The recent financial turmoil and the shocks to the British banking system, notably the run on the Northern Rock bank (described by Richard Lambert, the CBI chief, as "almost unimaginable" and akin to what one expects "in a banana republic"), underlines a far more profound problem for capitalism than defaulting mortgage payments in Florida. 1866 saw the last run on a British bank. As well as Northern Rock in August 2007, two other major lending institutions, Alliance & Leicester and Bradford & Bingley, almost went to the wall, which would have led to millions of savers losing billions of pounds at a stroke. Out of the top 13 UK lenders only two had their loans covered by deposits. These most austere, supposedly responsible institutions of capitalism have been gambling with their deposits and in some cases, gambling with deposits that didn't exist. This is all a well-established part of the world casino economy of credit, debt, bubbles, speculation and gambling that British Prime Minister Gordon ‘Prudence' Brown oversaw at the Treasury during his ten years there. The lack of solvent markets and outlets for goods produced means that capital chases any short-term profits, the riskier the better, even at the risk of its own destruction. Even today, after the Northern Rock events, British banks are pumping billions of pounds into as yet unvalued Chinese banks whose accountancy practices are suspect to say the least.
From elements of the bourgeoisie, words like "unimaginable", "extraordinary" and "unprecedented" were used to describe Chancellor Alistair Darling's bail-out of Northern Rock and the state's underwriting of the British banking system. Unprecedented indeed. Darling, blaming US sub-prime lending for the problems said:"Here in Britain, we meet these challenges against the background of a strong economy". But obviously not strong enough to prevent major financial institutions in the fourth largest economy in the world from staring bankruptcy in the face. The action of the Labour government as guarantor of the British banking system, belatedly following the European Central Bank and the US Federal Reserve in pumping billions into their economies, points to both the development of state capitalism and its growing weakness in patching up an economic system which is tending to move out of control.
But these "challenges", as Darling put it, are nothing less than the profound limitations of production for profit, and this is what is being expressed, and will be expressed, in the financial markets. British banks have been enthusiastic about ‘off-balance sheet' borrowing and are at the front of the queue in parcelling up and selling off their dodgy debts. Thus the European Securities Forum shows that by June this year, there were £350 billion worth of outstanding securitised loans backed by UK assets, compared to the equivalent £72 billion in Germany and £28 billion in France. Mortgage lending, all lending, has been manipulated by all states in order to keep their economies going from day to day. House prices have fallen in Spain as defaults have risen. Similar for Ireland and Germany and soon Canada and Australia will be affected. These are all some of the expressions of credit and debt crisis which lie at the heart of capitalism's historic crisis. Led by the US state, cheap and easy money, as well as growing state debt, has been the policy of the bourgeoisie since the end of the 1960s. Henry Paulson, US Treasury Secretary, said in September: "the whole world including the US... has benefited from credit availability" . But the effects of the dope of credit are wearing off, leaving the poison deep within the system. And what's been the answer of the bourgeoisie to the current crisis? Lower interest rates and the injection of masses of monies into the system in order to underwrite it. The very actions that caused the problems in the first place. Thus the ECB and the Fed acted by pumping billions into their economies, accepting even riskier securities for collateral and risking further destabilisation by lending over longer periods.
In the face of the near collapse of British banks, the British bourgeoisie were forced to follow suit. The contradiction for the economy of pouring more poison into an already poisoned body just for short-term respite is well summed up in the position of the Governor of the Bank of England, Mervyn King. Abandoning the fiction of an ‘independent' Bank of England, the British state was forced to massively intervene in the crisis. After telling the Commons Treasury Committee in September (quite correctly) that "If risks continue to be underpriced (and one could add, underwritten) the next period of turmoil will be on an even bigger scale". King then went on to say, completely contradicting himself, that he was ready to take far stronger emergency action by cutting interest rates and flooding the financial markets with capital, ie, ‘underpricing' risk in the longer term. Such is the insoluble contradiction for capitalism: whatever state interventions are made in the short term to allay the effects of the crisis, the latter will only come back in force.
Leftists back state capitalism
All this poses something of a quandary for leftists like the Socialist Workers Party. They are all for state intervention, the more the better. They support and advocate state control of the economy. They support the Labour Party and funding for this or that industry and public service. But writing in Socialist Worker, (28.9.7), the leftists are forced to disapprove of state intervention in the current crisis: "And the funny thing is that all the free-market ideologues - who believe the invisible hand of the free market should determine all things - fully expect that the central government can step in and make everything right... as if this were a centrally planned economy". The "funny thing is" that the British state, like all capitalist states, is a "centrally planned economy"; the very state capitalism that Socialist Worker advocates. What do they think has been going on throughout this current expression of the crisis - and before? The last recession of 2000 was brought to an end by the most active state intervention since World War II and an unprecedented increase in levels of debt, state budget deficits, the reordering of loans and interest rate manipulations in all the major capitals. This is not the "crisis of the dominant neo-liberal model" as Socialist Worker puts it, but the crisis of state capitalism, the very policy that it advocates. It is not only becoming increasingly difficult for state capitalism to buy its way out of trouble, but the very act of doing so, absolutely necessary for short term relief, makes the overall crisis much worse.
There is no ‘good'or ‘bad' capitalism, as Socialist Worker would have us believe; just state capitalism shared by governments of the left and the right the world over. Today this same state capitalism is in crisis and "the neo-liberal model" that Socialist Worker talks about is just one more fig leaf to cover up this reality. The rise in finance capital unable to find productive investment lies in the crisis of overproduction and the scarcity of fields for profitable accumulation. "Financial parasitism is a symptom of capitalism's difficulties, not a cause. The financial sphere is the crisis' showcase, for this is where stock market bubbles, currency collapses, and banking upheavals make their appearance. But these upheavals are the product of contradictions whose origins lie in the productive sphere" (International Review 115, 4th Quarter 2003, ‘The crisis reveals the historic bankruptcy of capitalist production relations '). Baboon, 30.9.7