit transactions.

As a rule, bankers do not work with their own capital, but with that of their customers. Since the bank possesses however the switching power over the financial assets, it feeds as a rule the small savers with tiny amounts. This, too, is well known and does not exactly contribute to the popularity of banks.

Karl Marx early on took issue with the critique of capitalism by the anarchist theorist Pierre Joseph Proudhon, which was truncated to the problem of the money economy and interest. Of course, Marx could not have known that his demand for the "breaking of the bondage to interest" was later taken up by the Nazis and used to legitimize the expropriation and murder of the Jewish population. In any case, as a result of the world economic crisis of 1929 to 1932, masses of ruined small businessmen and income-less workers flocked to the SA, loudly demanding expropriation of Jewish banks. Robert Kurz wrote: "Anti-Semitism, while retaining the form of money, thus wants to define its uncanny insensate lack of content as an alleged 'Jewish characteristic' and thus to saddle 'the Jews' as scapegoats. It is the irrational immanent reaction to the irrationality of commodity and money fetishism." (Kurz 2013, p. 70 (2))

By the way, the Nazis never shook the banking system and finance capital as a whole after they came to power in 1933. Of course not, because they had to advance the German military the necessary funds for their war of conquest. And this war was in the end only a gigantic raid in favor of the German capital. All German capital, mind you, including finance capital.

The engine of criminality

After the horror images from the Nazi extermination camps, anti-Semitism and with it the idea of the parasitic character of "rapacious capital" seemed to be obsolete for the time being. Of course, after the war there was a spirit of optimism, Fordist mass production triumphed, a phase of general prosperity seemed to be in the offing. Presumably, the 1960s and 1970s of the previous century will at some point be classified as the high point of capitalist modernity as a whole.

But the upswing then quickly ebbed away. Fordism as a supporting element of capitalist mass production had exhausted itself. The ideology of Keynesianism, which had prevailed since the 1930s and had propagated and achieved a debt-financed exit from the crisis, was purposefully dismantled from the 1970s onward. A new generation of economists demanded profit maximization through the brutal rationalization of all administrations and industrial enterprises. When the next wave of modernization was announced in the form of the microelectronic revolution, it provided the technical prerequisites for the desired reduction in the workforce. Mass consumption in the industrialized countries has been shrinking ever since. New markets are only being opened up to a limited extent because they hardly exist anymore. Capitalism is based on unlimited expansion. But the planet earth has only a limited circumference. And its eco-sphere is only resilient to a limited extent.

Profits are still made, of course. But capital has an investment problem. There are hardly any new industries left that can be spun out of the ground on greenfield sites. Money has become - as Robert Kurz put it in his analysis of modern casino capitalism - unemployed. And where does investment-hungry capital flow when investment in the real economy does not promise sufficient profits? Into the financial sector, of course. In recent decades, there has been an increasing decoupling of the financial economy from real capital accumulation. Freed-up funds of large companies are parked in bank accounts or entrusted to various financial service providers to an ever-increasing extent. This is precisely the background to the gigantic growth of the financial sector in recent decades. And the repeated accusations in the direction of the super-rich upper class that they prefer to invest their money in dubious speculative transactions and other scams instead of accumulating it in the real economy are ultimately a grotesque distortion of cause and effect.

Lending and dwindling statehood

The crediting of states and ruling entities by money men and banks is - as already described - old. During absolutism, rulers often even granted banking houses the right to collect taxes in return for loans - at that time, in effect, a license to print money. And during the colonial land grabs in South and Central America, the heavily indebted Spanish King Charles V temporarily transferred his ownership rights to an entire country - today's Republic of Venezuela - to the Welser banking house.

However, the indebtedness of modern states into the immeasurable occurred only during the last decades. Initially, the debts left behind by Keynesian stabilization programs had to serve as justification for neoliberal austerity programs. Neoliberalism then turned out to be an economic sham - even under avowedly market-radical governments, the debt of developed industrialized countries continued to rise. And numerous peripheral states are currently effectively insolvent. How so? Is it all the fault of the banks?

In purely economic terms, the state is also something like a company. The state operates the infrastructure that exists on its territory and expands it as needed. In return, it levies taxes and other charges on the economy that uses this infrastructure. As the economy shrinks, however, the taxes paid also shrink. If at some point the state's revenues are lower than its expenditures, it has to plug the budget holes with loans. And if the amount of debt exceeds a certain level, the state is no longer considered creditworthy.

Neoliberal hardliners blame "excessive government consumption" for such a situation with tiresome regularity. The fact that they themselves have done their utmost to promote the respective financial disaster by campaigning against an allegedly excessive taxation of companies is concealed. In most cases, the states in question are forced under the pressure of international organizations to aggressively dismantle their infrastructure and thus to minimize costs. With all the economic and social consequences. By the way, the infrastructure of a state also includes the police and the judiciary. If police officers are no longer available, they will no longer be able to hunt down criminals, and miserably paid judges will tend to hold out their hands before passing sentence... What entrepreneur in his right mind would invest in a region without a functioning transportation system, without water and electricity supplies, but with a desperately illiterate population whose only secure source of income is the criminal underground?

The radical right sees the increasing erosion of the modern state exclusively as the sinister machinations of nasty financial magnates. Were and are press and book publications critical of banks components of a new wave of anti-Semitism? Yes and no. Most authors would most certainly reject an accusation to that effect. After all, the term "Jewish capital" was and is scrupulously avoided by them; only paranoid conspiracy theorists and avowed right-wing extremists practice open Holocaust denial and fantasies of a banking conspiracy to achieve Jewish world domination. A critique of capitalism that focuses only on finance, however, objectively serves anti-Semitic clichés, even if its bearers are not anti-Semites.

In the wake of the crisis, the extreme right is on the rise worldwide, whether in the form of Islamist hate preachers, militant Hindu nationalists or incorrigible swastika fetishists. And the majority of these fascist ideologies aim to recreate a past society in which people lived poor but happy lives because they had not yet been sucked dry by vile usurers and bankers. Such a society never existed and consequently cannot be restored. But in an increasingly irrational society, even the most insane theories find their supporters. And what does the practice look like? In regions where state authority no longer functions, companies are increasingly inclined to entrust themselves to the protection of fascist militias - for example, in civil war-torn eastern Ukraine, where local oligarchs quite openly equip and finance right-wing radical "volunteer units."

Is the decline of statehood the cause of the growth of white-collar crime? In part, certainly. Of course, the global interconnectedness of the financial economy makes it possible to largely evade nation-state regulations and conduct criminal business where there is no longer a functioning judiciary or police force. And the speculative bubble economy, on which the financial sector lives to a not inconsiderable extent, also makes hair-raising criminal scams possible, which only in the rarest of cases end up before a judge's table.

But is interest responsible for all this, the very ordinary price for a very ordinary service? Are only the banks criminal? Are the management of large industrial companies altruistic churchgoers who would never touch a penny acquired dishonestly?

Or is the cause of the growth of white-collar crime the inherent compulsion of capitalism to increase capital? This, in turn, would mean that capital, in the absence of profitable investment opportunities in the legal sector of the economy, is increasingly turning to the illegal sector. The predatory tendency inherent in capitalism from the very beginning thus becomes stronger when capital can no longer multiply sufficiently by legal means. This is the situation we are currently facing.

And the financial sector? It is quite a useful instrument for carrying out criminal business. No more. And no less.

Literature used:

Engels, Friedrich: "Umrisse zu einer Kritik der Nationalökonomie", in: Karl Marx/ Friedrich Engels "Werke", Volume 1, Dietz Verlag, Berlin (GDR), 1976.

Hudson, Michael: "The Sector. Why global finance is destroying us", Klett-Cotta, Stuttgart 2016.

Kurz, Robert: "The Death of Capitalism. Marxian theory, crisis and overcoming capitalism", Laika Verlag, Hamburg 2013 (2).

Kurz, Robert: "The Ascension of Money," in "Krisis. Beiträge zur Kritik der Warengesellschaft", issue 16/17, Horlemann Verlag, Bad Honnef 1995.

Kurz, Robert: "Reading Marx. The most important texts by Karl Marx for the 21st century", Eichborn Verlag, Frankfurt am Main, 2001

Kurz, Robert: "Schwarzbuch Kapitalismus. A swan song for the market economy," Eichborn Verlag, Frankfurt am Main 1999

Kurz, Robert: "World Crisis and Ignorance. Capitalism in Decline," Edition Tiamat, Berlin, 2013 (1).

Marx, Karl: "Das Kapital. Critique of Political Economy", Volume 3, Dietz Verlag, Berlin (GDR), 1951.

Müller, Leo: "Bank Robbers. How criminal managers and incompetent politicians are driving us to ruin", Econ Verlag, Berlin 2010.

Gerd Bedszent lives and works as a freelance author in Berlin.

BIG Magazine

Government failure worth billions

Giants in the housing market.