In mid-January, there were violent storms in all the major stock markets of the world, from the USA to Europe and Asia. In the space of a single day, values fell by between 4 and 7%. The press has talked excitedly about the most spectacular losses since September 11 2001; about growing fears of a recession in the US with its grim effects on world trade; about the Federal Reserve's drastic cut in interest rates, the biggest for 25 years.
Why this fall in the stock markets?
One after the other, the banks had been publishing poor results for 2007. Losses resulting from the crisis in sub-prime lending have been very widespread, with banks in the US being the hardest hit. For example, shares in Bank of America went down by 29% in 2007, Walchovia by 98% in the fourth quarter! But all continents were affected. After the German banks WestLB and Commerzbank, it was the turn of the second Chinese bank, Bank of China, to announce losses of several billion dollars. And of course the British government has had to intervene on a massive scale to save Northern Rock.
In France, the initial line was that French banks have been more responsible, and haven't been dirtying their hands in wild speculation. And then all of a sudden, AXA, BNP Paribas, Credit Agricole, Richelieu Finance published the most awful results. But the height of ridiculousness was undoubtedly achieved when the Société Generale justified its 7 billion Euro losses by blaming it all on the fraudulent activity of one shares trader, Jerome Kerviel. At a press conference SG boss Daniel Bouton talked about Kerviel's "incredible intelligence", his "extraordinary talent for deception", whose "motives are totally incomprehensible". Creating a "hidden enterprise inside the marketing rooms" of SG, he accounted for 4.9 billion losses against the mere 2 billion directly linked to the sub-prime crisis. The lie was on a huge scale and a number of specialists obviously expressed doubts about the validity of this story. But Bouton, Sarkozy and the government have stuck to their guns. In fact it wasn't long before the scandal hit the world press and Kerviel was being made responsible for the entire global stock market crash! The aim of this propaganda is simple: to deny the reality of the crisis and make us believe that it's just a problem of fraud, nothing to do with the system itself.
However, this crisis is really there. It's not a virtual crisis and the consequences are already beginning to be felt by the working class. One after the other the banks are announcing the ‘necessary restructuring', in other words, a wave of redundancies: 4000 jobs gone at Caisse d'Epargne, 2400 at the US building society Indymac Bancorp, 1000 at Morgan Stanley, between 17000 and 24000 at Citygroup; between 5 and 19% of jobs cut at Merrill Lynch and Moody's. And this is just the beginning of a series of lay-offs that are going to affect the entire banking sector.
Behind the financial crisis, the crisis of the real economy
"This stock exchange crisis is...actually good news for some. It will make the market healthier" (La Tribune, 22 January). The media have been drumming this line into our ears. It's almost as if the stock exchange convulsions and the problems with the banks have a moral aspect: the speculators who have been going a bit far will now be punished by the market and now things will start to go back to normal. This is all lies. Behind the very high profile financial crisis there is a deep crisis in the real economy.
The speculative frenzy of the last ten years has its roots in the problems that companies have in selling their commodities. Capitalism is suffering from a congenital disease for which it has no cure: overproduction. Capitalism's only response is to artificially create outlets by resorting massively to debt and credit. To cope with the Asian crisis in 1997, then the recession of 2001, the bourgeoisie opened the floodgates to credit. Interest rates had never been so low and the banks didn't even check the solvency of their borrowers. This summer, the income of the poorer American households was 80% based on credit: people buying their TVs, clothes and food by getting into debt. In July 2007 risky loans known as sub-primes accounted for 1500 billion dollars of debt! A real mountain - but a mountain that is eroding and about to crack. All these indebted households are incapable of paying back their debts. The real economy, which for the workers means unemployment and poverty, has reminded the virtual economy of the way things really are. For some time, the banks have been accumulating the losses that they have recently announced. Indeed, taking advantage of extremely low interest rates, the banks, the financial magnates, and all sorts of enterprises have in their turn been getting into debt in order to speculate, selling and re-selling the loans contracted by working class families. Around these risky loans, we're not talking about 1500 billion dollars but tens of thousands of billions which will never be repaid.
It is thus the crisis in the real economy which lies behind the speculative mania and the current financial convulsions. But now the problems facing the banks are going to have a boomerang effect on the whole of economic life: "Historians know this very well: banking crises are the most serious because they affect the nerve centre of the economy, the financing of company activities" (La Tribune, 22 January). The banks are no longer going to be able to hand out loans without first checking the solvency of the borrower. Business and households are going to find it harder to run up debts and this will slow down economic activity. As La Tribune put it, "in the euro zone, where small and medium sized businesses depend 70% on banks to finance their activities, the recessionary impact is unavoidable" (ibid). This is what the specialists call the credit crunch. The impact on the real economy is already being felt. In the last third of 2007, the world economy slowed down markedly, giving us a glimpse of what's in store in 2008 and 2009. A journal like Le Monde (21 January), normally quite cautious, no longer hides the reality of this recessionary tendency: "The Baltic Dry Index (BDI), which measures the price of maritime transportation of raw materials, is a good indicator of the level of commercial activity and of the world economy. In one day it has beaten four records for the lowest levels...if the predictions of the BDI are confirmed, the worldwide slowdown has already begun and it will be painful". The majority of the world's commodities pass through the maritime routes; the slowing down on these routes is thus a very significant indicator of the poor health of the world economy. Once again, the first victims will be the workers. Ford, for example, has already announced the axing of 13000 jobs (coming on top of the 44000 job cuts in 2006).
The bourgeoisie has no real solution to its historic crisis
Faced with this new crisis, the bourgeoisie once again turns to the same fix: more credit, more debt. George Bush has announced an exceptional plan of 140 billion dollars and the Federal Reserve has dropped interest rates by 75 points. The British government is about to pump £25 billion into saving Northern Rock. None of these measures can do much to halt the acceleration of the crisis. In 1997, by injecting 800 billion dollars, the bourgeoisie managed to contain the crisis in Asia. In 2001, the bursting of the internet bubble was dealt with by creating another bubble, the ‘housing boom'. But this is no longer a regional crisis like the Asian one or a problem that could be contained in one sector (the internet). The very heart of capitalism is being affected: America, Europe, and the banks. The crisis is therefore far more serious and the impact on our living conditions will be all the more dramatic.
Luckily, the economists who serve the ruling class reassure us, Asia and its fantastic rates of growth will help keep up world growth rates. But there again, reality is very different. Some experts are already beginning to admit it: "we have to say that yesterday Thailand, Singapore and Taiwan announced a slow-down in exports. The World Bank accepts that there are many channels for passing on the contagion of the crisis to the emerging countries (in particular) the impact of the recession in the US"(La Tribune, 22 January). China's exports will be especially affected by the US recession, a fact reflected in the Asian stock markets which took a tumble in the week after the plunge in Europe and America: "China's benchmark index plummeted 7.2 percent to its lowest point in six months on concerns that a recession in the US would mean less demand for Chinese-made products" (Associated Press, 28.1.08). In short, Asia, like all the continents, is going to be hit by this new acceleration of the world economic crisis. And there too this will be translated into poverty and famine for the mass of the population.
In the months and years to come, all over the planet, the proletariat will be confronted by a sharp decline in its living conditions. The bourgeoisie has not stopped attacking them and it will attack even harder. But for several years now the workers have been showing their ability to fight back. In the face of a new aggravation of the crisis and the degradation of living standards, they have no choice but to widen the struggle and forge class solidarity. Pawel 26/1/8