[R-G] Too big to save: the end of financial capitalism | Open Democracy

Mon Apr 6 12:26:43 MDT 2009

This was. is, the Bernie Madoff shell game only several trillion percent
greater in scope.  End of capitalism?  It is the beginning of legalized War
Empire.  The new/old capitalism will be a key player.   Democracy has gone
the way of the Dodo bird.  It only hangs on in the Eurozone, by a thread.
Asia and the Middle East never had Democracy.  It is not comfortable there.

Suzanne             suzannedk at gmail.com

On Mon, Apr 6, 2009 at 7:30 PM, Sid Shniad <shniad at sfu.ca> wrote:

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> http://www.opendemocracy.net:80/article/too-big-to-save-the-end-of-financial-capitalism-0
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> Open Democracy
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>            1 April 2009
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> Too big to save: the end of financial capitalism
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> Saskia Sassen
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> The financial logic of neo-liberal capitalism has devoured the world and
> exhausted itself in the process. A new model beyond "financialisation" is
> needed, says Saskia Sassen.
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> The misnamed "Group of Twenty" ( G20 ) meets in London on 2 April 2009 to
> discuss how to save the global financial system. It is too late. The
> evidence is in: we don't have the resources to save this system - even if we
> wanted to. It has become too big to save: the value of global financial
> assets is several times the size of global gross national product (GDP). The
> real challenge is not to save this system but to definancialise our
> economies, as a prelude to move beyond the current model of capitalism. Why
> should the value of financial assets stay at almost four times the overall
> GDP of the European Union, and even more of the United States. What do
> everyday citizens - or the planet - gain from such excess?
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> The question answers itself. To explore further the inner workings of the
> financial system that has brought the world to this predicament is also to
> glimpse a future beyond financialisation . The task the G20 should actually
> address is not to save this financial system but to begin to definancialise
> the major economies to a significant degree, so that the world can begin to
> move towards the creation of a "real" economy that delivers security,
> stability, and sustainability. There is much work to do.
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> The logic
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> A defining feature of the period that begins in the 1980s is the use of
> extremely complex instruments to engage in new forms of primitive
> accumulation , with taxpayers' money the last frontier for extraction.
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> Global firms that outsource hundreds of thousands of jobs to low-wage
> countries have had to develop complex organisational formats, using
> enormously expensive and talented experts. For what purpose? To extract more
> labour at the cheapest possible price, including unskilled labour that would
> be fairly low in the developed countries as well. The insidious element is
> that millions of saved cents translates into shareholders' gains.
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> Finance has created some of the most complicated financial instruments in
> order to extract the meagre savings of modest households: by offering credit
> for goods they may not need and (even more seriously) promising the
> possibility of owning a house. The aim has been to secure as many
> credit-card holders and as many mortgage-holders as possible, so that they
> can be bundled into investment instruments. Whether people pay the mortgage
> or the credit-card matters less than securing a certain number of loans that
> can be bundled up into "investment products". Once thus bundled, the
> investor is no longer dependent on the individual's capacity to repay the
> loan or the mortgage. The use of these complex sequences of "products" has
> allowed investors to reap trillion-dollar profits on the backs of
> modest-income people. This is the logic of financialisation, which has
> become so dominant since the neo-liberal era began in the 1980s.
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> Thus in the United States - ground zero for these forms of primitive
> accumulation - an average of 10,000 homeowners have been losing their home
> to foreclosures every day . An estimated 10-to-12 million households in the
> US will not be able to pay their mortgages over the next four years; under
> current conditions they would lose their home. This is a brutal form of
> primitive accumulation: presented with the possibility (which is mostly a
> fantasy, a lie) of owning a house, many people of modest income will put
> whatever few savings or future earnings they have into a down-payment.
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> This type of complexity is aimed at extracting additional value from
> wherever it can - the small and modest and the big and rich. This too
> explains why the global financial system is in permanent crisis. Indeed, the
> term "crisis" is in some respects a misnomer: for what is happening is more
> nearly business as usual, the way financialised capitalism in the
> neo-liberal era works.
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> The financialising of more and more economic sectors since the 1980s has
> become both a sign of the power of this financial logic and the sign of its
> auto-exhaustion. When everything has become financialised, finance can no
> longer extract value. It needs non-financialised sectors to build on. The
> last frontier is taxpayers' money - which is real, old-fashioned, not (yet)
> financialised money.  Krzysztof Rybinski's "zombies" are also parasites.
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> The limit
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> The difference of the current crisis is precisely that financialised
> capitalism has reached the limits of its own logic. It has been extremely
> successful at extracting value from all economic sectors through their
> financialising. It has penetrated such a large part of each national economy
> (in the highly developed world especially) that the parts of the economy
> where it can go to extract non-financial capital for its own rescue have
> become too small to provide the amount of capital needed to rescue the
> financial system as a whole.
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> By way of illustration: the global value of financial assets (which means:
> debt) in the whole world by September 2008 - as the crisis was exploding
> with the collapse of Lehman Brothers - was $160 trillion: three-and-a-half
> times larger than the value of global GDP. The financial system cannot be
> rescued by pumping in the money available.
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> This in turn explains the abuses of entire economies made possible through
> extreme forms of financialising. Before the current "crisis" erupted, the
> value of financial assets in the United States had reached 450% of GDP that
> is to say 4.5 times total GDP (see " Mapping global capital markets ",
> McKinsey Report , October 2008). In the European Union, it stood at 356% of
> GDP. More generally, the number of countries where financial assets exceed
> the value of their gross national product more than doubled from
> thirty-three in 1990 to seventy-two in 2006.
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> Moreover, the financial sector in Europe has grown faster than in the
> United States over the last decade, mostly because it started from a lower
> level: its compound annual growth rate in 1996-2006 was 4.4%, compared with
> the US rate of 2.8%.
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> Even capitalist economies - leaving aside assessments of whether this is
> the most desirable economic system - do not need an amount of financial
> assets that is four times the value of GDP. Thus even within a capitalist
> logic, giving more funds to the financial sector in order to solve the
> financial "crisis" is not going to work - for it would just deepen the
> vortex of financialising economies.
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> The scale
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> Another way to portray the current situation is via the different orders of
> magnitude involved in (respectively) banking and finance. In September 2008,
> the value of bank assets amounted to several trillion dollars; but the total
> value of credit-default swaps ( CDS ) - the straw that broke the system -
> stood at almost $60 trillion. That is a sum larger than global GDP. The
> debts fell due, and the money was not there.
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> More generally - and again, to give a sense of the orders of magnitude that
> the financial system has created since the 1980s - the total value of
> derivatives (a form of debt, and the most common financial instrument) was
> over $600 trillion. Such financial assets have grown far more rapidly than
> has any other economic sector (see Gillian Tett, " Lost through destructive
> creation ", Financial Times , 9 March 2009).
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> The level of debt in the United States today is higher than in the
> depression of the early 1930s. In 1929, the debt-to-GDP ratio was about
> 150%; by 1932, it had grown to 215%. In September 2008, the outstanding debt
> due on credit-default swaps - a Made-in-America product (and, it should be
> recalled, only one type of debt - was over 400% of GDP. In global terms, the
> value of debt in September 2008 was $160 trillion (three times global GDP),
> while the value of outstanding derivatives is an almost inconceivable $640
> trillion (fourteen times the GDP of all countries in the world).
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> These numbers illustrate that this is indeed an "extreme" moment - but,
> again, it is not anomalous nor is it created by exogenous factors (as the
> notion of "crisis" suggests). Rather, it is the normal mode of operation of
> this particular type of financial system. Moreover, every time governments
> (that is, citizens and taxpayers) have bailed out the financial system since
> the first crisis of this phase - the New York stock-market  crash of 1987 -
> they have given finance the instruments to continue its leveraging stampede.
> There have been five bailouts since the 1980s; on each occasion, taxpayers'
> money was used to pump liquidity into the financial system, and each time,
> finance used it to leverage.  This time, the end of the cornucopia is near -
> we have run out of money to meet the enormous needs of the financial
> system.
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> The bridge
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> The implication of the foregoing is that two major challenges need to be
> faced:
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> ▪ the need to definancialise the major economies
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> ▪ the need to move out of the current model of capitalism.
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> Both will be difficult, but it will help to focus on some very basic facts.
> The current estimate of official global unemployment is 50 million; the
> International Labour Organisation ( ILO ) calculates that 50 million more
> could lose their jobs as the recession deepens. These figures are tragic for
> those affected. They are also relatively modest (without minimising the
> human reality in any way) when set against the 2 billion people in the world
> who are desperately poor. But this raises the question: how many "jobs"
> would be created if there were a system that aimed at housing and feeding
> those 2 billion? The world would then need those 50 million currently
> unemployed to go to work - and another billion more workers into the
> bargain.
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> If seen in this light, the financial "crisis" could serve as one of the
> bridges into a new type of social order. It could help all involved -
> citizens and activists, NGOs and researchers, local communities and
> networks, democratic governments - to refocus on the work that needs to be
> done to house all people, clean our water, green our buildings and cities,
> develop sustainable agriculture (including urban agriculture), and provide
> healthcare for all. This innovative order would employ all those interested
> in working. When all the work that needs to be done is listed, the notion of
> mass unemployment makes little sense.
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> The technology to underpin this work - in helping to eliminate diseases
> that affect millions, and to produce enough to feed all - has existed for
> several decades. Yet millions still die from preventable diseases and even
> more go hungry . Poverty has become more radical: no longer about having
> only a plot of land that did not produce more, today it means having only
> your body. Inequality too has intensified and taken on new dimensions ,
> including a new global class of super-rich and the impoverishment of the
> traditional middle classes.
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> The history of the last generation confirms that the neo-liberal form of
> market economy cannot deliver answers to these problems of disease, hunger,
> poverty and inequality - indeed it reinforces them. Some mixing of clean
> markets and a strong welfare state has (as in Scandinavia) produced the best
> outcomes yet; but for most capitalist economies even to come near to this
> model would entail sweeping internal change (see Amartya Sen, " Capitalism
> Beyond the Crisis ", New York Review of Books , 26 March 2009).
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> In any event, the increase in the financialising of market economies over
> the last generation has further sharpened the negative effects of
> profit-maximisation logics. To move even a little in the direction of
> addressing the problems financialisation has created means entering an
> economic space that is radically different from that of high finance. The
> challenge is there for those attending the G20 summit in London - and for
> those outside the gates.
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> Saskia Sassen is professor of sociology and member   of the Committee on
> Global Thought,  Columbia University. Her books include Losing Control?
> Sovereignty in the Age of Globalization (Columbia University Press, 1996);
> The Global City: New York, London, Tokyo (Princeton University Press, 2001)
> ; Territory, Authority, and Rights: From Medieval to Global Assemblages (
> Princeton University Press, 2006); and A Sociology of Globalization (WW
> Norton, 2007)
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> Also by Saskia Sassen in openDemocracy :
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> " A universal harm: making criminals of migrants " (21 August 2003)
> " Fear and camouflage: the end of the liberal state?" (22 December 2005) -
> part of a global end-of-year symposium
> " Free speech in the frontier-zone " (20 February 2006)
> " A state of decay " (2 May 2006)
> " Migration policy: from control to governance " (13 July 2006)
> " Globalisation, the state and the democratic deficit " (18 July 2007)
> " Lahore: urban space, niche repression " (21 November 2007)
> " The world's third spaces " (8 January 2008)
> " The new new deal " (23 September 2008)
> " Cities and new wars: after Mumbai" (29 November 2008)
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