The Violence of Financial Capitalism

Christian Marazzi

The Violence of SEMIOTEXT(E) INTERVENTION

SERIES

© 2010 by Edizioni Casagrande,

Bellinzona,

Switzerland.

Financial Capitalism

All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted tronic, without

mechanical,

photocopying,

prior permission

by any means, elec-

recording,

or otherwise,

of the publisher.

Published by Semiotext(e) 2007 Wilshire Blvd., Suite 427, Los Angeles, CA 90057 WWW.semiotexte.com

Thanks to Erik Morse. The translator wishes to thank Susanna Proietti for her invaluable help.

Translated by Kristina Lebedeva Design: Hedi EI Kholti

ISBN: 978-1-58435-083_5 Distributed by The MIT Press, Cambridge, and London, England Printed in the United States of America

Mass.

semiotext(e) intervention series [] 2

Contents

Introduction:

Violent

The Becoming Financial

Finance

of the Crisis

11 27

Logics

On the Rent Becoming

9

Profit

44

A Crisis of Global Governance

67

Geomonetary

Scenarios

85

Words in Crisis

99

Appendix:

Acknowledgments

112

,

It's not a question of worrying or of hoping for the best, but offinding new weapons. - Gilles Deleuze

Introduction

VIOLENT FINANCE

The dancing began in June 2007, when it became known that two hedge funds, managed by Bear Stearns, had invested in assets guaranteed by subprime loans and needed to put $3.8 billion of obligations up for sale. Within one minute, literally, one of the most important investment banks on Wall Street was compelled to sell itself to JP Morgan Chase at defeating prices, $2 per share, when only 48 hours before it cost $30. A year later, with the bankruptcies of Washington Mutual, Wachovia, Fannie Mae, Freddie Mac, AIG, and Lehman Brothers, and then Citigroup, Bank of America, Northern Rock, UBS, Bank of Scotland, and many other financial institutions, one began to understand that the collapse of Lehman Brothers was not, in fact, an isolated episode and that the entire banking system was in one of the greatest crises of history. Already in December 2007, the central banks of five currency areas announced actions coordinated to sustain the banks. In January 2008, the Central European Bank, the Federal Reserve, and the national Swiss Bank effected additional operations of financing.

9

I

~ince then there has been an impressive succession of mterventions to rescue the banking and financial system, until the last one (March 2009), decided on by the Obama Administration and immediately judged as an nth degree fiasco by the winner of the Nobel prize in economics, Paul Krugman. The abyss opened by derivative financial products seemed inc ommensura bl e. The public deficits . mcreased withim a few 1: months to the levels of the Second World W: .. . were . ar, th e geopolitical scenanos b emg modified as need ed and th e crisis instead of subduing , was inexora . bly expanding with ' its most devastating effects on emp Ioyment, wages, and retirement.. On the bare I·tre 1: f . 0 entire populations. It 1S the crisis of c . . . that has a long story . rises, a cnS1S an d , in all likelihood I crisis of . 1 ' a ong future. It is a violent , a V10ent finance .. h greats of th ld ' a cnS1St at witnessed the e wor econo (G London April 2 my 20) meeting in , , concerned . h . economy by actions f. Wit reviving the global o 1nterve· th reflected the gravity of the nnon at only partially through years of finan iali ~roblems accumulated C1 1zatlonof systemic crisis that saw . economy. It is a an entire eco . an d cultural model coli nom1C,political, . apse under th 1tSown contradictions a ... e pressure of , cnS1S1U who h enchantment, distrust and 1C anger, dis. . ' protest are I· . quesnoning the very limits of .. 1mlted to caPltalism.

10 /HiP Violence

THE BECOMING OF THE CRISIS

Before interpreting the crisis of financial capitalism, it may be useful to summarize some facts about the macro-economic and global financial situation that has been emerging for more than a year, as a result of the real estate and banking bubble. Let us say from the outset, citing an article by Martin Wolf, an intelligent supporter of liberal globalization in the Financial Times (january 7, 2009), that, although necessary, the dramatic increase of the American federal deficit and the expansion of credit from central banks allover the world will have temporary , effects but will not be able to restore normal and lasting rates of development. It is thus possible that over the course of2009, and beyond, we will witness the succession of a false recovery, a hiccups movement in the stock exchange followed by repetitive downfalls and subsequent interventions of governments attempting to contain the crisis. In short, we are confronted by a systemic crisis requiring "radical changes" that, at least for the time being, no one can really prescribe in a convincing manner. The monetary policy, even if it has some efficacy in improving

Financial Capitalism 11

,

faculty/rogofff/61es/Aftermath.pdf),

we see in what

when it enters into a depressive crisis like the one we

way this crisis is by far the deepest

in the past few

are living in. The reason is that in a crisis like the

decades.

present one (The Economist called it "the biggest bubble in hisr ory ") , W hiICh III i some sense resembles what

note in retrospect,

Japan

profound,

economies

during

experienced

recessions,

is entirely

in the 1990s,

ineffective

the transmission

Banking

crises like this one, as the authors last at least two years with severe

drops in GDP. The collapses in the stock markets are with an average fall in real prices of real

~hannels of monetary interventions (reduction of mteresr rate , inserrio n 0 fl· IqUiidirv. .. In Ity, imtervennons the exchange rate, Illcrease . . III the banking reserve funds) are beside the point. That is, they cannot transmit the ere d··It Impu Ises to companies and

estate assets equaling

domestic economie s necessary to revive . the consurnp. tion. The difference being that, in the case of Japan, the bubble burst had d . a: .. epressive errecrs on investments in capital, which u ·1 fG P unn the 1980s represented 17% o .rossth Domestic Pr 0 d uct, Whil I e the crisis that broke out III e United Stat h . GDP r uln fr es ad direct effects on 70% of es tmg om the co .. American . nsumpnon III the domestic economies. Given h "th by far the most im t at t e US consumer is pOrtant cons . global implications f Am . umer m the world, the o ericas p b bbl e shakeout are likely to be f: 05t- U ar more severe h was subjected to" (Steph Ro t an those Japan en ach"u of AVOiding Japan-Style 'Lo ' S Not Certain . st Decad ", ~. TImes, January 14, 2009). e, rtnancial

debt increased,

On the basis of a study b C y armenR,· h rom M ary Iand University and K em art " enneth R, tirom H arvard ( The Aftermath f F· . ogoff o manclal C . " December 2008, http·llwwwecono . h flSCs, . . miCS. arvard.edu/

f

35% over the span of 6 years

and a 55% decline in prices of non-real

estate assets

over 3-4

rate,

years. The

unemployment

always

averaged,

rose by 7% in

4

years, while the output

decreased

by 9%. Moreover,

the real value of public

on average, by 86% and this is only

in small part due to the cost of bank recapitalization.

Instead,

it largely depends

on the collapse of

tax revenues. An important

difference

the ones in the recent

between

is a global crisis and not regional, Until,

this crisis and

past is that the present

like in the past, the rest of the world

the position anticipate

of being able to finance the a containment

one

like the others. is in

us, we

can

of the crisis on a regional

scale. This is because to the extent that the American government

can take advantage

tax and monetary

stimuli

of a vast program

financed

in surplus of saving from the purchase

of American

Treasury bills. But who today can help the long run? The present

difficulty

of

by the countries

us

in the

consists in the fact

that, being global, the crisis broke the very force that allowed

the global economy

to grow, albeit

in an

13

unequal demand

way, over the last decades, from the countries

of production tural

surplus

i.e.

China,

Japan,

..

,---

-

their savings no longer towards

deficit

countries

in struc-

demand,

which

financial

circuit

allowed

the global

Germany),

But

when private spending collapses on a global scale, the efforts to tncrease ' ' t h e Amencan demand no longer suffice Th ' , at IS to say, actions to revive the demand on a gl o bal sc al e WI'II b e required ' even In the emerging co ' , h ' untnes Wit a surplus of production, At the moment ' d , ,It oes not seem that the emerging countnes can c c , ompensate ror the loss of demand tnternal to th did li )' e eve ope countries (so-called decoup mg , SInce for them h isis h d' t e cnsis as particularly heavy epresslve effects as II N h' we, onetheless, according to t e estimate of the W, excluded rh I orld Bank, it cannot be at, at east in th di 2015) and " e me rum range (2010With ImpOrt di cc China India R' ant Inerences between , ,USsla, and So h Arnen the growth rates 'II ' Ut encan countries, WI contIn b an average of 4-50~ Thi ue to e maintained at 70, IS pos 'b'l' fact that of the total f si I Ity depends on the o expOrt' h COuntries (which s In t e emerging , averaged 35% emergIng countries over th I of GOP in the e asr 5 ) are exports to the dev I d years only 20% e ope cou ' resu Its from internal exch ntnes, while 15% the emerol anges betw th e emergmg COUntries ("Em' een e block of T'he Economist J ergIng Mar'--~ or Fall-" ,1' ""lS: Stumble . ' anuary 10, 200 case, 10 order to be able to pull h 9). In any the erneroi t e World d e emerglOg COuntries must-b id " emand, esr es raISin ' g Internal 14!

wages--channel Western

in the structural

(like the US) to the countries (like

the flux of

even because

robs

the

same

economy

will become

to function

and that

despite,

It

imbalances.

the

hegemonic

economic

the savings of the developed

tries will be invested,

thereby

capital

reducing

and somewhat

sumption

monetary mechanism

structural

the

internal

after the crisis, the emerging

that,

force in which

but towards global

of the

of profound

is thus possible countries

in deficit,

in the developed

inverting

counflows of

the level of con-

countries,

But no one

can foresee the duration of this crisis and, therefore, the political, manage

the

and political festing

in addition

to economic,

cumulative

multiplication

contradictions

capacity

to

of social

that are already mani-

themselves,

Thus,

the least we can do is focus our attention

on the trend countries, account

of demand

particularly

in the advanced

deficit

in the US, If we take into

that, in the US, between the third quarter of

2007 and the third demand

quarter

of 2008, the fall of

in private credit equaled

13%, it is certain

that the net saving is destined

to remain positive for

several

in the US, In other

years-and

not just

words, private citizens will do everything

to reduce

their private debts, which can only annul the monetary actions Assuming

for the revival of private consumption. for a moment

a financial

surplus

(that is,

Th~

--------

The BAc(\rrllf'.q

15

lack of consu mpnon ion l ]In t h e private sector of 6% of GOP and a str uctura I d e fiICIt . In . the commercia. I balance

of 40/
compensate nal . demand

0f

GO P, t h e tax deficit necessary to for th e re d ucnon . . 0 f Internal and exterwould h ave to b e, according . to Wolf ,s

~~umate in the cited article, equal to 10% of GDPmdefinitel l1"! Reduci • "of. e ucmg public. debts of such a scale entails enormo us e fir . rorts, especially if we take into

I

Obama

(then reduced

on February remotely

sufficient

between

by Congress

11, to $789.5

and the Senate,

billion)

is not

to fill the "productivity

the potential

growth

of GOP at the time of the crisis: "In the presence an adequate

demand

for productive

next two years America goods

and

services

would

worth

capacity, in the

another

thirty

As if this were nth that th b 0 enoug ,we should not forget . ca d eb 0 stacles to deb t re d emption for companies use Y nominal . th d. Interest rates tending to zero and e re UCUon of . this ki d . pnces (deflation): in situations of n , real Inter repayment c est rates are very high and debt onsequently b It is precisely f h. ecomes very challenging. or t IS reas h banking crises on t at a second wave of cannot be I Aglietta writes "If . exc uded, As Michael . ,such IS the· . are rIsking a second f . SituatIOn, the banks Inanclal h k one of the insolvent d. s oc ++return shock, h cre Its of . t at an economic depr. compantes. It is thus . eSSlon can recIprocal reinforcement f propagate itself by f 0 debt d mance and economic defl . re emption in atlon" (La . en est-on arrive fa?. Comment en cnse. Pour:qUOI .

and that which it can sell. And Obarna's

According to Paul K rugman rh of the economic stimulus ,e program

16

$ 825 billion proposed by

ment, that

an enormous which

minimally

to do more?

the

fill in

to

wonders,

better

tionary

trap,

of the Japanese

kind,"

if the actions

of intervention

quate

(i.e.,

$2.1

ing opportunities

rapidly

defla-

an inevitable are not ade-

or trillion).

Or,

his plan? "There

of shovel-ready

projects

are for

that is, of projects which can be enough

to succeed

term

boost

of economy.

other

forms

of public

field of health

are not

is it the lack of spend-

that limits number

public investment, initiated

billion

keeps wondering,

only a limited

action

into a prolonged

spiral

Krugman

tied up

loan on the vast scale, "but sliding

around

gap."

not trying

are dangers

of inadequate

than

plan is not

this productivity

there

the government

up between can produce

why is Obama

Certainly,

consequences

much

economy

trillion.

and invest-

chasm is opening

adequate

Now, Krugman with

of consumption

the American

of

be able to produce

aCCOUnt that al rea d y to d ay the federal American d fi . e icit moves aro un d 120L70 0f GOP-at h S the levels of t e econd World War.

sOr:tirr, Michalon,

gap"

and effective growth

But with the downturn

Parigi, 2008, p. 118).

even

spending,

care, which

in the short-

Nonetheless,

there

especially

are

in the

can create assets and at

j

,

the same time fiOster t h e economy at the time of " need. Yet agai n, IS . t h ere an element of political prudence behiIn d Ob ama 's decision I' e the att· ' .. , I e~pt to remain within the limit of a trillion dolars ror the econ omic. p Ian 's final cost to ensure the sUppOrt of the Re pu bliicans? ( ".II plano Obama non " b asta, La Re'P'P bli , u tea, January 10, 2009). Obamas pI . spend' (h an IS composed of 60% public Ing ealth c . tu d are, Investments in infrastrucre an education id forecl ) , at s to homeowners risking osure and 35% Stiglitz . hi 0 tax reductions. Joseph , In IS Interv' . h ("0 lew In t e Financial Times o not Squander A ., Cut" 16 J mencas Stimulus on Tax , anuary, 2009) h h squander the sr] as, owever, urged not to e stimulus 0 b k crisis, are do den tax rea s, which, in this orne ror a f: ·1 only 50% of h sure ai ure. For example, t e tax CUt th . F ebruary 2008 . at came Into effect in Increased dl remaining part of h. spen Ing, while the w t e Increase . ·1 as used to reduce i--, In avar able income e pnvate deb wou Id rnosr likely b ts. Today a tax break d eused I re uce the debts, exc a mOst completely to f: ·1· ept perha . ami res with a high d ps In the case of poor wo ld b ten ency to u e much better, if . consumption. It on the pa h f one mdeed w t 0 tax CUts t I.. ants to persist c. ' 0 im It h ompames to increases in : t e breaks of all h. n mvestm t ey are mnovative "S d. ents, preferabl if d. . pen mg· y I e ucauon and technology on mfrastruct create ass. ure, fiuture productivity" (S . I. ets, they inc rease tlg In).

Independently

of the fact that the state stimuli

result mainly from increases in discretionary

us, or

tures, like in the effects

of an increase

in social spending,

Europe, the state governance the

issuance

bond

sky-high:

in the

billion

worth

The

capital

dimension

scheduled

of the

for 2009 is

2, maybe $2.5 14% of GOP, to $215 of bonds sold in England (10% of

to

us,

equaling

issuances of significant

in every country which

bonds

to borrow

it goes from the estimated

billion

GOP),

market.

of public

like in

of the crisis depends in

the last analysis on the capacity from

expendi-

by the more or less automatic

at first,

Anglo-Saxon

of the world, tried kind

to resist

(initially

amounts including

of bonds Germany,

tax stimuli accused

of the

of

"crass

Keynesianism" by chancellor Merkel). The recourse to the bond markets on the part of the

us

in order to collect capital to cover the growing

deficit

should

problem,

not,

in principle,

be a particular

especially in deflationary

periods,

like the

one we are going through, characterized by continuous reductions

in interest

rates (which

for investors

in

bonds means real fixed and relatively high earnings). Nonetheless, inflation,

the expectation

caused by the strong

of a recurrence increases

of

in deficit

and public debt and by massive injections of currency, and,

consequently,

State's bonds, real interest

of a loss of earning

is already

provoking

from

an increase

the in

rates on T-bills, and this is also the case

18 19

I,

in , the economicall y wea It hilest countries, inter natrona ' I' Illvestors in public bonds

In fact demand '

su b stantially high er nomina 'I and real earnings in d or er to better pr otecr t h emselves against the risks of state defaults ,or Acc diIllg to the analysts as much as h t erke are signals of an economic bubble on the mar ets that can ex p I'am t h e distortion ' , cc , , of prices, s omew h at unsettling , It IS nonetheless that real mteresr rates have ' borr " risen as governments started to ow (Chris Giles, David Oakle and Michael Mackenzie "0nerous issuan ' , "F.' y, I January 7, 2009' ce, mancia Times, , see also Steve J h "I fl ' Fears to H' D b 0 nson, n anon It e t Auctio "FT the Fund M. n, Weekry Review of

anagement Indust

M

h

them for more than 100 billion euros. The crisis of the public debt is destined

to provoke a subsequent

escalation

in the central banks, The

of interventions

latter would quantities

be called upon

and to print

consequences? interlude

A strong

inflation,

in large

With

what

if there

is the

of a short recovery, or, in some countries

(the top candidates currency citizen,

to buy them

more currency,

are Great Britain

crises and hyperinflation, means an impressive

and retirement

and the US),

Which,

destruction

for the

of private

savings, but for the financial oligarchy

an ideal instrument mous quantity

to destroy the value of the enor-

of toxic activities

banks" ("Chi paghera

held by the large

il conto della crisi? ," Corriere

For COUntries I'k S' ry, arc 30, 2009), I e pam Po t I G and Italy who diff ' ruga, reece, Ireland, ' se Inerential ' , , b een been a I' I hi earnings III T-bills had Itt e ighe h until 2007 th r t an those of Germany ' ' e problems wi h f ' d e fiictts have bee' , It inancmg public n IUcreasm in ' December 2008, g an obVIOUSway since

del Ticino, March 27, 2009), Despite the ten years of the euro, the markets are

Alfonso Tuor has of h " summarized h t e CflSIS of the publl d t e consequences follows: "the shOrt-term ic ebt on a World scale as , , COnsequ ce cies IS a crisis of trust in bonds ,en of these polifinance the public debt Th ~Ith which the States , ' erelsn} Itory signals: the last in the d 0 ack of premonG or er of ' reat Britain, where, for the f time came from lCst tim seven years an auction of pub li b e OVer the last " c onds fa'} d t h e d ecision of the Bank of En ued, despite gland to pu rch ase

unionbonds,

20! fh~

working

with precise distinctions

countries

within

between

this very eurozone+-a

the risk

problem

easily resolvable by the recourse to the creation currency countries

by the United which

in the eurozone.

the question particularly

Nations

would

or by releasing

damage

the

strong

This again urgently

of a real unification

not of a

raises

of state policies,

the social ones, within the UN,

In this phase, with few investors disposed chase public obligations

to pur-

in the face of an extremely

high offer to issue public bonds, the risk of crowding out (of leaving the private bond real. The

competition

in bond

market) markets

is entirely between

ot

21

private inhibit"

companies and h governments risks further mg t e overcomi f h .. that f h ng 0 t e CflSIS,to the extent , or t e compani . I bonds can b es rnvo ved, the issuance of ecorne parrl cu Iar Iy cost Iy. At this point the S . tate-as It is al d ' the sUppOrt f h rea y happening in the us with o t ecarco . to sUppOrt' mpames-can be compelled pflvate comp . di their bond hl ames irecrly by purchasing s, w ich would process of q . . mean the beginning of a uasl-natJonaliz' (wi the right to fi anon without, however, VOte rom rh kh financial co . e sroc older State) of nonmpames. Thi one that beg . h s process would follow the · an rn t e banki With the interv' ng and financial sector ennon, of I months. If th centra banks in the last en, as a hypoth . h were to stan U' esis, t e world economy o. p agam, the proc . Ut, I.e., the wirhd ess mverse of crowding · rawalofp bl' b Pflvate ones, would" u IC onds towards the . all slgnlfican I . In the indebted . t y Increase debt service "Th COuntfles. e hopes 0f overc . Aleconso Tu" omIng the .. " s or, are rneltin I' CflSIS, writes un. A series of negativ g Ike the snow under the mOst i b e news a d ncura Ie optirnists a d :e curbing even the own to levels less than th n orcing stock to go course of N e IOWes . ovember" ("C . . t regtstered' h delI'Euro " nsi dell'Es In t e a 2009) T: , . <:orriere del Tici t, nuovo incubo · . e cnsis of the fo no, Februar which in the I rrne- SOVietbl Y 19, asr years h be Oc cou . European banks' S . ave en indeb d ntnes, In wrss fran te to th Japanese yen, Swedish crowns, cs,andAmerican d 11 e e 0 ars, uro--in order

to compensate

for the scarcity of internal

savings

and to reinforce the expansion of credit to small and medium

companies,

the

expansion

of mortgage

credit to low interest rates and real estate overinvestments-seriously

risks boomeranging

against

the

European banks. The latter, particularly the Austrian, Italian, and Swedish banks, have acquired significant (up to 80%) in Hungarian,

shareholding

Slovenian,

and Slovak banks, which means that an insolvency crisis in the domestic East European

economies-a

crisis entirely similar to those of Mexico, Argentina, or Southeast

Asia, a kind of European

crisis-immediately European

Union,

becomes

turn

Miinchau

a problem

in addition

"The crisis started in the might

into

("Eastern

us,

but Europe is where it

catastrophe," Crisis That

this case, actions of intervention economies,

of the

to that of its banks.

writes

Wolfgang

Could

Wreck the

Financial Times, February

Eurozone,"

subprime

23,2009).

to support

as, for example, an intervention

International

Monetary

gious crisis of payment devaluations

Fund,

In

Eastern of the

to escape a conta-

balances due to a chain of

of local currencies,

seem entirely inef-

ficient. "If the exchange rates," wonders Miinchau, "were to go down even more, the failures of domestic economies Europeans, imagine mythic

could increase dramatically.

Are we,

ready to help them?" It is difficult European

citizens

Polish plumber.

running

to help

to

the

The split at the heart of

22 !

23

,

Europe due to th II . S e co apse of the former communist oviet bloc serio I· .. th us y risks calling inro question e very future of the EU ("The Bill That Could Break up Euro e" Th 2009). P , e Economist, February 28, The scenario at the fo fi con tin· re ront here is a massive and uous Illcrease in I scale and unemp oyment on a world , a generalized red . . . rent [rendit]. h ucnon III incomes and a , III t e face of . . a comprehe . a verngmous increase in nsrve tax deficit Th £' had its d. . e financial crisis has evastatIng effects h industry and . I on t e manufacturing . Its Wor d com .. . dismissals cl d merce, with millions of . ' ose OWns of h biblical returns of . . t ousands of factories, . . hei Oflglll ("Th cOt Immigrants t err countries 0f E e ollapse of M C conomist F b anuracturing" The . ' e ruary 21, 2009) , t h at IS, beginnin fi . For the moment, g rom the cri f h proceeding to th . . ses 0 t e Bear Stearns Am . e cnsts of th L h ' encan International Gee man Brothers, the "so CIiali1St turn" of lib roup ' a n d 0f C itigroup, the banki ng, financial eral gover nrnents to sustain means o f recapitalizat. ' and ins urance system by do Ion and eslnl o~ seem to be able to a .rndonetary issuances of a insn] VOl chal b . b vent decentralized b n ankruptcy rrnpro able quantity of toxic anks due t 0 an anor her $1.5 billion" . assets. "It would ak R bini fi ' wntes the e t e ou 1111 rom New y, k Unt conornist N . . I or nlVer ." oune! capita of banks to th Slty, to rest . b e pre-crisis lev I ore the It e possible to overcome the credu : only thus will It constr . atnt and 24 ;

revive loans to the private the

us

banking

sectors. In other words,

system is in fact insolvent

on the

whole, just like the large part of the British banking system and many banks in continental

Europe" ("La

voragine dei conti USA," La Repubblica, February 26,

2009). There

is no

sufficient

private

capital

to

absorb the present and foreseeable

losses and recon-

struct

for this must be

bank assets. The resources

public (whether recognizing

one likes it or not). The slowness in

that it is a question,

less, of an insolvency a whole,

will involve

extremely

same is true for the difficulty tainly complex, banks

no more and no

crisis of the banking high

undoing

the knot, cer-

of the nationalization

of the major

(even on the day when

becomes

system as

prices. The

the principal

the American

shareholder

State

of the colossal

Citigroup with 36% of capital stock). It is entirely likely that in two

years

the

economies

of all countries,

economic

stimulus,

deflation),

just as it is possible that each country will

try to reintroduce demand

despite the actions of the

will still be in depression

(stag

in their native land the quotas of

by means of devaluations

actions (deglobalization)

and protectionist

in order to try to postpone

as much as possible the rendering

of accounts

by tax-

payers called on to pay public deficits. The margins of economic

and

monetary

manage the crisis are extremely

policy

to effectively

restricted.

sical Keynesian actions lack transmission

The claschannels of

state stimuli to th I ood d . e rea economy, to the demand of g s an services and . oth h d' ' Investment goods. On the er an ,It make S I' Itt Ie sense to speak of a new Bretton Wo d . h o S Wit out taking into account the profound transforma' . monetary trorrs In the international arrangement h reflect th " ' t e transformations that e cnsrs of nation I . from global' . a sovereignty resulting izauon If on' d of aND . e InS tea wants to speak . ew eal, i.e., of . Incomes e I a process of supporting " ,mp oyrnenr and di grassroots" I I': cre It system at the eve , It will th b lyze social f . en e necessary to anaorces, Subjects ad£; that can subst . . ,n orms of struggle annate In a p I" II . the escape fr h " 0 mea y Innovative way om t e crisrs,

2

FINANCIAL

LOGICS

The process of financialization

that led to the crisis we

are living in now is distinguished of financialization

from all other phases

historically recorded in the twentieth

century. The classical financial crises were situated at a precise moment

of the economic

cycle, particularly

the end of the cycle, in conjunction

profit testing as a result of capitalist competition international mining

scale, in addition

geopolitical

division

The

in the international

typical

thus represented

tain ways "parasitic"

on an

to social forces under-

equilibrium

of labor.

financialization

at

with a fall of

twentieth-century an attempt,

and "desperate,"

in cer-

to recuperate

on the financial markets that which capital could no longer

get

in the

Kindleberger, showed,

the

real economy. greatest

As Charles

historian

P.

of finance,

since the 17th century financial cycles have

always consisted

of a precise sequence:

impetus, one of collective infatuation

a phase of

and overtrading

of stock markets, a phase of fear and disorder, then a phase of consolidation, nization.

and, finally, a phase of reorga-

"In the phase of overtrading

iemballement),

activity becomes frenetic, the aspirations of individuals

26 27

I,

do not cease to g,row t h e velocirv . of transactions is acce Ierated, and the ri . assets-th . h P Ices of real or virtual financial at IS, t e pri f I people's Ih . ce 0 e ements constitutive of wea t -are infl d" ( p. 8). The I . arne M. Aglietta, op. cit., accumu anon d if of the "c . I b an speer IC centralization apira earer of i " in Volume III of C . nteresr, as Marx defined it tal" 'apital, also called "fictitious capi, managed primaril b b . production f y yanks with autonomous o money b epitomized 0 f h Y means of money indeed ne 0 t e sali h twentieth ent c aracteristics of the century financi I· . pointed out b M a tzanon processes (and y arx over the f course 0 the second hal f of the ni meteenth centu ) Th Were thus based ry . e financial crises b on a conrr di erween real and fi . a Ictory relationship inancial eco . t h at today is no I nornies, a relationship Th e financial onger express e d rn i t h e same terms. . economy t d . It spreads across the . 0 ay IS pervasive, that is, with . entire econom· I It, so to speak fi ICeyc e, co-existing . h ' rom st o f in t e finances, to speak fi art: mish. Today it is goes shopping at the guratlve!y, even when one when one pays with a :~~~~market, at the moment to give on Iy one exam I It card . Th e car industry . accordance with cr d. p e, functions completel .' , . e It mech . y III easmg, etc.), so that th allisms {installments Motors have just as he problems of a G " f muc to do . enera o cars as, if not above all .~th the production wlt its branch specializin 'in .the weakness of indispensable for selling th ~ credit to consUmptio elf product n s to consumers.

~M_AC,

28/ Tr,,,

Ca~)itaiisrr

That

is, we are in a historical

finances

are cosubstantial

in which

the

to the very production

of

goods and services. In addition to industrial instrumental today's

period

profits not reinvested in

capitals and in wages, the sources fueling

financialization

have multiplied:

profits deriving from the repatriation royalties

followed

outside;

flows of interest

by direct

there

are

of dividends and

investments

coming

from the

from

the Third

World's debt, to which are added flows of interest on international

bank loans to the emerging

surplus-values

countries;

derived from raw materials;

accumulated

by individuals

the sums

and wealthy families and

invested in the stock markets,

retirement

ment funds. The multiplication

and invest-

and extension of the

sources and agents of the "capital bearer of interest" are, without

a doubt,

one of the distinctive,

seen, and problematic capitalism,

especially

bility or impossibility "re-financing"

traits

unfore-

of the new financial

if they reflect upon the possiof modifying

it, reestablishing

this system, of

a "more

balanced"

relation between the real and financial economies. Like

its predecessors,

this

financialization

begins from a block of accumulation non-reinvestment

of profits

processes (constant

capital,

also

understood

in directly

as

productive

i.e., instrumental

goods,

and variable capital, i.e., wages). In fact, it began with the crisis of growth

of Fordist capitalism

since the

1960s. In those years, there were all the premises of a

I,

repetition of classical f " dichot b InanClallzation based on the omy erween real (i d ial econom: In UStrl ) and monetary rrues, with the quotas 0 h l' . consequent seizing of profit n t e tinancia] k growth wi h mar ets to ensure profitable It out accumul' I the 1980s "th . anon. n the beginning of , t e prima was the trend f ry source of financial bubbles o growth of the growth ca d b non-accumulated profit, use hand a ali ya do u bl e movement: on the one , gener ized decre . other hand th ase In wages and, on the , e stagnation' d rate of accum I . -I.e., ecrease-of the u anon despi h profit rate" (M" h I te t e reestablishment of IC e Husson "Le . La Breche N b ' s enjeux de la crise," . ' overn er 2008) rate Implies th . For an accumulation . e growth of th whtle profit rate' I' e amOUnt of net capital, l' Imp res th I' proms and cap' aI e re ationship between It . the di rates starting from' 1980 IVergence between the two of financialization B represents a sure indication . . Ut a retnvested .10d'sUstrial f We said ' t 0 t h e nonother sources of " pro Its are gradually added t I f accumul . " t a , a act to keep in mind a~lOn of financial capih~ . transformations of h 10 order to understand Cflsls-d eve Iopment t e mod I f post F di . . leo n p . - or 1st tnvolved a artIcular fi process of banki d ' tnancialization t h e finan iali ng e-med' . d . CI lzation of eco . latlon regarding omtnance of th An nomic growth (th . h e g1o-s t e preRh ems one) b axon mod I multiplication' fUfitalso involved a pr e over the 0 tnandal I' ocess of the firom the d I . eregu ation and libnterm e dilanes result" I eration of 109 economy. 30/ T'I"

The transition

from the Fordist mode of produc-

tion to "stock managerial

capitalism," which is at the

basis of today's financial capitalism, is, in fact, explained by the drop

in profits

(around

50%)

between

the

1960s and the 1970s; the drop due to the exhaustion of the technological

and economic

Fordism, particularly

by the saturation

mass consumption

of

of markets by

goods, the rigidity of productive

processes, of constant "downwardly

foundations

capital, and of the politically

rigid" [rigido verso it basso]working wage.

At the height

of its development,

organic composition

in a determinate

of capital (Le., the relationship

between constant and variable capital), Fordist capitalism was no longer able to "suck" surplus-value living working

labor. "Hence,

of the

the primary

1970s,

world economy investors-to

since the second half propulsive

force of the

was the endless attempt

companies-demanded

from

by

their

of capitalist owners

and

bring back by different means the profit

rate to the highest levels of twenty years ago" (Luciano Gallino,

Eimpresa

irresponsabite, Einaudi,

2005). We know how it went: reduction of labor, attacks on syndicates, robotization countries

Torino,

in the cost

automatization

and

of entire labor processes, delocalization

with low wages, precarization

diversification

of consumption

financialization, of cost proceeds

in

of work, and

models. And precisely

i.e., increase in profits not as excess (that

manufacturing-Fordist

is, not in accordance

with

logic) but as excess of value in the

I

Stock Exchan e "at h . g t e nrne T2 with respect to Tlh were the ga b p etween T'l and .T2 can b e a fcew d ays.' In (; th act, e recourse t 0 t h e financial ~ markets on the P art 0f companies in d has eall or er to reestablish profit testing r y never had ythi compan . . . an mg to do with financing y actiVItIes bv i . beca y ISSUIng new bonds-and this is USe companies hav aI self-finan' Am' e ways had wide margins of cmg. encan . the largest h h . companies, the companies in s are oldmg . used financi b he t COUntry rn the world, have ng y t e rssuane f 1% of th . es 0 assets to supply only err needs' the G other words th ~' '. erman companies 2%. In , e nnanclallZaf f a process of Ion 0 economy has been recuperation of . ai' the period of d . capir s profitability after ecrease in profi . enhance capital' t testmg, an apparatus to s profitability 'd.' productive pr OUtSl e Immediately ocesses. It is thi companies to internal' . s very apparatus that led lze In an cc , paradigm of shareh ld Irresponsible" way the h ld 0 er value th . o er value OVer th ,e pnmacy of sharebear " at of the muI . I' . ers -the latter be' trp IClty of "interest Ing called stak h earners, consumers su I' e older value (wage erations). The (. d' pp lers, environment furu . In UStrial) ,re genIncome of comp' profit qUOta of th al d anles, which . e tot ecreased in the US c: In the 1960s and 1970 • ICOm 24~ s SInce exceeded 14--150L 0 to 15-17% has 70, and fi '. ' never tured accordingly, becoming for n~cialization is structhe modus operand' f aU Intents and " I 0 COntempor . purposes :As was shown on th b . ary capitalism I e asis of G . comp ere analysis of aVailable data reta KriPpner's , the qUOta f o total

profits

of American

financial,

insurance,

companies

attributable

to the

and real estate companies

not

only nearly reached in the 1980s, but then exceeded in the 1990s, the quota attributable

to those in the man-

ufacturing sector. Even more important

is the fact that,

in the 1970s and 1980s, the non-financial would drastically

companies

increased their own investments

in

financial products with respect to industrial plants and machinery

and became ever more dependent

quota of income

financial investments

with respect to the one derived

from their productive

activity. Krippner's

is that, within this tendency tion of the non-financial

observation

towards the financializa-

economy, the manufacturing

sector is not only quantitatively

predominant,

directly driving the process, is particularly (Giovanni

on the

and profits derived from their own

but

significant"

Arrighi, Adam Smith a Pechino. Genealogie

del ventunesimo secolo, Feltrinelli, Milano, 2007, pp. 159-160).

This is enough

distinction

between

economies,

distinguishing

to definitively

(industrial)

discard the

real and

industrial

financial

profits from the

"fictitious" financial ones. As well as to stop identifying, from either a theoretical

or historical

point of view,

capitalism with industrial capitalism (as Arrighi writes, a typical act of faith of orthodox not deserve the justification). speak of the "irresponsible paradigm of shareholder companies

Marxism

that does

If one really wants to

company"

value-indeed

to describe the created within

over the last thirty years--one

would do

32/ 33

well to speak o f th e trans fcormation of the production process based on thee "pro fiIts becoming rent" to use C

Europe, is what allowed financial capitalism

arlo Vercellone's apt expression ("Crisi della iegge del v aloreed·· rvenire rendita . dei profitri ". C·· dell' m . .I b I I, III rtst U econo-

to affirm that, parallel to the reduction of the redistrib-

fi nanztarz, ..

la gtO ate. Mercati o

~nart

I

.

totte sociali e nuout politici, ed. by Andrea Pumagali and Sandro 0

ezzandra, Th . Ombre Con e / Vinmoma d e, Verona, 2009). ere IS no doubt rhat, III th e post-Fordist config. uranon of financial ali capn Ism, where part of the wages are reduced and cap tal precarIzed and investments in I stagnate, the pr bl f h its (th . 0 em 0 t e realization of profat IS, selling the I the I f surp us-value product) remains ro e 0 consumption b incomes U d h. Y means of non-wage . n er t IS dzstrib tion of capita! ( h .uttue profile, the reproduce aractenzed b h I hi h polarization f al h . Y t e extreme y Ig Owet}Is ied the increase in th carne out partly thanks to e consum· f thanks to the ind b pnon 0 rentiers and partly . e ted consum· f P mancia!ization h . pnon 0 wage earners. as redIstrib d al h strongly unequal and . uteu, tough in a precarIOUS W (Of renrernenr incom d. ay lone thinks of . es enved fi renremenj funds in rom supplementary accordance wuh h contributions) finan ial . I t e primacy of th ' CI mcomes to e double form of non- eal wage workers in I' -estate d incomes (in the US, 20% and 890 an real estate . th Yo respecr· IS USa kind of becoming-rent in addi . IVely). There The indebtedness of dom tion to profit. estic econom· corresponds a more or les les, to Which s pronounced f o savlllgs according to wh th redUCtion e er one IS In th tJ e S Or 0

0

0

0

0

to repro-

duce itself on an enlarged and global scale. It is possible utive function

of the social State, in this period it is

assisted by a kind of privatization

a la Keynes,

of deficit spending

i.e., the creation of an additional

demand

by means of private debt (with a relative displacement of wealth towards the private domestic The

American

mortgage

economies).

indebtedness,

which

reached more than 70% of GDP with a total indebted-

o

0

0

ness of domestic has constituted consumption

economies

equaling

the primary

source

93% of GDP, of increase

in

since 2000 and, since 2002, the motor

0

0

o

o

of the real estate bubble. The consumption fueled by so-called renegotiating

remongaging,

increase in house prices. This

called home equity extraction,

a fundamental

of

mortgage loans in order to get new credit,

thanks to the inflationary mechanism,

has been

the possibility

has played

role in the American economic growth.

The US Bureau of Economic

Analysis has estimated

that the gains from the GDP growth due to the increase in home

equity

extraction

were, on average,

between 2002 and 2007. Without of mortgage consumption,

1.5%

the positive impact

credit and the subsequent

increase

in

the growth of American GDP would be

equal to, or outright

less than, that of the eurowne

0

0

0

34! fhe

•

(jacques Sapir, Leconomie politique internationale de fa

crise et fa question du "nouveau Bretton Woodr':oLecons pour des temps de crise, Mimeo, sapir@msh-parisJr).

The explosion tated,

especially

of private

indebtedness

after

collapse

the

of Nasdaq

2000-2002, by a very expansive monetary banking

deregulation,

securitization

a policy

of debt-based

Debt Obligation

that

in

policy and

reinforced

obligations:

and Collaterized

was facili-

the

Collaterized

Loan Obligations,

~o which are added Credit Default Swaps, derivative insurance . o bliigatrons that are swapped (in fact, bartered) berw een operators In . order to protect them-

I

selves against rh e ns. ks these credit deri . envauves

0 f'

Investment.

The total of all

amounts to something like $62 trillion , a multi . u up I'icanon of 100 in ten years (for a. description of secuntize .. d b onds and other financial Instruments. . ' see th e bri . ne f di ct!onary in the Appendix). Secufltlzation II bal a ows one to reclaim from the ances of .institut" IOns or credit agencies (mortgage, b ut als 0 credit card) th I th . e oans supplied by clients selling em to Investment b ks credit pool ith di an. The latter constitutes a WI . ks good) and thi fferenti . at ed fIS (from good to less , on s basiS . ceded to the ed ' Issue assets, which are then creat ad ho fi . conduits and spe'al hi c nancia] structures (called CI ve Ides) th f price by short-term deb . at mance the purchase with investors as h d ts. FInally, bonds are placed e ge funds . retirement and in ' Investment banks, vestment funds someones mortgage deb be . In such a way, ts come h'gh' . ness (as long as it lasts)' h a I -payIng bus 1" In t e hand f In order to describe tho s 0 someone else. . IS mech . expreSSIOn originate-to-d"b anlsm, we use the Ism ute. As . In a production

36

Tnt'

chain, various specialized firms coordinate in order to fabricate, ment

products

their shares

assemble, and synthesize invest-

beginning

from

aggregates

of real

estate credits. The actors in this chain are brokers of real estate loans, directly in contact with consumers, the intermediaries together

credit

specifications

who

buy

aggregates

wholesale

and

in accordance

of financial

institutions

bring

with and

the

hedge

funds (that, in the end of the chain, provide capital), and, finally, rating agencies that determine the composition

of these asset portfolios satisfies their

criteria of quality" (Martha la bulle. La mecanique complex

Poon, "Aux origines etait

des fluides des subprimes,"

http://www.mouvements.info/spi This

whether

financial

p. ph p?article3 79) . engineering,

in its good

nature,

allows for the artificial increase of the total

amount

of credit (leverage effect), freeing the balances

of the institutions

from credit given in this way in order

to enable them to create new loans. It is a question of multiplication bonds

qua

of bread because a split between flows of

right to a part of created profit and flows of

purely monetary

interests and dividends is inherent in

the multiplication

of credit by means of securitization.

There is no doubt that derivative obligations created on subprime

mortgage

credits immediately

became

the scapegoat of the financial world crisis so much as to obtain the name of "toxic" assets. The securitization of subprime

loans is, in fact, situated

of the transformations

of the world

at the center of American

F:n:::wcla

/

37

mongage finance wh ere thee in i d ustcy of real estate loans . IS articulated b y t h e vastest market of investment products based 0n activities . " (asset-backed securities).

charges were totally false, such as the thesis, popular

fIn the latter are con d ense d all the evils of the new

obligates the banks to give out loans to the members

mance: laxisr pra c t'Ices

0f

ere diIt, rushing to search for

money firom the issued bonds on oans, the confid . t h e supplying of loans to fi' ence In inanciallv untrusrw h rul th . , ort y people, the violation of es, e naivete in cal . As c ulari atmg nsks, frauds, etc.

easy I

compensating

Martha

Poon r

. d

.

"th ermn s us m the article we just , t e system of h . not a I' exc angmg real estate credits is nove ty m the us' . Deal B . ' since It goes back to the New . ut in the recent .od rh of this tr di . pen, ere has been a sliding a Itlonally' . market who I' " clrcumscnbed practice to a se IqUidIty . guaranteed b th S was sustained by organisms y e tate--th enterprises or GSE e governments-sponsored Fannie Maed' usbually called Freddie Mac and an y spe iali d activity was financed b CI ize lenders whose y deposits' h in t e management Iarge Iy pulled by i nvestments in . k true that in the GSE th ns -capital." It is also e only se " t h e prime ones whil h CUrttized loans were , let e sub . definition excluded ( th prtme loans were by . d on e creatio . pnme erivative obligati n, in 1971, of the on, called "G' me refer to my book E il _L~ tnnie Mae," let

cited

de"

t mercatt jinanziari

ucnaro ua. Es do B ll' 0 e reuoluzione

Casazrande.Tori ,0 an BOringh' lert/Edizioni . asagran e, Tortno-Bellinzo "Th na,1998 e financial crisis" . ' pp. 65-69). sc , • ' Wrttes P I inevitably unleashed the hunt c au Krugman cor the cui . ' Prtts. Some

38! rh8

of

on the right, according

to which all our problems

caused by the Community of minorities cannot

Reinvestment

who wish to buy a house and who then

repay

the

loans.

In reality,

this law was

approved in 1977, making it hard to understand it could be guilty of a crisis determined later. In any case, the Community Act applied minimal

only to the deposit

quota

dell'economia Garzanti,

are

Act, which

how

three decades Reinvestment

banks which had a

in the real estate bubble"

(II ritorno

della depressione e de fa crisi del 2008,

Milano,

2009, pp. 182-183).

Moreover, it may be useful to recall that the securitization of prime loans in the course of the 1970s and 1980s has facilitated American

the expansion

of not only the

middle class. "During the years of inflation,

the Americans, Canadians, Japanese, and the large part of Europe

underwent

the fascination with owning a

house. The price on houses was going up until it had no relationship with the purchase price, and everyone was satisfied. Satisfied at least while the abundance

lasted,

especially since the ownership cost quite a lot. The inflation of the value of houses was in fact a powerful mechanism

of redisttibuting

wealth. Whoever did not

have his own house was at a disadvantage: like everyone, he continued

to pay for evermore expensive goods and

services, but, in cannast to owners, was not compensated by gains in capital account exempt from levies" (Marco

39

II maiale e il grattacielo. Chicago: una storia del nostro futuro, Feltrinelli, Milano, 1995, p. 39).

d'Eramo,

Beginning economy,

with the 2000-2002

the American

a spectacular

crisis of the new

would

present

a reduced

risk, and the highest one,

made up of oldest, best assets, would be considered secure. The greater lot is thus protected by

particularly

real estate market witnessed

the lesser ones, in the sense that the latter will be the

especially if we recall that,

most exposed part of the securitized assets that will be

acceleration,

already in 2001, the real estate prices were consider-

the first to explode.

ably high; so high that the analysts were considering

created

there

where people's life means absolutely

would

Instead,

be a bubble

thanks

in the sector

to the securitization

loans, it was possible to postpone

in 2002.

of subprime

the inflation

of the

The access to a good house is

on the basis of mathematical

models of risk nothing,

where

the poor are "played" against the less poor, where the social right to housing

is artificially subordinated

to

real estate sector until the bubble burst in 2007.

the private right to realize a profit. No offence to the

The expansion of subprime loans shows that, in order to rai se an d m ak e profits, finance needs to . involve the poor, in addition to the middle class. In order to function h' . ali h . ' t IS capn Ism must invest in t e b are !tfe of peopl h ew 0 cannot provide any guarantee, w h 0 offer nothin fi ali h g apart rom themselves. It is a capit I~m It dat turns bare life into a direct source of pro It. toes so on th b . f . di e asis 0 a probability calculation accor ing to who h h I IC t e ackin is consid d" getd b repayment

academic

id

edre manageable," i.e., negligible when consi ere on the scale of. ' financiallo",ic und I . the entire population. The 0" er ytng the calcul· f .. is, in fact, particularly cynical. th anon ~ probability basis of the mortgag edi . e assets Issued on the e cr t pool and by investment banks grouped together are created in d . the principle of subordinatio' a~or ance with . al n, i.e., a hlerar h [ ri k mtern to the issued assets Th" c Y 0 ns s . e IlrSt lot h I one, would have a high risk. The i ' t e esser ntermediate one

putting

economists

who all these years have been

their scientific competence

at the disposal of financial financial economic

industry

and their dignir; (on how todays

crisis also reveals the crisis of academic science,

see David. Colan der et a I., "The

Financial Crisis and the Systemic Failure of Academic Economics,"

http://economistsview.typepad.com/eco

nomistsview/2009/02/the-financial-crisis-and-the-sys temic_failure_of_academic-economics.html). Finance functions on the expectation

of growing

and "infinite" increases in prices of real estate (wealth Hect) , an m . fla tl'onaty increase without which it would errect bee iImpossl ibl e to co -opt the potential have-nots-the ndulon of ensuring the continuity of co c. . I ofits It is a question of a Ponzi scheme or nnancia pr . . I e game in which those who came in last an alrp an . allow those who came in first to be renumbered. This . rhing the hoax devised by the ex-president of IS some

necessary

40 41

Nasdaq,

Bernard

Madoff,

teaches

us, the hoax: that

~ana~ed to collect something like $50 billion InvolvIng an im pressrve . number of respectable finanial CI operators and banks.

. Iusrve . process is given in th The threshold 0 f t hiIS InC e contradiction b erween sociial ownership of a good (sue h as the hous ) d pnvate . ean ownership rights, . f . Ib erween . f the ex P an sion 0 SOCialneeds and the private ogre 0 markets Th ial . as well as capital's . . e SOCI conflict capacity or incapac' . Ity to overcome this crisis unfolds on t h IS threshold I . threshold'f I . t IS a question of a temporal ,Ion y one thi ks f. c. tecrure of 'cal In 0, ror example, the architypi mortgage b . loans. Th C ul contracts on su pnme e corm a of2 28 years, mort . + -where, in the first rwo gage Interests ar f d d for co-opting e ixe an low, precisely evermore" " years they ar owners, and the other 28 e at variable the general trend of co . rates, thus subjected to policy-repres nJuncture and of monetary ents an exam I between social ow hi p e of the contradiction 'gh ners p righ ts an d private property n ts. After two al years of rei . v ue (the right to th atrve governance of use28 e access to h . to years of govern OUSIng), we move on . ance of h extreme Iy Violent eff exc ange-value with rrects of ex' ' such a way, the financial 10 . pulSIOn/exclusion. In g.oods) [u n I'(bene) ene) COmune] gIC that produces a commune (of nzes through expelling "residen~en diVides and privameans of the artificial crean f of the commune" by . f on 0 sc . scarcity 0 financial . army of all ki d means, liquid' . n sIty, nght s, d eSITe, .

42 !

CaCital13m

and power. This is a process that reminds time of the seventeenth peasants-living good-were

us of the

century enclosures where the

on and off the land as a common

expunged by the processes of privatization

and division of the common gave rise to the modern

land, the processes that

proletariat

When Augusto Illuminati

and its bare life.

speaks of Spinoza and his

resistance to the norm and the discipline of sovereignty, he highlights

the decidedly

juridical-normative

nature of the processes of enclosures: Spinoza "does not ignore the land, but his campaign is not circumscribed by the eighteenth

century

farming and hunting,

enclosures,

where the sheep-to

fenced in by speak with

the Levellers----aevoured men. It is not circumscribed by the land where men are reduced to inert sheep learning only to serve, because it is neither peace nor citizenship, but rather solitude, desert" (Spinoza atlantico, Edizioni Ghilbi, Milano, 2008, p. 15). The originary or primitive accumulation,

as was shown by Sandro Mezzandra,

i.e., the salarization and proletarization people through

thus a process that historically the expansion produced

of millions of

the expulsion from their own land, is reemerges every time

of capital clashes with the commune

by social relations

and cooperations

from the laws of capitalist exploitation

free

(S. Mezzadra,

La "cosiddetta" accumu/azione

originaria, in MW, Roma, 2008). The produced by free social relations thus pre-

Lessico marxiano, commune

minifestolibri,

cedes the capitalist appropriation of this very commune.

43

3

profits by the proliferation of financial instrumentsunmanageable

because they are outside

every rule

and control. ON THE RENT BECOMING PROFIT

The crisis-development tion acquires

in this mode of produc-

a discrepancy

between

social needs

and financial logics based on the hyper-profitability criteria: in the developed countries, The . non-parasitic ro Ie 0 f fimance, its capacity to pro d uce Incomes b . . y ensunng the increase in consumptIon, the increase t IT • C e III errectrve demand necessary ror GDP growth . h fro h . . ' IS, owever, not explained only m t e dlstnbutive . f' that f POInt 0 view. It is indeed true Inance nourish . If accumulat d e~ itse on the profit that is not e , not reInve t d . . and variabl ) d" s e rn capital (constant e , an It IS . thanks to fin ial . exponentially multiplied anci engIn . . the increase in " eenng, Just as it is true that pronts allo f. surplus-value q ws or the distribution of uotas to the h ld shares. Under this p "I 0 ers of patrimonial ron e (distr"b . I t he analysis of fi '. l utrve, et us repeat), . Inanclahzati mstability highligh on and its intrinsic ts real and . d processes of autono '. III eed perverse mlZaUon of fi . firom any collective inr Inanclal capital . . erest (wa e d sra b ility, the collapse f . g an occupational . 0 retIrern savmgs invested in st k ent rents and of . oc , the i . accesslllg consumption' . rnposslbility of f In credit th o stocks in research). It hi hi" e vaporization c

.

~

I~bd

.

reterentials where the search f. ynarnlc autoh ld or eVer hl h o er earnings generates the t - Ig er sharee Increase f o fictitious

by the anthropogenic

model of "production

by man" where consumption towards

social,

it is asserted

health,

of man

is increasingly oriented

educational,

and cultural

sectors, and clashes with the privatization

of many

sectors previously managed by public criteria; in the emerging

countries,

the expansion

of valorization

spaces provokes processes of hyper-exploitation the destruction The demands

and

oflocal economies and environment. of profitability

capitalism

on

the entire

regression

under

imposed by financial

society reinforce

the high pressure

social

of a growth

model that, in order to distribute wealth, voluntarily sacrifices social cohesion and the quality of life itself Wage

deflation,

pathologization

of labor

with

increases in health costs generated by work stress (up to 3% of GOP), worsening of social balances, and the

irreparable deterioration

of the environment

are the

effects of financial logic and of shareholder delocalizations typical of global financial capitalism. The problem is that, analyzed from a distributive point of view (economistic in the last instance), the crisis-development

of financial capitalism leads to a

44

45

in commercial

dead-end . As iIt IS . t h rown out the window, r.e., the common I f f . . pace 0 a ki nd that is parasitic on inance, Th . It Implicit! Y reenters t h rough the main door.

tries,

e Impasse more th eoretrca . I t h an pracrico-polirical, · be' IS . erore everyone' s eyes: t h e Impossibility . of elaborating .strategies to 0vercome the crisis, the recourse

services-not

veritable ·

to actions h d

of econ

. . orruc stimulus

that,

on the one

a an 'alPlrehsupposethe rescue of finance (of which we re re y ostages) b ve . .. . ,ut, on the other hand, annul the ry possibilItIes of economl· c revival. . I

Both the right d h return to th al an t e left wish for an unlikely e re economy . bl " ization" f ,verlta e re-industrials 0 econom ( r f . order to I y P e erably a lirtle greener) in eave a financi I· d party to d . a ize economy that is a estructJon of . But no one wo . mcorne and employment. rnes anym b nature and th ore a out describing the " e way of funcr"· f real economy." And iorung 0 the so-called · d thus the . h c in usrrial sectors f y WIS ror state aids to h 0 overprod . t en are translated . UCtlon, the aids that . Into redu . nons and wage who h Ctlons of work posi, IC certainl d contrary) to revive y 0 not help (on the econom This urgency to return to~' as~ whole. us a lot of the critique f hm ng things" reminds Ot e ph . to t he supporters of the f . YSlocrats addressed h id ea, according to whoust tel h Ind UStnia] revolution· " h. IC ,unlik I ' mac ines do not eat" c e and products · ' forgets th ' Increase the producrivny j h at machines help III t at ve . I center. t may be useful to und ry agncultural erscore th at COUntries

46

Ii,~

surplus,

such as the emerging

but also Germany

increase their exports

us

tries like the

and Japan,

essentially

because the coun-

and England,

just

oped, have ensured

financial

where the sector of ones-is

very

devel-

high growth rates of the demand

of goods and services. And indeed, countries

coun-

were able to

in commercial

surplus

it is these very that will greatly

suffer the effects of the global crisis with the accumulation

of enormous

that the countries highest

overproductions.

in surplus

rates of savings

The

fact

are the ones with the

certainly

does not

make

things simpler:

it is indeed true that a reduction

savings

increase

could

the internal

this is exactly what will not happen reason

that

the effects

of but

for the simple

will be used to confront

of the recession

and the stagnation

of

and wages (Simon Tilford, ''A Return to

employment 'Making

the saving

demand,

Things'

is No Panacea,"

Financial Times,

March 4, 2009). This does not mean that the countries that have, in the last decades, greatly developed the services sector (certainly

not just the

us

and Great Britain) would

not have to redefine their own strategies of development

on the basis of the crisis itself. But it is not

certain

that it will be possible to overcome the crisis

by returning countries

to an ill-defined

in commercial

"real economy."

deficit,

very high rates of indebtedness

The

for example,

have

in the public

and

4/

priv~te

sectors-an

indebtedness,

particularly

the

public one, destined to go up in this period of crisisbut they also have insufficient infrastructures resulting from . the ye ars 0f diisinvestrnenr . in the sector of public services.

Moreover,

in these

defici.t of professional

countries

qualifications,

there 'a deficit

ualorization of skills and diffused

knowledges

damage, instead of help, knowledge

workers.

is a

of that

The real blind Spot, both theoretical and practical, has to do with th e sten'1e diisnncuon . between manufacturing sector (where they "make things") and the sector of non-m a terial " . . en actrvities, an opposition certamly reinforced b Y tea h b normal development of the fi' thinancial sector" ' but one t h at today risks damaging, in . " all those creative, '. e name of reindu stnialiizanon, mnovanve " . aCnVItIes with an add d hi h al h they did . e Ig v ue t at eve ope m the I like th h se asr years. It is in activities ese t at we have t 0 Invest . . most Fmally, as if that w . right and on th I ft ere n~t enough, both on the e e ,the nan I' . the insolven '" ona izanon of banks in cy cnsrs IS seen . desirable with . as inescapable and/or , out questlonin . social costs of nat" ali . g too much mto the Ion izanon . II latter are conceived f ' especla y when the . 0 as transit . . VIew to the futu . ory actions with a re repnvatization of h banks. Toxic assets to th S. t ese very . e tate, I e h . iry, the good banks to h .'" to t e collectivt e pnvate " the usual song: socialize th I CItiZens! This is f e OSses and . . pnvanze the b ene Its (Matthew Rich d ar son "Th ' e Case For and

48

Against Bank Nationalisation," index.php?q=node/3143). In order to overcome to analyze critically

http://www.voxeu.com/

this impasse, it is necessary

the crisis of financial capitalism,

what it means to begin anew from scratch, i.e., from that increase in profits without

accumulation

root of financialization.

is to say, it is neces-

Which

sary to analyze financialization

as the other side of a

process of the value production crisis of the Fordist incapacity

model,

at the

affirmed

since the

i.e., since the capitalist

to suck surplus-value

from

immediate

living labor, the wage labor of the factory. The thesis

that is being put forth here is that financialization is not an unproductive/parasitic deviation of growing quotas of surplus-value and collective saving, but rather the form of capital accumulation symmetrical with new processes of value production. Today's financial crisis is then interpreted more as a block of capital accumulation than an implosive result of a process of lacking capital accumulation. Apart from the role of finance in the sphere of consumption,

what happened

is a veritable metamorphosis of this very surplus-value. mation

of valorization

extraction places

in these last 30 years of production

processes that witnesses

of value no longer circumscribed

dedicated

to the production

services, but, so to speak, extending gates,

processes

There has been a transfor-

in the sense that it enters

of goods beyond directly

the

in the and

factory into the

sphere

of the circulation

sphere

of exchanges

question

of capital,

of goods

of extending

that is, in the

and services.

the processes

value from the sphere of reproduction tion-a

phenomenon,

time well known

to women.

one

speaks

processes,

of the

kind: here we are more interested the link between

financialization

and distribu-

of the crisis-development

Evermore

even of "crowdsourcing,"

highlighting

the processes of value production

and managerial

externalization

methodological

of extracting

let it be noted,

the center of both theory

It is a

for a long explicitly, in strategies,

of new capitalism

and exhaustive

characteristics

(moreover,

growing number

that is at the basis

description

to

e capitalismo

cognitivo, Carocci,

Crowdsourcing. Why the power of the crowd is driving the future of business, New York, 2008).

value production,

T~ analyze financial capitalism under this productive profil e IS . to spea k· of bio-econorny . or 0 f blOcapitalism "wh C . ' w ose rorm is characterized by its growmg entangle . h . rnenr Wit the lives of human bemgs. In its precede nee, capir. aliIsm resorted primarily to t h e fiunctions of c . transIOrmation of raw materials carned out by m h· ac mes and the bodies of the workers. Instead of hi . al b nus, blOcapitalism produces ;io~~ngYasexthracting i.t not only from the body funct e matenal in from the b d d strument of work, but also o y un erstood·· I Codeluppi 1.1 bi .. in Its g obaliry" (Vanni , zocapttaltsmo v.; l integrali di coroi .. erso 0 sfruttamento .. P!» cervellz ed em .. . Bonnghleri, Torino, 2008) I OZIOnz, Bollati . crisis the . n our a n alvsi finanCIal c YSIS 0 f t h e , reference to th studies and theories of bi .. e whole of the 10Capitalism ad· . capitalism developed in th n cognmve ese years is of a merely

works on the consumer-as-producer

50

its forms

circulation,

examples

of the externalization

of its extension

are now abundant

see Marie-Anne teur. De McDo

Bioeconomi«

Roma, 2007).

The empirical

and

by a

(The first effort in th~s

of life (Jeff Howe,

use the crowd

than in

of its salient

already accomplished

of scholars)

sense is the work by Andrea Fumagalli,

of production i.e., putting

an accurate

in and

of

into the sphere of (of the most recent phenomenon,

Le travail du consommaeBay: comment nous coproduisons ce

Dujarier,

a

que nous achetons, From

the first

La decouverte, Paris, 200.8). er outsourcmg hold f h phase 0 s are

· an d coreign consultants), (subcontracts to supp Iiers II hi ... h 1980s saw the emergence w ich, begmnmg m t e , . I I b d of the autonomous labor of o f atyplca a or an . (f I ce entrepreneurs of the second generation ree an , s who became selfemp Ioyee " e same lines as the Toyota emp Ioye d) al 0 ng th . . " h . ali t colonization of the CIrculation mo d e I t e caprt IS , to the point of transsphere has been nonstop, C • h mer into a veritable producer of rormmg t e consu . .. . al C ,f) oduction, where the individual economic v ue. or" ". d . d f what he consumes, IS to ay at IS the copro ucer 0 .. trategies of public and pnvate the heart 0 f t h e s

themselves,

former

On tne Rent 8ec0minq ProfiT ,/ 51

companies . . The Iatter put to work the consumer in vanous. phases of va Iue creation. The consumer to creati fcontnbutes atmg t h e market, producing per1.ormances .'. rnanacigmg d amages and hazards, sorting L'. d assets of suppliers and t he nxe even administratio Th h n. e coproduction concerns' all t e . mass perform ances an d specifically services:

itter, optimizing

retail, bank, trans . m dl d portanon, free time, restaurant, e I ra, e ucation ' h e al t h ... "(D urajer,op. cit., p. 8). he ri k of slmphfymg . .. th t may I. be useful ,enev at tens b e ana YSIS,to disc uss t h e examples that have since ecorne paradigmatic Ik h . client a whole . . ea, avmg delegated to the the code f hsenes. of functions (individuation of o t e desired . I removal of h I Item, ocating the object, s eves, loadi .. externalizes the 1 b mg It into the car, etc.), bookshelf. th . a or of assembling the "Billy" , at IS, lkea e I· and variable xterna rzes consistent fixed costs that consumer with .. are now supported by the a mInImal b fi· arge savings in ene It m prices, but with I terms of co f, possible to giv h sts or the company. It is . e ot er exam I . h rues, beginning .h . pes. t e software cornpab WIt MIcrosoft G eta test on the or oogle, usually h . consumers h t elf programs b al t e new versions of , Ut so the so-called software programs belonging to . open sour . I mu tItude of people, by" r ce are Improved by a After the 2001 .. p oductive consumers" h cnSIS, write T" . . t e new strategy of th s IZlana Terranova " e new ' we b or web 2 ..0 ' Th e web 2economy "I·s ,socra. I .0 comp ames, . says 52

TI-,,,

of F:nan(:'i81 Capitalism

O'Reilly, all have something

in common.

cess is based on their capacity users who create a world

to

attract

Facebook,

web 2.0 is not limited

on the

made available

Plickr, My Space,

Second Life, and Blogger. Nonetheless, O'Reilly,

masses of

of social relations

basis of the platforms/environments by sites like Friendster,

Their suc-

underscores

to these new plat-

forms, but also involves applications

like Google to

the extent that they are able to harness and valorize 'browsing' again

by users; or other applications

allow

common

one

actions

to extract

a software,

Web 2.0 is a winning harnesses,

incorporates,

technological

a surplus-value

such as linking

blog post, modifying

and so forth.

[...

J

since it

and valorizes the social and

labor of users. The frontier of the inno-

is the marginalization

valorization

from

a site, flagging a

model for investors,

vation of the capitalist valorization economy

that once

process of the new

of wage labor and the

of the 'free labor' of users, i.e., of a labor

that is not paid and not supervised, but is nonetheless

(T. Terranova, New economy,jinanziarizzazione e produzione sociale del web 2.0, in A. Fumagalli, S. Mezzadra, op. cit. The cited work of Tim O'Reilly is What Is web 2.0. Design Patterns and Business Models for the Next Generation of Software, 30/09/2005, http://www.oreillynet.com/pub/a/oreilly/ tim/news/2005/09/30/what-is-web-20.html).

controlled"

The

first

important

consequence

processes of capital valorization

of the

is the following:

new the

53

11' quantity

of surplus-value

of extraction

created by new apparatuses

is enormous. It is based on the com-

pre~sion of the direct and indirect

wage (retirement,

social security cushions, earnings from and collective savmgs 0) 0 , on t h e re d ucnon necessary labor with flexible network systems

(precarization,

intermittent

individual of socia0 IIy company

employment),

and on the creation of vaster pool of free labor (the "free labor" in th e sp h ere 0f consumption,0 0 o circulanon, and reproduction, with a more intensified cogn~tive labor), The quantity of surplus-value, i.e., of unpaId labor ' is at th e root 0f th e Increase 0 0 the pro fIts In not reinvested in th d 0 o e pro uction sphere, profits whose Increase does not , as a consequence, generate the growth of stable employment let al U d ' one wageo M ~ er this profile and with a reference to a arxist debate abo h B ' h") 0 0 ut t e cause of the crisis ("La rec e ,It IS thus Obi AI 0 BOh' POSSI e to partially agree with arn Irs thesis ace do whil boor mg to which we have for a e een m the presen f " value" b 10k ce 0 an excess of surplus, ut, un I e Bihr d H d this is not th I an u son (already cited), e resu t of a la k f f a lack of 0 c 0 accumulation, 0 remvestment of profits 0 d O Cl In constant an vana bl e capital Th o . e excess of I I 0 Instead, the result f surp us-va ue IS, o a

new accum fa

0

.. u tton process that e cnslS of Pordt 0 h of circulation and d. Ism In t e sphere repro ucnon f . I Chesnais' objections AI 0 0 capita. Francois to am Bih' h that the excess of surpl Irs t esis stating US-va ue did I not just lead to took place after th

54/1h'

FinanCial

Capltallsrn

a search for new market number

companies ments

outlets-since

a significant

American

and European

of multinational

have in fact increased

abroad

(in China,

difficulties,

India)-would

fied: direct

investments,

seat of capital profit, outside

reflective

basis of the salient

some

countries,

but

of circulation

accumulation,

is reinterpreted

characteristics

processes.

profon the

of post-Fordist

The increase in profits fueling

was possible because, in biocapiral-

ism, the very concept

of accumulation

of capital w_as

It no longer consists, as in the Fordist

time, of investment

in constant

(wage), but rather

of investment

producing

with

of the typical

developed

between

financialization

transformed.

and,

in the sphere

and reproduction. The relationship

financialization

Brazil,

have not been carried out just

right inside, namely,

production

their direct invest-

thus have to be ampli-

the economically

its, and

I I !,

and

capturing

and variable capital in apparatuses of

value produced

outside

directly productive processes. As Tiziana Terranova writes with regard to the o "0· question of attracting new company strategIes, It ISa , 0 . di id 0 not JOustthis 'free labor, but also In an d In IVI uanng . forms of possible surplus-value some way vanous .. 0 . ali n the diffused deSlfes of SOCIality, t h at can capit ize 0 0 o d lation In this model, the production expreSSIOn, an re . nies would take place over and o f pro fiIt b y compa , , 0 dl °duation and capture of a lateral against t h e In IVI

On the Rent

Protl:

55

surplus-value

(the sale of publicity,

data produced

and the sale of

by the activity of users, the capacity

to attract financial investments bility and the prestige

on the basis of visi-

of new global brands

like

are Likely to be Every Minute

of the Day," Business

Week, March 9, 2009). The "Google

model,"

like the "Toyota model"

30 years ago, will be properly understood

as a new

resides in the saving of costs of this very labor, since

mode of producing goods and services in the age of biocapitalism. It is a question of a model of compa-

the latter becomes 'externalized'

ny organization

Google and Facebook). In many cases, surplus-value to users (the exter-

nalization of analysis and beta testing of videogames or technical support to users)." These technologies what

~,exander

of crowdsourcing,

Galloway

called

based on

"protocological

that, having assumed the form of

internet services in the sector, i.e., in the age of the new economy in the course of the second half of the 1990s, has been gradually asserted in all the sectors of economy,

be they

producers

of non-material

control, represent the new organic composition of capital . , i ..e , th e re I'atrons hiIp b etween constant capital (as the totalir y 0 f "I'mguisnc .. . mac hines") mes dispersed in so . d wari b . Clety an vana Ie capital (as the

services or material goods. In other words, it is not

totality. of SOciality' emotions, . d esires, relational capacity, and... "free labor") deterritorialized despatialized . ' dis perse d im t h e sphere of reproduc- '

spheres, between the production

tion, consumption f, f I·e '. ' orms 0 Ire, individual and collective Imagination Th . diff fi . e new constant capital, I .erent rom the system of (physical) machines typical of the Fordist a' . . e. ge, ISconstituted, apart from mrormatlon technolo d i c . gy an mrormation (TIC), by a rota IIty of non-material 0 . . rgallizational systems t h at suck surplus-value b . y pursumg citizens in every moment of their live .h ki S, Wit the result that the wor mg day, the time of living labor. : . · a or, IS excessively Iengt h ene d an d mtensifled (S h N C· rep en Baker "The ext. ompames May Soon Kn Wh ' ow ere Customers

56 !

the nature of the product ductive organization

that determined

(or paradigm),

relationship between the production that shapes the modalities

the pro-

but rather the and circula~ion

and consumptIOn,

of producing

goods and

services. The "Google model" is today proposed as . d save the American a company strategy III or er to . . d h history of the twentieth car industry that rna e tel . . with Henry Ford's revolution century b egmnlllg .. .' the gravest CrISISfrom every an d t h at to d ay IS III .. C oue "Le couer de l'aupoint of view (Laurent arr , bil ,.' a cesse de batter," Le monde tomo I e amerIcallle

diplomatique

February, 2009). .: b k 'What Would Coogle whose 00 WI J eff D avis bli hed by Business Week (February 9, excerpt was pu IS . . . if t in this regard because It shows 2009 ), IS slgm ican . .. 'b'I'ty of overcoming this CrISISdepends h ow t h e pOSSII I

t»:

57 CaOitali3rr1

on the capacity direct,

of the car industry

transparent,

and expressive

participatory,

relationship

cars. The creation

world,

who coproduce

innovation,

a

emotive,

with consumers/users

of networks,

in the internet

to reestablish creative,

of

or, as they are called

communities

of consumers,

diversification,

and iden-

"The economy a curious paradox.

of knowledge

is costly for the companies producing

harbors within itself

The prototype

and commercializing

on the level of research

of each new good

because,

in order to start

it, huge investments

are necessary. But the addi-

tional units cost little because it is simply a question

tification with the brand, on the basis of open source,

of replicating

the original and it is possible to do this

shows how the "Google

economically

thanks

model"

is asserted

outside

the virtual universe, even in the hyper-material

world

economies

of cars. It adds that this managerial

began

digitalization

30 years ago, indeed beginning Fordist model, applying

with the crisis of the

a crisis from which

productive

strategies

present in the sphere of circulation i.e., in the sphere of bios, of life. ~.oreover, addition

revolution

one emerged

that

by

are ever more

and reproduction,

the studies of cognitive capitalism, (in

to highlighting

the centrality

of cognitive/

non-material labor, of cooperation between brains beyond the separan Ion 0f company and rernrory, . between public and private spheres, between individual and organization in the creation of value added) show the increasing loss of strategl'c I'm f' f d '. portance 0 ixe capital (physIcal instrumental goods) d h fc an t e trans er of a series of Productive-instrum I fi . enta unctions to the living body of labor-power (Chn Marazzi,. nsnan

Capitalism» digitale e modello antroop . del la , ogenetlco voro. Lammortamento del corpo macchina . J L La '11 C . ' In . . VI e, . Marazzi, ed. M. La Rosa, F. Chicch' R' I, emventare I'1 lavoro, Sapere 2000, Rome, 2005).

58

to the advantages

derived from

of scale, from available technologies,

will concentrate

processes. their

and

It follows that companies efforts and resources

on the

production

of ideas, having to confront, howeve~: . . crease in costs h t e progressive ten d ency 0 f t h e m (Codeluppi,op. cit., p. 24). . . .' s of cognitive One of the main c h aractenstlc between initially capitalism is in fact, t h e c h asm , . I I d t the investments very high costs (partlcu ar y ue 0 . ) t marketlng, etc in Research and Deve Iopmen , . f . d' ntion/innovatlon 0 necessary for contmue inve . f . al f additional units 0 products and margm costs 0 . h ket the costs rending products introduced to t e mar, d . b e licated at ecreasmg to zero. Being able to e r p f d f . h nature 0 pro ucts 0 costs lies in fact in t every d ., labor (on . al nt an cognltlve high technologic conte al k b E Rullani . . the fundament wor y . , this subject, see . 'ta' e valore nel enza C reatlVI Economia de Ita conosc '. R a 2004 Also . CaroCCI, om, . caoitalismo de Ite rett, ., .. r . rk Leta del capltallsmo COgnltlVO. important IS the wo delle l .~._ J' .

. 'cooperazione Innovazione, proprteta e

mo tttuatnt,

ed. by Yann Moulier Verona, 2002). This characteristic

Boutang,

Ombre

Corte,

of cognitive

originated

reproduction earnings,

in the

capitalism

has turned competitive t~e integral

drastic

reduction

costs of goods. The theory

particularly

refers

factor

of

of growing

i.e., a proportionally Analyzed factory"

(that

and

in machines

i.e.,

that

activity

of cornpa-

and

living

is, a situation

everything

where

nies), was masterly examined by David Warsh in his La conoscenza e fa ri cch ezza d.ell.te naziont. .. T r. una stona• dell'indagine economica (Feltrinelli, Milano, 2006). In the end of our an al ySIS, . It . WI'11su ffiIce to reiterate the example of th e ".pin f:actory " so much used by the economists

such that "no producer

i n or d er to explain the increase in the productivity of! a b or res ultmg . from the divisionspecialization of 1 b "L Wi h" a or. et us suppose," writes ars , that our pin f: . actory Immediately enters the mar k et and after a . d f iali peno 0 expansion is further speer ized, mvesting in . d d 1 '. new machines, researching an eve opmg in the field f . the best st 1 0 pms, It has developed ee , most attracti kae-i a most effi' . ve pac agmg, developed ecnve retail network f . Th e biIgger t h e mar k et, t h e urther it is po ibl SSI e to go h d of specializatio .... on t e roa n. It IS pOSSible to 1 with new machines d h rep ace workers an , tanks to th . . efficiency lower rh ales n-: e increase m , e s es pnces on . one is able to keep th . 1 pins, The more e pnces ow th , e more pins are

labor

and the market

"perhaps demand."

evokes

us of roday's

possessing the know-how

into a highly productive

part of the normal

reminds

companies)

that

(endogenous,

Adam Smith's "pin

multinational

in an economy

of production

much

not

in

the

Something

with the other

tries to increase

of

accumulated

towards

monopoly.

the first to arrive gets is resupplied

quantity

with pins

as to satisfy

is in strident

the

contradiction of Adam

to which the "invisible hand," that

is, the free competition,

is governing

the market

can prevail and if someone

the prices, he is at once cut out,

such that the price immediately there

the tendency

(still major) interpretation

Smith, according

value':

in essence

(pp, 69-70).

earning"

this profile,

very

which

with the same effort,

growing

under

the companies

relevant

knowledge

is the profit,

means having a better earning

to the theory of growing earnings, i.e., to the increase in profits

sold and the better

are as many

returns to its 'natural

pins on the market

as

needed

by consumers." In other words, "the pin ducti f costs and increasing 0f re ucnon 0 . Th' isible hand speaks, instead, of earmngs. e mVI . " . . d decreasing earnmgs (p, 70), increase m costs an turally exclude each other. na an d t h e two t h eorems, ' 'ncreasing earnings are counterH owever, t h e I balanced by the continued tendency ~f increasing . determined by a senes of other pro d ucnon costs rowth of market exchange rates, f:actors, sue h as t h e g id h I gical obsolescence of productive t h e rapl tee no 0

f:actory speaks

61

I

I

facilities, the increased requests of consumers, the necessityof producing alwaysnew stimuli in order to incite the desire of wealthy consumers, the growth of the competition rate between companies, the competition between company messagesand other messages circulating in society, the growing complexity of the social system (Codeluppi, op. cit., pp. 25-26). In order to confront the rise of costs, companies develop both forms of externalization of entire segments of activity in countries with low cost of labor, as well as processes of the creation of scarcity (by means of cenificates,patents, copyrights) necessary to recoup thee mma i . 1 costs with the prices of monopolistic sales. Finally, they develop the reduction of direct investment in capital assets. For example, in order to reduce th e nun . . ial costs, the companies "no longer think of purchasing capital assets, but of borrowing , through vanous . C rorms 0f hiIre contracts, the physicalcapital they need, deducting both relative costs and exercise costs in the same manner as a cost of activity" Oeremy Rifkin, L'-A J-l.'" La' rtuo., .. at: l accesso. luzione della new economv Mondado . Mil • • Of' ri, I ano, p. 57). The increase in the quantity of 1"rving 1abor not only reflects the transfer of the str t . f a egic means 0 production (consciousness knowl d ' e ges, cooperation) in the living body of labor-power, but allows one to explain the trend lossof the eco . al f nomlCV ueo the classical means of production It' h . IS t us not a mystery if the recourse to stock markets' all h in t ese

62! Trle

Capit;'l:!srn

years is not aimed at the investments immediately productiveof an increasein the amount of employment and wage, but rather at the increase in shareholder value pure and simple. The auto-financing of investments in fixed capital assets and wage, should there be any, shows that the accumulation leverage has something to do with the monetization of value produced outside companies, i.e., inside society. The increase in profits over the last 30 years is thus due to a production of surplus-value by accumulation, although an accumulation entirely unforeseen becauseit is external to classicalproductive processes. It is in this sense that the idea of "rent becoming . part, wage IirseIf) I'SJ'ustified as. a rent "( an,d in result of the capture 0 f a value produced outSide • . ' systemof producdirectly productive spaces. '"r10days . bl h 'ght non curiously resem es t e ei eenth century ecof: rming and rheonomic circuit centere d aroun d a . I Quesnay's Tableau rized by the physlOcrats. n th quota of the net economique, rent represents e i dlord generated by product, appropriated by th e an , . rkers (includmg the agricultural labor 0f wage wo here income was conlabor of the capitalist tenant w . k h wage of his wor ers sidered in the same way as ted b S .h d '11b define Y mit an and not, as it later WI e h hvsi 1 fir) In the Tableau, t e p YSlca Ricard 0, as pron . ak . . are not even t en into instruments of production d f flned the pro ucers 0 id . Quesnay d ell const eranon. . 1) as the active nstant capita instrumental good s (co

On the Rent BeCOfllln] Prof: / 63

part of the sterile class, that is, not productive product, ments

to the extent that the production of labor

material

does not add anything of constant

was certainly

a mistake,

capital,

instrumental

first

industrial labor,

economy

revolution.

was to consider

agricultural

labor

that is productive

is true the subsequent of constant respect

that,

discovery

if it value

difference

with

is, the discovery specific

at the basis of

the epistemological leap that radically distinguished modernity fro m capn. aliIsm. Th at is, the qualitative.. subjective separation between capital and labor, the contradictory relationshin'r between th e two "C factors of production" as the leverage of crisis-development of nascent capitalism. From that moment on, caplt. aliIsm has been developingjollowing the subiecri . jectrve rearticulations of living labor , its struggles , Its . aspiranons, .. and its unforeseen forms of cooperan on.

It is possible to say that the forms of Iif . Ire we akeni erung the SOCIal body are equivalent

64

['Ie

CBpitai:srn

under the very profit logics defining

unlike

it-particularly

the autonomization

of money

directly productive

processes-is

biocapitalism.

rent

by virtue of financialization l'. ializati The nnanci rzanon. w ith the

of the production externalization

Ricardo's

roday's rent is subsumable

of the value

via money the other

production

side of

typical

This does not just contribute

to land in Ricardo's

of the effective demand

by the of

to the

realization of the product of surplus-value, i.e., d~es . f nd consumptIOn not Just create the amount 0 rent a . h f DP uld be low and WIthout which the growt 0 G wo . I· . fundamentally stagnant. Rather, financia rzanon . . continuous leaps determines continuous mnovatlons, . . . ali thus impOSIng that are productive of blocapte Ism, d on the whole on all companies, quoted or not, an d . I .cs centered aroun society its hyper-pro d ucnve ogl d . alue The pro ucnve the primacy of sharehol d er v . . . i"zation are systematlleaps determined by fimanCla If· al " . destructions" 0 capit , cally carried out by creative . f valorization processes at by successive extenSIOns 0 hi . t d . . h ever more sop istrca e the very heart of sociery WIt f . B crises ever more remodels of crowdsourcmg. y .al .1 d rises where access to SOCI quent and reco~CI e , c . ulated, is from time to wealth, after havmg been stirn

of knowledge,

Out-was

that,

producing

of generic labor, the labor abstracted from sectors where it is carried

Only

production

of economic

capital-that

of rent.

(absolute and differential),

exclusively

measurable. But

capital and its qualitative

to variable

physiocrats'

as productive

the only

by the

on the wave of

The

things with things, is quantitatively it is a mistake

of net product

as was later shown

fathers of classical political

theory

processes themselves.

goods, from the factors of production

mistake

to the raw

used, but only transforms it.

The exclusion

the

of net

of instru-

necessary for the

time destroyed. .. f Fordism in the 1970s, S . with the CrISIS0 rarung I thus interpreted as moments economic bubb es are

On the Rent Be:~:oming

! 65

of crisis within colonization"

globalieed.

a long-term

process

of the circulation

of "capitalist

sphere. This process is

that is. a process of subsuming

quotas of global and local socio-economic in accordance

with the logic of financial

i~m. The passage from imperialism trom a relationship

of dependence

ment and underdevelopment the South addition

functioned to being

growing peripheries

between

as rxtrrnal market

the sources

inside and outside

i.e ..

developoutlets

of down market

of in raw

where the dichotobreaks down.

is also

to be included in the capitalist logic of the externalization of rh e va Iue '. pro ducri ucnon processes. FmallclilliZiltion represents tb« adequate and prrl't'rs( modalzty of accumulation

A CRISIS OF GLOBAL GOVERNANCE

(bioicapiral-

to empire.

where the economies

material. to imperial globalization my between

4

of neui capitalism.

Beginning in August 2007 with the explosion of subprime loans. the financial crisis looks evermore like a long-term hanking monetary

CrISIS.

a crisis paired with credit crunch.,

bankruptcies. authorities

continued

interventiom

of

not able to influence the struc-

turing of the crisis; there are evermore costly actlom of . I ns. k s 0 [ imso Iv encv. of indiVidual economic . revrvai, ., d possible violent countries. deflationary pressures an ', returns of inflation increase in unemployment and . F' all' ts and purposes, this income reduction. or mten '" . . . h h t it contains all the cnsis IS historical, m t e sense t a r the course of the contradictions accumu Iate d ove . v that began With gradual financialization 0f econom, f ccumulation (for an the crisis of the For illst way 0 a . f rh banking SYStemthat analysis of the deregulation 0 e . .. . . th .dst of the Fordist crrsrs, see e rrn .' . .. be gan III 1970s in . h «Anatomy of the FinanCial CrISIS, Barry EIC engreen, . , =nodel1684). Vox, hnp:l/www.voxeu.orglmdex.php.q . . nt crisis finds III the ASian Nevertheless, t h e prese .' d .. f 1997-1999 its moment of determll1atlon an cnsls 0 . . . . Ce' I the Asian cnsis was, 111 rum, acceleration. rram y, . h th . f foreboding cnses, sue as e preceded by a series 0

1

,

Mexican and Argentinian crises, the Russian and Brazilian crises, the crisis of Long Term Capital Management, the Japanese "lost decade," crises that Paul Krugman analyzed in 1998 in his II ritorno dell'economia della depressione, republished in 2008 with an update on the subprime loan crisis and the general banking crisis. However, the Asian crisis marked a change of regime in the international financial order from the moment the Southern and Asian countries decided-in order to overcome the crisis of excessivedebt in dollars that caused real estate speculation and industrial overinvestment in local currency-to accumulate reserves of international currencies to protect themselves against the risk of subsequent destructive crises in the instability of monetary and world financial system. It is a question of a radical change in the economic model, to the extent that, from a growth increased by internal demand, the Asian countries chose a model of growth based on exports. In this way, the Asian countries went from being dollar debtors to creditors, particularly in the us. In order to accumulate foreign currencies, the Asian countries adopted the "predatory" policy in international commerce, resorting to strong devaluations, a policy of competitive deflation, and the limitation of internal consumption. If this is what the opening of international commerce in countries like China and India intends, the net result of an Asian turn is understood as a deflationary kind:

68

certainly for wages, which suddenly redouble the world amount of active population, but deflationary also for industrial consumer goods produced and exported from China and, to a lesser yet qualitatively important extent, from India. The wage deflation "was, on the other hand, strongly aggravated by the . 0f finanerial Ioglcs . In . t h e companies in eruption ... the like reacqulsmon d realsector of economy, by proce ure I . throug h d eb t and Ieverage effect (the of companies leveragedbuy-out or LBO)" (Sapir, op. ctt., p. 5). .' IS revealed as evermore real The risk of deflation ., In fact, since 2007, the after the internet bub ble crisis. . whilC h have accumudebt redemption of companies, . . d of the internet lated debts in the expansive peno , bubble (1998-2000), compels Alan Greenspans ansive monetary Federal Reserve to pursue an exp . I f . . the viciousClrce 0 policy. In order to aVOidenterIng 0 h in the 199 s, t e J deflation experienced by apan. k interest ., deCideto eep I American monetary auth onnes I . d fi articularly ong peno , rates low (around 1%) or a p b kruptcies . company an because, with a view to I d i . ce 2002 the . e) cal e III Sill , (Enron, to name Just on. eestablish the . olicy cannot r expansive monetary p I se neuative real k markets. n any ca , 0' confidence 0f stoc .' d btedness but at . fi e prIvate III e " interest rates rein ore ks to develop in order to . cause ban t h e same nrne. he panoply of financial . h credit amount, t Increase t e h famous securitizations under . and t e Instruments famous toxic assets). (the now d accusation to ay

The

subprime

context. redeem rates,

Companies their while

become

real estate bubble manage,

debt the

thanks

economies

in consumption

aggravates

commercial

consequently, mercantilist

reinforces,

urged

(very often

go in debr). The increase the American

and,

the monetary

policies of the Asian countries

buying massive amounts

to

by debt

deficit

even more,

to

real interest

American

indebted

in this

at least partially,

to negative

domestic

exponentially

begins

(who, by

of dollars in order to avoid

rents and consumer exchanges

debts that endowed

international

systemic cnherence, The

with

growth, particularly

after the internet

and debt

redemption

on the part

following

it, witnessed

capital restructure

subsequent

externalization

global

bubble

crisis

of companies itself with

processeso The aim here

is to reduce the cost of living labor with increases in the quantity

of surplus-value,

the increases

correlated with increases proportional in constant

capital.

not

to investments

In fact, particularly

from 1998

to 2007, the large companies

(S&P 500) witnessed

and create Sovereign Funds through the budget excesses , also sten ize t h eir re al°ize d gams; these state funds will ' for a ce r tOO am peno d ,seem to able to resolve

a continued

high increase in non-

accumulation

of liquidity parallel to the increase of

the oe crisis of the Western banks) Th d e fl anonary ten d ency is also agg ravate d be cause th e cornmerci ial excesses of the Asian c ountnes (d esplte t h e actions 0 f sterilization) gene rate mvestments o m these very

consumption,

either with reduced family savings or

devaluation

which would damage their exports to the

us

0

01

0

0

0

0

0

0

0

0

exportmg count nes, t h e mvestments that, in turn, o Improve the competiti veness 0fth e emergmg countries not only through the low labor cost, but also through 0

0

0

0

and particularly

reinvested

profits

(free

cash

flow

with recourse to indebtednesso As always, the crises of capital

margins),

break

an

loose

because

of the same forces that determined their o I 1 d ic movement of the (the typlca pa III roml °lluminates sometransaction cycle). But th IS cnSIS I hl h d to the preceding t mg unforeseen Wit regar o h I f pacity on the part of cnses-which IS t e oss 0 ca ities (even if they manage American monetary aut h on I , al currency par excellence), to manage t h e mrernanon idi t their market as a result of the Iqm lues arnvmg a predatory monetary strategy used in rnercann 1St , , o since the 97- 99 Cf1SISoThis the ASian countnes o£' 0 (0 hi day Alan Greenspan spoke of specincrry III IS ' " d") Iready pointed out by MIChel conun rum , a 0

growth

0

0

0

0

0

the quality of products and the higher added value, The o description ' h owever sc h ematic, of the dynamic that led to the subprime bubble burst shows that the crisis ripened wi hi ld o It m a precise u/or. configuranon of the capitalist I o accumu anon processo Wlthm this configuration and thO al di IS mrernanon IVloslon of labor, financialization allowed lobal capital to grow thanks to the prod ff g ucnon 0 financial 0

0

0

0

0

0

0

0

0

70 / The \/:oierlc.;e (,f Hnanciai Capltal:sm

0

0

0

0

0

0

0

1

"

0

010

"

0

0

0

0

0

A

71

Aglietta

and

Laurent

refers to the consequences the emerging

countries

ducing

exporting

bond

and

Jacob,

Fannie

Mae and

emerging

and

of a liquidity gasoline

Freddie

continued

2007),

influx from

to

Treasury Mac's

bonds

obligations.

liquidity

pro-

the American

influx

are in high demand

interest rates decrease proportionately of long-term

interest

corresponding in order to be

interest

rates occurs

despite the Fed's repeated attempts between 2004 and 2007 to restrain the increase in the amount with the increase in direct, short-term

of credits

interest

rates

(that jump from 1% to 5.25%). "It is this very special situation

of inverted

curve where long-term

rates have become less than short-term tion atypical for such a long period-that

interest

rates-situamade it so

that the credit cost remained very low for quite some time in the us despit . . , e an evermore restrrcnve monetary policy" (Aglietta, La crise, p. 39). Being able to give out loans to wholesale money m ar k ets, t h e b an ks thus have the means to give out cr di .h e Its Wit an ever higher risk to the domestic econom· C I . . les. onsequent y, real estate pnces in the us were rising until the fall of

72

countries

Spain redoubling

over ten years).

The crisis of governance tary authorities

of the American

is thus explained

mone-

as the incapacity

the world, especially from the emerging countri~s.

the

able to ensure the same earning. The reduction

European

The

increase in value because they on the market,

in various

(in France, rising from 60% to 80%, in England and

manage the effects of liquidity

such as T-bills. In fact, when bonds

giving a fixed income

2006 and until 2008

and

from

in fact reduces long-term

countries

rates on bonds,

Paris,

and from the countries

market-particularly

massive

iDesordres dand le

Berrebi

capitalisme mondial, Odile

to

influx from the rest of ~n

fact, the post-crisis Asian globalization obscures Wlt~l~ . t hee increase i . risk of cnsls t h e developed countries in .intern al to the transaction . I b use the reduction cyc e, eca of premiums

on the bonds risks (long-term bonds) . . f h fi ncial sector to the remrorces the exposition 0 t e rna . . . ial ets Once agam, In v alorization 0f all patnmOfil ass . di . n that is central this process, it is the tempora I imensto . .. Th . ns of a real estate in the analysis of the cnsis. e sig . . his already since crisis were manifesting t emse ve . 2004, so much that the Fed began its race to ~nc~ed~e . fl of foreign liqui rry interest rates. But the in ux h h olicy so t at t e annulled the actions of monetary P bubble was unfolding undeterred until August 2007. . h al d in the middle of 2006, real And not Just t at: rea y d h hei . to then drop towar s t e d estate prices halte t err rise the bubble exploded in . c

end of the same year. But d id d ting agencies finally eCI e August 2007 when th era. . . h . ) assets issued in credit; whic to declassify (now toXIC . ft the inversion of the transaction is to say, a year a er . f h this reconstruction 0 t e postcycle (to con fi rrn Fl d " . . "When a Flow Becomes a 00, Asian cnSIS, .see, 24 2009). The Economtst, January ,

/\

73

In other words. the crisis of monetary reveals a gap between monetary

the economic

other than the creation

governance

and financial-

cycles. in the sense that the former develops

in a shorter

time than the latter. In the cycle of the

real economy.

like in all business

begins at the moment

cycles. the crisis

when the inflationary

increase

circuit.

Overtrading

virtual income ization.

increase of demand.

overtrading,

ever more future

slowly because

incomes

increase

no longer

actualizing justifies

the flow of

in prices on goods on which

the bubble

is

In the "old" economic

cycles, this slowdown

by near-full employment.

was

For the

banking system, this means a slowdown in the rhythm of repaying the credits lavished in the phase preceding the cycle. the phase during which credit is easy and super-speculation

is unleashed

on the wave of the

increase in profits (the so-called financial overtrading). In approaching the full employment companies and indebted consumers h h'·· . are, owever, s OWIng Signs 0f difficulty repaying their debts because the amount of sales (for the companies str..~I· ~ '"'E>6'mgWIith th e drop 0 f demand)

and available incomes (Cror th e d ornesnc. economies confronted by inflation) begins to fall. For the. banks. from the secondary t 0 th e centr al ones, . this IS the moment to increase th e .Interest rates. The and super-spec u Ianon . . overtrading . prece diIng the mversion of the transaction I . cyc e are nothing

to the

this

the spending

a lot by anticipating profile,

to the

of virtual

extent incomes

of a

its real-

the multiplication

assets has certainly

future realization.

of

been at the basis of

that

it allowed

for the

on the basis of the pre-

later revealed as entirely unrealistic,

into its opposite,

concentrated. usually manifested

creation

supposition,

the "irrational"

reinforces

quite

Under

in prices (for example, of real estate) provokes a faLling grows. but grows

extrinsic

of goods and services, of a demand

securitized

The demand

of an earning

additional to the one created directly inside the economic

production

But when overtrading

of a

topples over

that is, when it goes from the phase

of easy money to one characterized

by credit crunch,

this additional

it vaporizes

demand

collapses,

very

quickly, and the economic

system enters into reces. C .. no longer able to sion. ompames In every sector are . d more supplIes, se II , warehouses accumu Iate more an . . b . to experience the an d the domestic economies egm . .. d dismissals and/or re d ucnon of their Income ue to . .. ption at the same the difficulty mamta1010g consum di phase of the cycle. Ievels as those of the prece 109 .. s is revealed as the This is the moment when th e cnsi . . . nlarged scale. This IS crisis of overproductIon on an e bli h . der to reesra IS an h also the moment wen, 10 or . bal ce between demand and supply, one operative an . ~af)tJinu of unsold surplus or, 10 very 0 ft en turns to s.. , 'rr '" . . d al ·zation. The violence of cnses any case, to ItS ev on . • • • J_ tion of capital, a destruction trUC consists 10 rhis aeS . f . all strikes the rorality 0 human that in biocaplt Ism

75 74

beings, their emotions, the "resources" description

feelings, affects, that is, all

put to work by the capital

(for a

of the role of finance in the expansion-

recession dynamic

of the economic

cycle based on

The Cost of Capitalism: Understanding Markez Mayhem and Stabilising Our Economic Future, McGrawHill, 2009). Hyman

Minsky's

theory,

see Robert

The collapse of overtrading

Barbera,

manifests itself in its

entire social dimension,

the collapse of overtrading would have to reestablish the equality berween

demand

and supply-some-

thing that never happens. The crisis reveals the excess of supply over demand,

latent overproduction

insi~e

the transaction cycle. It is for this reason that the ensis calls into being anti-cyclical create new additional

demand,

actions tending

to

actions that only the

State can implement, since there is a general flight in . t h e pnvate economy. No mec hani amsm of market ..

i.e., as a phenomenon of realization, of selling the quantity of goods and services

. autoregulatlon

(and the quantity

'. ., Financlal globallZatlon, as we saw, defers r the ren. . he i sion of the cycle, d enng of accounts, that IS, t e inver .

of value embodied

concerns not just one sector or another

in them) that (if this were

the case, we would be present at an inter-sectorial but all the sectors at once. But the

compensation),

fact that the overturning

of super-speculation-that

is, the crunch to the point of zeroing the additional demand created by the mechanism is at the root of overproduction

of overtrading-

also shows that the

imbalance between demand and supply is a structural characteristic

of the economic cycle. In other words,

the supply of goods and services is at the root of excessive demand. Say's law, postulating a fundamental identity berween supply and demand, is thus false, not just because the explosion of the crisis involves rushing

to banking

windows

and the deferral

of

spending on the part of the domestic economies (socalled retention),

but also because demand and sup-

ply are structurally in imbalance. If this were the case,

76

can alone reesta bliISh the condltlons

for overcoming the crisis.

precisely because the amount 0 f ere ditI to companies . . . despite the signs and consumers can keep mcreasmg I . al economy cyc e al of the inversion of the re inrern .' al tate begmmng to (for instance, the prices on re es f d i the balance 0 drop). All of this despite the tren in b uring the symptoms payments that contributes to 0 SC . . fl . f: ntil the massive in ux of the imminent criSIS.In act, uhf . countries, in searc 0 of savings from the emergmg . bal ed by . IS counter anc not high, but secure earnIngs, . d broad . investments dlrecte a the flow of Amencan h h internal ones hi h h . s greater t an t e (w 1C ave earrung f f US companies, . he pro ItS 0 and which increase t . I lative to other . he dollar IS ow re especially when t. t ry authorities can . h Ameflcan mone a currencies), t e if h bile evident problem . the ate w avoid con firontmg ial .mbalances. . al commerci 1 of the internatlon

/77

...I:

Moreover. American

the temporal

monetary

gap. where

governance

root of the transformation imm~diau(y

funds.

investments.

crises

this. is due

Into [0

the

retirement

insurances. funds.

and

of interventi~n

by the governments recapitalize through

the

It is thus monet~ry

banking

and

possible

governance

that

of

to

~(l" to

system

the crisis of

explains only one part. only the

~~"mng of the crisis we are living in. What proves It IS that. at the worst moment of the financial crisis-October 2008 -contrary to what evervone expected.

structurally

countries

in surplus.

(but also Germany

redefinition

of liquidity.

to claim

and

hedge and

up

insurance

such as the emerging

the

cs

everyonc'~

in all over the world in order

the huge injections

England). and the countries

berween (the

are destined

the world diffusion

undertaken

imbalances countries

i.e .. beyond the rescue actions

of roxie assets. This is shown bv the total inetficiencv of

all the anions

deficient

long time.

Rut. at a closer look. it is a question

a crisis that goes well beyond

possible that the global structurally

and japan).

of risks and toxic' assets that in this

period. infects bank portfolios. equity

is reversed. is at the

of regional

global ones. Certainly.

dissemination

the cris» of

the dollar was revalued against all the other

currencies. "The anomaly is that the dollar is reinforced over the course of th ese Iast wee ks azai agamst almost. all other curr encies . (E'IC h engreen, op. CIt.). . But It can happen th at, lik leer aft the reevaluation of n

the. dollar in August 2007 (in the rmidst 0f t h e su b prime crisis'), the dollar starts to deval . . h . . b . . ue agam. Wit rnevrta Ie IIlflationary effects 0n a wor Id sea Ie (caused, like over the course of 2007-2008 b . . h ' Y strong increases III t e prices on gasolime an de·food), It IS

(hat-from

of the

to still last a long time.

banking

the internet

huhhle hurst-allowed

and

crisis until

A

and the

financial

rules

the subprime

the flow of liquidity

towards

t hc \·s to produce the leverage efrect of credit (hat we saw. As a high official of the (:hina Rank

Regulatory Commission.

Luo Ping. told a journalist

of the Fi,;ancial Times. "we hate you guys. hut there is nothing

much we can do" except continue

American

public debt (cited in Bill Powell. "China s

to hu~

Hard Landing." Fortunc-. March 16.2009). " It would suffice to pose a seemingly provocatiVe question:

What

else could

the American

monetary

authorities and the rest of the world do? Certainly, . h hiIn d slg izh r, It ." IS pOSSI ible to sav,". anvthing: it is Wit . " " -oke (precise'" t'X post) possible, for Instance, to 1Il~0 "" "· "creases in banking prudential monetary po Iicies, in " " nuol of issued assets. reserves, better qua Iiry co " ". . ns based on subprIme stricter rules on secunuzatlO d so on But what could have the mortgage Ioans, an' k " thoriries and the central ban s American monetary au "countries have done, the former o f t h e emergmg " . c. cd" h the risk of deflation. the latter being comront Wit . _ . ( "". . h cd from the 9, - 9) CrISIS: The recovering. satter ,

, I

I

t answer

1\:othing other than what h.l' been done, It

loS:

sutfices

if the Fed had dfe({ed

to 5.ly that

restrictive

monetary

policy

in order

result would

have been

consequently,

in the emerging

rest ram or

to

les-sen the foreign deficit of the current

a more

balance.

reces-sion in the l'" .ind.

.l

countries

.lS

well, l)n

top of th,u. how could the Fed 11Jve justified monl't.HY

nvc

intl.uion.

policy

the

when

restrrc-

.l

the problem

not

w.iv

.1

peculiar

Ch.H.lderisu<

01

w<.i.ty·' tlll.lIlci.11 c.ipit.ilism and the mOI1l't.1fV pob,\' proper

to it is the impossibility

outside

what occurs

cycle.

The

Michel

theoretical

Aglierra,

of managing

analvses

Robert

how. in order

of financial

operators

risk models.

it is impossible

cognitive

and

economic

rationality

multiplicity rational

and the transparency

the behavior

to distinguish

between

functions.

and mimetic The

between

behavior

neo-classical

based on perfect

of the

theorv

because it removes a central

factor of the financial markets, i.e., the intrinsic tatntv characteristic

of

inform~tion

of markets. has, for a long time,

been beside the point,

of them,

Ul1Ce1"-

an uncertainty

more based on the diminishing

dichotomy

real and financial

In other

economies.

lIl!l'gr.ll part of the market According to Ceorge the

everbetween

words,

the

behaviors

(such

as

r.uionalitv

functioning. A. Akerlof

of Homo

and

Robert

(COIIOmicus cxplall1'

I' , , 'I non- . The rcvt cconomll . l , . I·" I· I, dc,crthed " pllded hy .1111 rna sptrlts a rc al \ .. In' t' , d f" [ividual10 I1trt rvcvncs. i.c .. it is the aptltll c 0 II1l , , I . '" I' h id d 'I' sions ahoul Inn'st· Wit 1 arnbiguitv w uc glll cs cc ,

«nlv

.1

,

\lu.Hler ol rc evant

rat ional

to interpret

collective

instability as "public

that have little to do with the rationality of ' 'd to d IVI 11.11 economic operators. b ut t h at a re . however.

Minsky. the best.

a structural of currency.

p.mic)

Hvman

;0 cite

nature'

good.'" engineering

mcnts

Shiller.

manipulative

of actors.

the public

OrlC.IIl.

on the basis of the value-at-

expectations.

within

of Andre

George Soros, and Frederic Lordon, show that.

from

inside the econornico-financi-tl

markers" has to be mbstitlltt-d

hv that oi "market insrabilirv,"

'hiller.

dctlarion?

but rather

let us only recall th,u

h\-p
when

. , uncertainty

(Animal

. I onc from bcin]; pre~cn ~ , " H' f{ man l'
for

'frfattl'n

Drives the Economy an d w,~y It . . Uni ., Capitalism, Princeton 'nlverslt)

-

,

(,10711

Press Prtnceton, .. , .J ns arc rnooo2009). "These non-economIC motlUtlO us changes thai drag related and subject to spontaneo ood d If rat ionalitvr is a g, gUI e economy up and down. , '. .' loin situations ot poSltIVC 111 normal times. It IS ess S . . \\' d egativC (crises! SfW,\. e (economic bubbles ) an n . hie to d h crisis nor are w e a neither anticipate t e k hi fa 'tor into do not ra e I IS 'overcome it because we 'I M I . . Barba Navarettt. Traro tt f. I account (GIOrgio 4 O - \1 rch 8. 200,)). . .' "II Sole 2 re.· a All/mal Spmts, been normal for a while now That the times have not "h 1985 until today, i.e .. from t c shows that, f rom , hv k ' . ed to rhe economiC' \ mar CI liberal turn Impart .

'.'

>:

c.

"

i

,

I

I

il

"j

I

I

""

I

deregulation. monetary

there

This is enough mental

has

been

a financial

and/or

crisis. on Jverage. every two and half vearv. to definitively

presuppositions

according

to which

put in crisis the tunda-

of the neo-classical

"markets

tion of capital and the best management In bct.

there is a particular

in the models evaluate

to

between

of risk.'

ontological

of probability

risks due

interactions

theory.

realize the best allocaweakness

calculation

used to

the endogcnoli.i nature the

financial

of

operators

Andre Orlean. La notion de ualeur [ondamrntal«

"1 t"foricfinancie~c?

elle indispensable II sur l'economie,

Comprendre

la finance contemporaine.

to the conflict

of interests ~pical

rating agencies, but as the expression ical) impossibility

of making

the markets

dance with so-called rational principles. so when, according

to the methods

the value of financial the new accounting Standards,

norms

in accor-

All the more

used to establish

(International

IFRS, secured

Financial

by Basel II), the

on the basis of the

their market value and the one at

which the asset is being negotiated, ical value (the method is called 'mark

in

assets, like the ones based on

fair value of assets is calculated between

of

of an (ontolog-

rules or meta-rules

order to be able to discipline

conflict

of

of risk not so much, or not only. as mis-

takes attributable

~eporting

rst-

Regards rroisr:

March .3, 2008). It is what explains the "mistakes evaluation"

the: (see

that is, its histor-

used to establish this valuation

to market').

The problem

posed by

these methods of valuation

is that, from the moment

when fair values start to function

in reference to the

calculation

of value of a patrimonial asset-in the , . . h calculates his real same way as a private citizen w 0 estate, including the current market value of his real . ' ase asset value estate-t h ere IS a strong urge to mere " bvy mcreasmg i ina d e b t: ",in an accoun ring of rhis kmd, , ' k because It IS the debt of assets buyers seems wea e value growS guaranteed, collaterally, by assets w h os C b k d not understand laster than debt. Thus, an ers 0 I es as indicators, the risk because they see mar k et va u I does not at all But this risk, nonetheless very rea, , red on the baSIS appear in the variables that are measu d d" id d good stan ar of accounting rules consi ere a 'f I is a questIOn 0 a (Aglieua, op. cit., pp. 18-1 9) . t . ecisely as It occurs veritable urge to indebte d ness, pr , iod f the reatest economIC over the course of the pen 0 g le his i rding to the very ru s financialization. A nd t IS IS acco .I' k' d that is , 'l!eve/ola m ttOna

established on the tnterTUl supposed to regulate the markets! h . I'Sof gover. in that t e ens It is possible to ma1l1ta1 h

..' d ble resistance: on t e one nance has as iIts or Ig1l1111 a ou . countries to . ce of the emergmg hand, the resistan . the subordinate keep them In every attempt to th developed countries, a .. . h espect to e positIOn Wit r od'fy their growth model . rh t led them to m I resistance a .' Th Asian export-oriented e hAs' an CrISIS.c after tel d the amount of savings . fact uans10rme model has 111. all into financial rent-the rent not reinvested Ifltern Y

I

I

I

I

I

.

,

I

t CC.111I('d

bv

"qlllJltV

CCdICCdlll~

on the other

hand.

rhe Amcncan

rhc e.1Cd of

tow

there 11.Is been

dornesnc ,;oOJI rent .

rhe revrvrancc

01

rhar have rl.1\,cJ

econonues

kind of "with and

.I

.l~.II1l\1

rhe tln.ln(l.llll.ltlOn

of cconornv, for

nf 1Im('. Arncncan

f.1I111I1c\ wac .lLtIll~. III however

1111.111(1.111> unsr.ihlc pr0l'<'fr\' (lildchred) rhl'

1.1..1'.

cducanon

rncnt

Ih.ll

.1.1101.1.'

spending

tlm:ing bmilies

their

own children

deficit.

far from

pnlll<.1

01 the

III .1

,uch

"([OC,

rc.lining. the d"lllvc,r, to go in debt to

liberal turn in the beginning see Colin

Demise

of Privatised

QUJrt"~y, No.4,

Crouch,

in order

being the reflection one',

that has its roots

01' an own in the

of the 1980s and in the

crisis of the \X'e1fare State that followed subject.

(0<1

studv, The pci"Jre

to live beyond

is a phenomenon

the ;\11.1

used rhe irnprevsive increase in the

.I11-Americ.lIl tendency means,

recall.

and

\CC\,llC\,

rhe tund.rmcnral

and professional Cd

Ill' cducanon. to

10

it (on this

UWhat \X'ill Follow the

Keynesianism."

October-December

SCENARIOS

of ,,,,,,1.11

house

of ~oo\h .lnd

wc would do well 111

ro the

GEOMONETARY

pecu'"

.1 (CCUIil

on the rcrr.un

rI~hl

convurnpnon

vr.itc dl\lI1vC\rmenr .IS

torrn,

the

rI~hl'.

I

rhe ourvidc.

.Utl-

The Political 2008).

I ,h('

"

('''"lOml( dlll1ell\lon.

I lIrlllg

l

, I'rvt the (.Iplt.l

l CI\I\ I'

order

the SO(l.1 'I' the dimension

1.1.';1\'

0

t' tranv fecnl1"r

'I pOlen 11.llh, I anc I

0

I 1C

the ph.I\(· lcac I IIlg up

10 I

Ih" nisis exploded contr adicrions ,

on Ih c h'

, ' ,

;I,,,

and rrgldlty on

d

ce,,'

hc

IIpenC'd

HoWCST!.

I' \ IJch d !.Ingle 01 I h I \l;llc Ih;!1 the

goa

"a

,

rhc

0

I\cynesian actions of rntcrventlon arc hardly able to undo

IMllC'

( H Ic ,

10

I)ollllloll

I '

on

hus

re<'lon.l1 <"

01"'1(111'

\(.1

I e

rhar

them, t 1\ I .' " ,,' \sihle onl\' II rhc Ihe overcoming of the cnsis IS po . , " . ' scri bed Ir1 preClsc actions of econornic revnal are In geopolitical

and geomonetary strategies, , 'i , h edium-term ilrom There are. essentially, t ree m 1 ed f hi h e exnapo at rom to 10 years) scenarios w IC ar ed the I'~_ ., "Th first is found on t he current cnsis: e I he -een , , ") thus on a pact rw China coupling (ChlmertGl , d h c-ame 10 Th ond exren s t e rothe dollar and yuan. e sec C erman" and . d E Western powers, J , RUSSIa an uro, 1 a"reement . d bound bv a specra eFrance come to rrun , • ia) Thus deterd ruble (Eurussla ' between Euroland an 'A r'lcan axis. the h Chlno- me mining, parallel to me w,.-I a full aereernent , Bretton woou5• <" , premIses of a super Th Ihird scenacio IS . r powers. e between all ( h e rnajo

the exacerbation of imbalances (beginning with the old Europe mayonnaise going bad and ongoing conflicts) to the point of rendering the system completely ungovernable. The catastrophes pile up to then reproduce August 1914, this time on a nuclear and planetary scale" (Lucio Caracciolo "I'impera senza credito," Limes, 5, 2008). All these scenarios are based upon the inevitability of the decline of American hegemony, the decline of the empire without credit, the formula describing the paradox of the largest world power that is also the largest global debtor; they are based on the "selfevident" hypothesis that is to be legitimately doubted if it is true that the crisis strikes the Asian countries in a particularly grave way, from China to Singapore, from Japan to South Korea ("Asia'sSuffering," The Economist, January 31, 2009), while the us continues to be , as par adOXIC . al as It . may seem, one of the most secure places to invest one's savings. Today's cnSIS .. npene . d within a complex geomonetary order that witnessed the multiplicity of actors bound to 0ne anor h er by autoreferenria . I . Interests. China cart maintain that the Americans wo~d ha~e to save the most, but only as long as the major savIng does not affect its exports to the us. And the Americans can ask th e Chimese h ow th ey managed, repeatedly in the past and . .dl ' evermore ~Imi y, even now, to reevaluate their currency and Increase their internal consumpti on, bAm. ur encans

C8pitak:,!Tl

arewary of restraining the purchase of T-bills by the Chinese. On the other hand, this crisis is already provoking a strong reduction in the net flow of privatecapital to the emerging countries (in 2009, it will not exceed $165 billion, at least in the half of $466 billion of 2008 and a fifth of the capital flow of 2007). For their part, the actions of tax stimulus and of rescuing the bankrupt Western banks can only produce the crowding out of the emerging markets and those of Eastern Europe. These actions would thus increase, on top of all of that, their public d~bt service.Which, let it be noted, can cause some Asian . to try to protect thernselves by increasing countnes . . . ·11 and investIng their therr currency reserves StI more . . savingsin the debt of t h e more d eveloped economIes, . h dynamicS that reiterating in such a way t e same ·· the us . In other d prepared the explosion 0f ere It In · b 1 e at the root of words the fundamenta 1 im a anc s f ' f f cial capitalism 0 the crisis-development 0 man 1 f . d ist for quite a ot 0 recent years are destine to pers f ti M· 'vTolf maintains on the pages 0 irne, as artIn W' . d 1 ti: . l T· ("Why G20 leaders will fall to ea rtnanaa times . 009) " FT AprIl 1, 2 . with the big challenge" . . . . h d line of the AmerIcan ernprre Thus It ISnot t e ec I . al ' the way of inrernation that compels one to try h 1 bal . .n order to better manage t e ~ ~ . cooperation I c h this CrISISIS . b rather the tact t at Imbalances, ur .. h t any country 1 ng time Wit ou destined to last a 0 1 f the leader of the the ro e 0 being able to assume

world economy. As David Brooks said in an article

pursue policies of a revival of internal

that appeared in Herald Tribune, August 2, 2008, in

order to counteract the drop of the external demand.

today's global system, that which paralyzes capitalism is the impossibility power "should, practice,

of decision.

The dispersion

of

in theory, be a good thing, but in

multi polarity

means

that

more

groups

have effective veto power over collective action. In practice, this new pluralistic

world has given rise to

globosclerosis,

an inability

to solve problem

problem."

In

other

undermined

the very concept of unilateral and multi-

words,

lateral economico-political

the

crisis

after

radically

hegemony, i.e., that which

compels one to explore new forms of multilateral world governance. The first step in this direction

is to ensure the

emerging Countries, and not just the Asian ones, that in case of a liquidity crisis they will not be left alone. The offer, in October, on the Fed's part of a line of credit to four emerging Countries, even though these same countries interpreted

already had abundant

as an innovation

reserves, is

in this direction.

The

objective is to best coordinate the actions of political economy to reorient the flows of capital so as to stimul~te the internal demand in the emerging countries, without, however, jeopardizing the monetary balance between the dollar and other currencies. It is worth noting that this strategy includes the countries in the European zone, since Germany is also structurally in commercial

excess and thus has all the interest

to

demand

We should also note that the implementation this geopolitico-monetary

strategy

witnesses,

in of for

the time being, the IMF play an entirely margi~a~ role. The amounts

in play well exceed the nnanCla

availability of the Fund. As a matter of fact, in the . tion of medium-long term, such an operative reinven . . . ase m the IMF (most importantly, a consistent mere . its liquidity, as the increase of $500 billion deCided on by the G20 and an intern al re d·rstnib u tiIon of power from the us to the emerging countries) will . C . le reason that the reveal Itself as necessary lor t h e simp . h di term to help the us cannot guarantee m t e me iurn ". . .' h « tionary lines of emergmg countries Wit precau . f Bretton Woods credit. The construction 0 a super nd repeatedly with the IMF as its new arme d h a , id S kozy must reckon invoked by the French Presi ent ancozv. with a characteristic of the Fund that sums up thdegist ·, .n the last deca es. of neoliberal American po I!tICSI . . , hi hi valued III the us, It is a question of wnnng. rg Y h d the obligation to t e into the statutes of t h e Funo. ibiliry . al ccount (a convertI I I convertibility into a caplt a k the . h preparatory wor on that Keynes, during t e . d ith all his ts reslste WI Bretton Woods agreemen , ibili h as only the convert! I rry force) where before t ere,: d the difference account. An yet, into a current . is thus essential. In the between the fWO notiOns fl of currencies that . on t h e ows second, the accent IS

S9 88

cover real transactions, services, on tourist spond

on exchanges

flows or the ones that still corre-

the repatriation

(0

of goods and

of the

incomes

immigrants.

In the first notion,

operations,

all the possible instruments

all the portfolio of speculation,

(Sapir, op. cit., p. 3).

are authorized" the

account.

obligation

This convertibility

sented a precondition the inrernarional global

convert

(0

would be

into

(0

IMF recognizes

tional financial convertibility

(0

processes of of

produced

the

of movement

of the from

new IMF-that

has as

the reestablishment

of the

economic sovereignty of nations and the symmetry exchange monetary quence although

relations

guaranteed

system-would of disabling

apparatus

that

with an impressive accumulation

conseensured,

of contra-

dictions and financial drifts, the development affirmation of financial biocapitalism. For the sake of beginning, be able

(0

profit

the

of

by a supranational

have the inevitable the

of it in this sense would

dismantled

the Welfare

us would

and

no longer

from the massive liquidity

of the old disorder struction

Woods,

It IS have

State,

turned

consumption

influx

and the partisans

the partisans

of a real recon-

of the financial

monetary system will be . concentrated on two questions: t h e con trol of capital .' and of the forms of protectionism t hat allow one to . a: avoid importing the depressive errecrs of the policies (Sapir, op. cit., P: 32). . For the moment, the WI'11'mgness of the Chmeseh government to continue pure hasi asmg assets of .t e o be in question American State does not seem t '11' of hi chased 2 trr Ion (over the last years, C rna pur Chinese dollars in American T - bills) IS, but the same f di al h othesis 0 a ra IC h government voiced t e yp ystem in . al monetary s reform of the internatlon fth d llar," that is, h "trap 0 e 0 order to escape from t e . d a1uations (on this al . k f ne of Its ev from the re ns 0 0 governor of the Xiuaochuan, subject, see Zh ou Reform the International central Chinese bank, be ovcnlenglish). "The g Monetary System, hrtp:IIWWW.PAl· f~nso Tuor, "has, • • » wrote Chinese wIllingness, tee is very high, especially however, a price and this pn

of some countries"

and interna-

the removal

into a capital account

objective

of

the destabilization

exchanges

flows. However,

its fundamental

of a new Bretton

certain that a reform

point between

contributed

the statures of a hypothetical

values the hypothesis

~~e

operandi. "The breaking

that this freedom

obligation

families. However

since the 1980s repre-

repeatedly

of the system of commercial

through the debt of American

saw,

into the motor of its m_odus

crises of the last 30 years. Today the same

capital significantly

as we

consumption

and private indebtedness

markets and of the accumulation that

which,

to explode

a capital

of the liberation

imbalances

financial

countries capital

spectacular effects on a model of society that, having

The idea of a super Bretton Woods cancel

of the

from the emerging allowed American

I I

.

I

I

...

I

us.

for the

Peking asks for the reform of the interna-

tional monetary the

objective

currency

system (a new Bretton Woods) with to create

in the place

authorities plished

a supranational of the dollar.

think that this function

by the Special Drawing

exchange The

Chinese

of the IMF"

paghera il conro della crisi?," Corriere del Ticino, March 27, 2009). Despite the hypothesis of

("Chi

reform,

the

mere

destabilized

the

call to which dollar

on

the

has immediately currency

markets,

in gradual terms, it is clear

which is to be understood

that this would entail the loss of the hegemony American

currency

supranational

currency

synthetic monetary national currencies. However, but

rather

national Which

let

(Special Drawing

unity constituted it be

recalled

a unity

currencies

of account

of a

Rights),

a

by a totality of that

the

Rights are not a real supranational

Drawing

of the

in favor of the institution

comprised

Special currency, of other

(dollar, euro, yen, and sterling).

means that the idea of escaping from the trap

of the dollar in which China finds itself after years of investing

its own currency

reserves in American

bills can only be understood the Chinese

monetary

own currency detention currencies,

T-

as desire on the part of

authorities

to diversifY their

reserves, in other words, to reduce the

of the dollar

in favor of other

national

such as the euro, the yen, or the sterling.

The reduction

of the dollar detention

92 / The \/c_,i8rlCe of FinanCial

Car)itaiisrn

would entail

of the American

ation that would certainly

currency,

damage

Chinese nor the Americans imbalance

between

and the developed

exports. nett. h er the

discuss the fundamental

the countries countries

a devalu-

Chinese

The fact that, at least at the moment,

could be accom-

Rights

the devaluation

in export

in deficit

renders a reform of the international

surplus

(US and UK)

monetary

system

highly problematic

on this basis. As Joseph Halevi . wrote, com men ting on the results of the G20 summit in London on April 2, ".In t h e FOtnancia . I 'TO Wolf 1tmes 0f M arc h 31 , Martin • • C valuating the established with simplest cnrerron ror e .. d ecisions of the G20. A re t h ese c ountries able to . . . . f h world demand displace the redistribution 0 t e C • d fici h nes in surplus .to Hom the countries In e !CIt to teo . , w< If's hypotheSIS, make them spend and Import. 0 . . h t, wa s that this was itself to b e ng N not even attempted. As the ew York Times notes, fu ds of the IMF, n b d the meeting approve, y means f the on the part 0 in case of crisis of payment f di qualing d h line 0 ere It e developing countries an tel h any direct did however, aunc $1100 billion. It I not, The G20 thus were action to stimulate the d~~and. dd ess the crucial . . allv i h osItIon to a r not politic y In t e p d ir however, we w< 1£ To un 0 I , knot put forward by orr. fl. in Europe and e de anon need to break the wag f both Japan and d rive strUctures 0 . ." '1 reorient the pro u~. flitti intercapitalistICl, 1, China" ("II summit e 1 con

which revealed

manifesto, Apn ·14, 2009). GeOnlonetary

Scenarios

/ 93

I I

I

I I I -.

I

This crisis marks, in fact, the end of the possibility of continuing

to compensate

the internal

saving of

the countries in surplus with the internal indebtedness of the countries Paul Krugman,

in deficit.

"Two years ago," wrote

"we lived in a world in which China

could save much more than it invested and dispose of the excess savings in America. ("China's

Dollar

Trap,"

That

2009). If one indeed wanted tional monetary

world is gone."

New York Times, April 3, to reform the interna-

system in order to avoid reproducing

the fundamental

imbalances

on a global

would be necessary to go in the direction

scale, it

of the insti-

tution of a real supranational

currency, a pure vehicle

of national

like the Bancor unsuc-

purchase

cessfully proposed

powers,

by Keynes to Bretton

1944 or like the supranational theorized by the French economist In this perspective,

currency

for years

Bernard Schmitt.

of overcoming

crisis politically, rather than economically. accumulation

the ongoing The block

on a global scale is inter-

preted in the light of these contradictory on the one hand,

in

what is at stake are the possi-

bilities or impossibilities of capitalist

Woods

the possibility

forces, with,

that this crisis will

last a very long time or at least will be systematically followed by similar crises, and, on the other hand, the possibility that , in or d er to overcome t h e CfISIS, .. the international monetary system will be redefined in the name of national sovereignty and/or regional poles and the symmetry o f commerci ial

exchanges (Martin Must Mend

Wolf,

"Why

a Sick World

President

Economy,"

Obama

Financial

Times, January 21,2009). In the meantime,

we would do well to watch how

much of the New Deal the Obama

will

be able to realize. Investments

reform of health insurance,

administration

in health, with the

and investments

in edu-

cation, represent by far the twO actions that generate major growth of employment,

much more than tax .. han nels of cuts. Yet, today there are no transmiSSIOn c the most available income to the demand of consumer goods (Michael

Mandel,

"The Two Best Cures

Business Week, March 23-3~, 2009). Among the different actions of the econom~c revival plan (Financial Stability Pian or FSP), there IS

For the Economy,"

.. particular one III

. dilate Iy m erits being kept that unrne . f the Homeowner an eye on. It is a questIOn 0 . . .. L h one hand, such Affordabtltty & Stability Plan: on t e . b an action wants to revive the demand of housl~g alY akin convention lowering mortgage rates an d m g f I· idiry to loans more

.. [oris 0 iqui I bY IllJectl h hand it ddi M c On the ot er ,

accessible

Fannie Mae and Fre ie a. d·fy the loans . dges to rno I authorizes ban kr uptcy JU This action conF i I ent hoUSes. I . ce in the taken by owners 0 mso v h· leal import, Sill , stitutes a precedent 0f Istor~d are currently the . ry resl ences us, the loans for pflma d·fied in bankruptcy ot be mo I only ones t hat cann "J b One: Build a Flour courts Oames C. Co~per, rvz °ek March 9, 2009). . "Busmess we , Under HOUSing,

Geomonetar; Scenanos / 95 94/ The

Of Financial

CapitaliSTI

i

I

I

I

'. ......

I

,

.:l

I

I

As a whole, it is a question of an innovative financial action with regard to all the other interventions

ownership as the only right conceivable

today. In

to

other words, if up until today, the access to a com-

rescue the banking and insurance system provided by

mon good had taken the form of private debt, from

the FSP-interventions

now on it is legitimate

decisively

that

ineffective,

Paul Krugman's

or were veritable

words. The provision

refinance funds for American only technical

so far proved

action

to be

fiascos, in of mortgage

families is, in fact, the

that will restore value to the

to conceive

(and reclaim it)

the same right in the form of social rent. In financial capitalism, social rent assumes the form of redistribution, the way in which society gives everyone the right to live with dignity.

As such,

social rent is

derivative assets that are today clogging up the world

articulable on many terrains, particularly

banking

education and access to knowledge in the form of the

system.

without

immediate

the finanCing tracts.

Such an intervention

would

be

effects on the public deficit, as

is spread over 30 years of loan con-

In other words, the plan anticipates

about 4 million

families from foreclosure

saving on their

right to an income of guaranteed

on that of

study.

In the second place, this New Deal action of the new American democratic

administration

seems to

be able to conjoin two levels, twO plans that usually

houses, but in such a way that a concrete value of the

conflict with each other. On the one hand,

derivative

question of a local intervention,

securitized

assets is re-established.

The

same plan allows the saving of many more banks than the rescue interventions

undertaken

so far. The prin-

ciple is clear: begin from the base in order to reform the

monetary system. In fact, apart from the technical aspect and the all-

Arne'ncan specincny 'C" help homeowners

f the intervention

0

measure to

fallen into the trap of easy loans,

wh.at COUnts in this measure is the principle,

the

phtlosophy that is at its basis. The latter lends itself

to

many considerations . I n t h e C'nrst pace, I . . t hiIS action raises, at least incipiently, the question of the right to social ownership of a common good , a nigh t t h at In . all evidence is imposing itself on th . h . e fig t to pflvate

96

a determined

it is a

with help oriented to

level of demand aggregated by inter. preCIse . Iy were h ., destroys incomes,. venlng t h e crrsis .JO b posmons, . . d exi On the other hand, this an existences. . di . action has a globa I imension to the extent that It . al t financial instruaims at restoring economiC v ue 0 . . t d to be immersed ments that, by definition. are crea e . . ulari . in portfolIos in the global financial eire anon. i.e., . d . t funds of every kin . of institutions an d mvestmen .' h One of the worst risks of this crisis IS, III fact, t e f these very nation-states, the race to come Iosure 0 . b' f market .. devaluations in order to regain Its 0 . . Petltlve f others with protectlomst by taking them away rom . 'ThiIS IS usually how wars break out. actlons.

Finally, this action has the absolutely crucial dimension of time, the fact being that the help to families in the form of the guarantee to a social rent is a veritable investment in the future. As we said, the interventions from the base not only allow one to avoid instantaneous and massive increases in the public debt, but these interventions are carried out on a long temporal horizon, a horizon within which the qualitative development of the new generation can be better ensured with investments in early childhood, in school, and in the early entrance in the job market. Taking time means giving each other the means of inventing one's own future, freeing it from the anxiety of immediate profit. It means caring for oneself and the environment in which one lives, it means growing up in a socially responsible way. To overcome this crisis without questioning the meaning of consumption, production, and investment is to reproduce the preconditions of financial capitalism, the violence of Its . ups an d d owns, the philosop . hy . accordmg to who h " . . . ." IC time IS everything, the man IS nothmg. For m an to be everything, we need to adapt ourselves to the time of hiIS existence, .

Appendix

WORDS IN CRISIS'

Financehas its own language and, moreover, a rather esoteric neolanguage. Many Anglo-Saxon terms are untranslatable into other languages and, above all, designate complex processes not always accessible to the uninitiated, which is to say, to almost everyone. It is thus under the shelter of this linguistic opacity that finance prospers, which raises the question of dem~cracy, that is, the possibility of publicly debaring strategies, procedures, and decisions concerning the livesof all citizens. In what follows, we have selecte~ some (not all!)words that help readers to understan the history of the most recent financialization.

--------------. he basis of the following • This brief dictionary was wntren on t __ mantle e risposu. II Sole 24 Ore. publications: La grantk crtst. Do . R Morris. Crack. Come namo Milano. October 2008; Charles . -I fo Elliot to e rosa ci risrrva

t

turo,

al collasso tkl merca ~ J> Pour en . Frederic Lordon. Jusqu quan. Edizloni, Rome. 2008. . d" Paris 2008' . nanCl-er" Editions Raisons ag.r. • • finir avec Its crisesfi '. _ tklla tkprtssiont t la crisi tkl II ritornOtkll economl4 Paul Krugman. 2008. Garzanti. Milan. 2008. arriuati

_-

99

AAA, AA, A, BBB, etc: a system (used by the rating agency Standard & Poor's) of evaluating the quality of debt assets. The more the asset is at risk, the lower is the vote and the higher the earning. ABCP (Asset-Backed Commercial Paper): a kind of unsecured promissory note (or commercial paper) guaranteed by other financial activities, particularly by securitized assets. The ABCP are generally shortterm investments that are due between 80 and 180 days, issued by banks or other financial institutions in order to satisfy the need for short-term financing. These are amply employed in special purpose vehicles sponsored by the banks (see Conduit and SpY) that financed with short-term commercial paper so as to invest in long-term assets representative of the credit that was the guarantee of the ABCP. In 2007 and 2008, the value of these assets has collapsed, which is to say, created a lot of problems for the financial institutions involved, which, no longer being able to finance with commercial paper, had to resort to the line of credit of the sponsoring banks (that provoked a strong increase in interbank interest rates, a clear sign of banks distrusting each other).

obligations bearing interest-"obligations guaranteed by activity"-and sell it to private funds. In such a way, the lent out capital immediately returns and the bank can expand its own activity. The types ofloans that are mostly given out with the issuance of ABS are real estate loans, credit for purchasing cars, insurance policies, and credit related to the use of credit cards. In sum, the ABS is an instrument of transferring credit, and the related risks, from the banking balances to third-party non-banking buyers. ALT -A: a class of loans whose risk profile falls between so-called "prime loans" and "subprime loans." Those who sanction this type of loans usually have a personal history of insolvency, and has a low capacity to produce incomes and so agree to deal with a loan service with a pronounced relationship between the value of loan and income. Bailout: saving a subject close

to

bankruptcy by an

injection of liquidity. Basis point: a unit equal to l/lOOth of a percentage point, indicating variations in interest rates, exchanges, earnings from T-bills and bonds.

ABS (Asset-Backed Securities): loans supplied by banks backed by income from an activity that lies immobile until maturity. But if the bank does not want to wait, it can take this activity, "wrap it up" in

lex)

Benchmark: an "objective" parameter of reference, constructed through representative signs of the risk/earning profile of the markets. It is an indication

101

that expresses the risks related investment

sanctioned

to the product

of

by a saver and is useful for

and are thus rather opaque. They are not homogeneous and, both at the time of issuance and successively,

evaluating the efficiency of the product of investment.

are traded over the counter.

Carry trade: this instrument

CDS (Credit Default Swap): instruments

allows one to take out a

of a larger

money loan in countries that apply low interest rates,

family of credit derivatives that agrees to transfer the

especially, but not only, in Japan, and to lend them in

risk of credit

relative

countries that apply high interest rates, such as Brazil

activity

a subject

or Russia.

guarantee

from

to a determined

intending

financial

to purchase

a

against risk to a subject intending to lend

it. The Credit Default Swap is similar to an insurance COO (Collateralized

Debt Obligation):

the CDO is

a specific category of ABS and assets of fixed income that are not subject to regulation Typically, the issuance of purpose

vehicle"

conferred residential

coo

on the markets.

starts from a "special

(SVP, see securitization)

a complex

portfolio

of mortgage

or not, but also corporate

tranches

coo

cos are

traded over the counter, i.e., on

of buying and selling are not standardized

and not

tied to a series of norms (admission, control, informative obligations,

etc) governing official markets.

loans,

obligations

high earning, and more still. The portfolio credit of various risks. The

that is

policy. The

the parallel markets where contracts and modalities

of

includes

Collateral:

an asset pledged by an agent who owns

a debt.

is then divided into

or classes. The lower and the riskier one

Conduit:

the conduit

is also known as special pur-

(equity tranche) absorbs the first X% of subsequent

pose vehicle. It has to do with a corporate

losses; the tranche (senior tranche) suffers losses only

created for a specific purpose, usually by a financial

if the total losses of the portfolio

institution.

exceed the quota

entity

For instance, if a bank wants to securitize

absorbed by the lesser ones. By virtue of this protec-

a series of real estate loans, it confers these loans on a

tion, the senior tranche usually obtains the maximum

"special purpose vehicle" created on purpose and, on

rating

rating

this basis of activity, the new company issues securi-

gradually decreases for the lesser tranches. The higher

tized assets. It is essential that these conduits be not

(valuation),

i.e., the triple

A. The

the rating of a tranche, the less is its earning. CDOs are very complex instruments

of difficult valuations

formally tied to the parent company; otherwise, they would be recognized as an integral part of the group

and their balances would have thus impeding

[0

be consolidated.

the transfer of the risk and the dis-

persal of requirements

of capital. This separation

Fair value: literally estimate, fair price; the term was introduced

by

the

accounting

(International Financial Reporting

principles

IFRS

Standard).

It is a

decreases at the moment when (like in 2007-08-09)

method of valuation based on the presupposition

the bank is in liquidity crisis and is dependent

values in balance

sponsoring

on a

bank to receive credit.

reflect "real" values.

however, a fair value valuation becomes difficult for some activities, particularly

Credit

crunch:

a contraction

that

At times,

(restriction)

of credit

the immaterial

activities

and some financial activities lacking exchange market.

supply from the banks following a financial crisis in which they are particularly

implicated.

It is used to

"cool down" the inflation. The constraint

of credit

thus occurs on the wave of bank failures.

Hedge fund:

these are non-regulated

funds

operate in accordance with "short selling," i.e., selling assets betting on a reduction

of the market

(opera-

tions of norm not allowed to other typologies Deleveraging:

when investors, who entrusted

them-

that

of

funds), or, vice versa, to "go long," Le., speculating on

selves to high-risk financial instruments-managed

an increase in assets. The assets of hedge funds can be

by institutions

invested in any type of activity permitted

of the so-called

system-withdraw

or threaten

shadow

banking

to withdraw

their

tion, thus assuming short-term

by regula-

positions or departing

money from the markets, the system becomes suscep-

from all prudential

tible to a cycle that is auto-reinforced

by a forced

division of risk. The objective of these funds is to

a process that

attain the highest earning between those granted by

liquidation further

of assets (deleveraging),

increases unpredictability

and reduces the

the market without instrument.

financial contracts

stipulated

activity. Underlying

have financial

(shares,

obligations,

with regard to

They make big use of derivatives.

between

two contractors whose value depends on the trend in the underlying

any preclusion

and the

both the areas of investment and the type of financial

prices in an entire series of asset categories. Derivatives:

norms of containment

activities

can

interest

and

exchange rates, stock market indexes) or real nature (as raw materials).

Interbank rate: the interbank market is meant to provide for short-term cash imbalances where those who have excessive funds lend them to those who need them. Each morning 50 main European banks must share the interest rates they intend to use in the

Apper.cjIX:

'Nords:n CriSIS / 105

debit/credit operations with the other banks (interbank rate). During the crisis of trust between the banks that broke out with the discoveryof the abyssof toxic assets, the interbank rate increased considerably. LBO (Leveraged Buyout): an operation of acquiring a company with the use of a high financial leverage. The debt owned by the (acquiring) company X, generally obtained by granting concessions on guaranteed shares or property of the (acquired) company Y, is then generally repaid either with cash flows generated by the acquired company or by selling branches of the acquired company (so-called non-strategic business unit). Leverage: the faculty of controlling a high amount of financial resources through the possession of a small part of such resources, and thus with a low use of capital. For the banks, having caused leverage meant issuing derivative financial instruments with evermore complex structures.

assets"easily,"thus the capacity to cease being assets and become cash. Mark-to-market: an application of the criterion of fairvalue to accounting: which is to say,of evaluating the activities at the root of market prices rather than historical cost (the cost at which they were purchased). With a view to establishing the "truth of balances" and rendering them transparent, the accounting norms usually call for using "mark-tomarket" to evaluate the financial activity and passivity. With respect to the advantages of reliability and transparency, the mark-to-market criterion can aggravate the unpredictability of shares, with procyclical effects, in periods of strong increases or strong drops of prices on financial instruments. MBS (Mortgage-Backed Securities): a

=-:

of

ABS obtained by securitization of real estate credit.

Monoline: insurers of bonds. Non-bankin

Libor (London Interbank Offered Rate): the rate of interbank market in London. The Euribor is its European equivalent. These two rates serve as reference for all the other interest rates. Liquidity (cash): liquidity designates the treasury of an agent; the capacity that offers a market to sell its

financial system: "The structur~ of the g d fu dentally during the financial system change n am f . h in the share 0 assets boom, with dramatic growt Thi n-bank .. a1 b king system. s no outside the tradmon an . I I . . to be very large, partJCuar Y in financial system gr~ k I early 2007, assetd fundmg mar ers. n the money an . 1 per conduits, in structured pa .. b acked commercIa .1 . erion-ratepreferredsecunues, investment vehic es, In au

Apoendix:

106 ;'

Fnanc:iai

CaUlralislT'!

VJords

in Cnsi;:; ;' 107

I

~

I

~ tender option bonds and variable rate demand notes, had a combined asset size of roughly $2.2 trillion. [ ... J The scale of long-term risky and relatively illiquid assets financed by very short-term liabilities made many of the vehicles and institutions in this parallel financial system vulnerable to a classictype of run, but without the protections such as deposit insurance that the banking system has in place to reduce such risks" (Timothy Geithner, United States Secretary of the Treasury, a speech delivered at The Economic Club of New York,June 2008). Panic: "Sometimes," writes Krugman, "panic is simply panic: an irrational reaction on the part of investors that is not justified by the actual situation." In such cases, those who remain lucid are rewarded for not losing their head. "In economics, however, the kind of panic that-whatever the motive that gives rise to it-autojustifies itself is much more important. The classic example is that of rushing to cash machines: when those in rush try to withdraw all their savings at the same time, the bank must sell its goods at lowest prices, going bankrupt as a consequence; those who do not allow themselves to be seized by panic are worse off than those who effectively lost their head." Pric~/ear~ing ratio or PIE: indication given by the relationship between the quotation of a stock price

and earning per share. If, for instance, the pricel earning ratio of a share equals 15, the stock pays 15 x for generated earnings (example: with a PIE of 15 and a share price of $1, we have an earning rate of 6.7%). Private equity: investment on the part of specialized subjects in quoted and non-quoted companies. The operator of private equity is a subject financing small companieswith good prospects of development, with the intention to make them grow and then demobilize its shareholding at higher prices. Rating agency: an agency specialized in valuation (notation) of the credit risk of an issuer of obligations, that is, of structured obligations guaranteed by a plurality of mortgage loans. The main agencies are Moody's, Standard & Poor's, Fitch, and DBRS, all American. Ratio: a relation, indicator resulting from comparison of two quantities, for instance the profit of a company and its assets. ROE (Return On Equity): the earnings from net assets. It indicates the pro flItabili I rry 0f their own means, that is, those made available by shareholders of a company (such as a bank).

Appendix: vVorrjs in Crisis 108

'jf

FnanCl8i

Cap!T81i3!n

109

I

I "".1

i

I j

"

Securitization: consists of the transformation (giving way to a "special purpose vehicle" or SVP that has as its exclusive objective the realization of such operations) of credit, or also of future cash flows, into an asset. Example: let us suppose that the bank has a number of real estate loans between its activities; the bank can decide to securitize them, i.e., to issue securities that have these loans as the guarantee. These securities are then sold to private or institutional investors and the bank thus returns the money to the lenders: the funds that the bank obtains can be used to expand its own activity. The securitized assets, like normal obligations, have a maturity date and an interest rate, and the debt service is tied to refunds and payments of interest on the part of the original debtors. The bank, besides having the advantage of mobilizing activities of little liquidity, also diminishes the risk tied to those loans: the risk is passed on to the investors. The government, on a state or local level, can securitize as well.

Swap:an agreement between two parties who decide to periodically exchange incoming or outgoing cash flowsin accordance with preestablished conditions. Systemicrisk: a situation in which a local failure triggersa seriesof other failures with the threat of global collapseof the financial system. Toxic asset: "toxic" financial assets are comprised of irrecoverable credit "contaminating" banking balances and, consequently, creditor companies. The "toxic assets" can also end up in the portfolios of savers.Once they would have been defined as "waste paper" or garbage.

SPV (Special Purpose Vehicle): see Conduit. Subprime: in American language, subprime are real estate loans of lesser quality offered to subjects with high risk of insolvency: with previous episodes of insolvency, with low or even uncertain incomes, lacking other forms of wealth.

Appendix:

11O! Tie

of Financial Capitalism

\;Vofds

In

Cri~)is / 111