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Monday, November 28, 2011

How we got here

Today's great worry is the European debt crisis and the possible collapse of the EUropean monetary union. The NYT tells us that Moodys and the Paris-based Organization for Economic Cooperation and Development have both offered dire warnings of a massive new recession:
The credit agency warning that the problems may lead multiple countries to default on their debts or exit the euro, which would threaten the credit standing of all 17 countries in the currency union.
Our friend Dakinikat -- incidentally, that's Dr. Dakinikat to you; she now has her PhD. -- offers a sharp overview of the situation:
Reports from AFP show that the IMF may be planning a 600 billion Euro rescue plan for Italy. Italy is the world’s 8th largest economy. It’s the 4th largest in Europe. Needless to say, this is highly irregular.
It will be hard for our libertarian propagandists to argue that Italy has been run by socialists and libruls in recent years, but they will make that argument nonetheless.

So how did we get into this situation? The latest issue of Lobster offers some excellent historical perspective. (Please note that, as of this issue, you can't download the entire magazine at once; you must select individual articles, which open up in pdf.) You'll want Robin Ramsey's piece "The Crisis," which elaborates on the Labor Party's subservience to the City. All of this translates nicely into American terms: "The City" is equivalent to Wall Street and the Labor Party equals the Dems. (Obama = Blair? Yeah, that's about right.)
Sitting in the pub, a friend of mine said he couldn’t understand what was going on in the Labour Party at the moment. I said something to the effect that they had a problem: almost everything they believed about economic policy for the past 25 years was wrong; and imagine how difficult this makes things for the current leadership. They cannot say, ‘We’re terribly sorry: we’ve been wrong for the last 25 years. We plumped for the City and ignored the manufacturing base.’ Politicians don’t do this. Political parties not seeking election – e.g. the Communist Party of Great Britain – can say such things (and the CPGB did circa 1990). But for parties engaged in electoral politics this is impossible. Or is perceived as impossible. They are forced to change their policies while pretending all was well when they were in office. (Or almost well: they may acknowledge little things they did get wrong...)

Not that this problem is unique to Labour. As the coalition government talks about ‘rebalancing the economy’, away from the City towards manufacturing, they have the same problem. They also chose to bank on the City. The British political class and its attendant media made a huge mistake in the 1980s when, with North Sea oil revenues to spend, they chose to copy America and not Germany or Sweden.
My guess would be that the group around Kinnock wanted to get elected more than they cared about the state of the British economy or the fate of its citizens; and having lost two general elections, decided that the bankers were too powerful to challenge. By this time – 1988/9 – the City had been largely sold off to American banks in the so-called big bang of 1986 and was well on its way to being an extension of Wall Street; and thus to be anti-City of London increasingly meant being perceived as anti-American.
There are even voices within the City starting to ask if the ‘Big Bang’ of 1986, selling off most of the City to American banks, was a good idea:
‘Viewed from the perspective of the biggest financial crisis since the 1930s.....Terry Smith, the Tullet Prebon chief executive, now reckons Big Bang was a “colossal mistake”. Peter Meinertzhagen, the former chairman of Hoare Govett, says: “It’s absolutely not something to celebrate. Everything that went wrong in the City went wrong because of Big Bang – greed, nobody knowing their counterparties, and good firms getting taken over and wrecked.”’
This gets us back to one of this blog's recurrent themes: We've all been bamboozled into seeing the financial world in terms of capitalism vs. socialism, when the real dichotomy has been between finance capitalism and industrial capitalism. Industry (that is, makin' stuff) is the heart that pumps blood into our economy; finance capitalism is a vampire out to suck us dry.

I can't resist one further quotation (and a quote within a quote):
It is slowly dawning on the political class that the last 30 years, the whole services/knowledge economy thing has been a detour, funded by oil and then debt. With this come some interesting shifts. Here’s Charles Moore, former editor of The Spectator, the Sunday Telegraph and The Daily Telegraph.
‘It has taken me more than 30 years as a journalist to ask myself this question, but this week I find that I must: is the Left right after all? You see, one of the great arguments of the Left is that what the Right calls “the free market” is actually a set-up.

The rich run a global system that allows them to accumulate capital and pay the lowest possible price for labour. The freedom that results applies only to them. The many simply have to work harder, in conditions that grow ever more insecure, to enrich the few. Democratic politics, which purports to enrich the many, is actually in the pocket of those bankers, media barons and other moguls who run and own everything.’
A few fantasy writers have attempted to solve a problem underlying the vampire myth: If vampires ran the world, what would happen when they ran out of victims?

I think Europe -- and America -- are about to find out.
Errr, well yes.

I think I have been saying something like this for a while. If I havnt its cos I am cr*p comunicator.

One thing. The labour party was taken over by another faction. They werent Kinnock-ites. They were bright young things from Oxford who knew better than the older generations and were gonna form a new consensus around socialism hand in hand with the market. Including the very good looking but not as bright as his friends or wife, Tony Blair, and the very clever, very charming, and very well dressed but gay Peter Mandelson. Curiously, one feature of this new faction is they were all tall. Blair is about 6'2. Mandelson 6'3. Brown 6'1. I dont know if this was a coincidence.

It just goes to show that Oxford produces a bunch of plausible morons who are very good at furthering their careers but totally f*cking ignorant.

But hey ho.
Yeah, maybe the left was right, blah blah... It's past time for the journalists to break out of their echo chamber. If revolution comes, they should be the first in line at the guillotine.

As far as finance capitalism vs industrial capitalism, doesn't speculation ruin even "real" real estate, for instance?
Check out "Day Walkers" to see what happens if Vamp ruled. Pretty interesting because the solution in the movie is sacrifice and pain for the greater good.
Two quick observations:

The reasons why the English ruling class chose to emulate Wall-Street instead of Sweden and Germany are manifold, but it just occurred to me that maybe one contributing factor might have been the fact that the British working class was then to the Swedish working class as The Clash was to Abba.

About the relation between finance and industry, I think your characterization of it as a 'dichotomy' reflects the fact that you're one of those wise and sane persons who never took Hegel seriously enough to actually study him rigorously. Had you done that, you'd have incorporated into your intellectual repertoire the eminently useful notion of "mutual determination", which means simply a relation between two processes, each of which cannot be fully characterized in isolation from the other, i.e., a relation in which process A cannot be defined without reference to process B, and process B cannot be defined without reference to process A.
moshe: You're right; I admit it. All I know of Hegel was what I got from Will Durant, who did not encourage further exploration. "Dichotomy" may be the wrong word, but I'm too lazy right now to come up with a better one.

At any rate, my long held suspicion has been that regulating -- or just outright socializing -- finance capitalism is far more important than applying the same screw to industrial capitalism. This is a stance that annoys both libertarians and Marxists.
Here's an interesting link a friend sent me:

" In my opinion, the failed German bond auction was orchestrated by the US Treasury, by the European Central Bank and EU authorities, and by the private banks that own the troubled sovereign debt.

My opinion is based on the following facts. Goldman Sachs and US banks have guaranteed perhaps one trillion dollars or more of European sovereign debt by selling swaps or insurance against which they have not reserved. The fees the US banks received for guaranteeing the values of European sovereign debt instruments simply went into profits and executive bonuses. This, of course, is what ruined the American insurance giant, AIG, leading to the TARP bailout at US taxpayer expense and Goldman Sachs’ enormous profits.

If any of the European sovereign debt fails, US financial institutions that issued swaps or unfunded guarantees against the debt are on the hook for large sums that they do not have. The reputation of the US financial system probably could not survive its default on the swaps it has issued. Therefore, the failure of European sovereign debt would renew the financial crisis in the US, requiring a new round of bailouts and/or a new round of Federal Reserve “quantitative easing,” that is, the printing of money in order to make good on irresponsible financial instruments, the issue of which enriched a tiny number of executives. "

Kind've an interesting take on things.
I should probably mention that Paul Craig Roberts has an interesting background as a Reagan economist and was a 9/11 truther at one point. He's also Cato Institute so take that conjecture with a grain of salt
There's really no problem, it's just in the intellectual's mind, and that gets repeated over and over by the less mindful.

It's always going to be about interest rate charge abuse against the masses.

Without the interest rate charge abuse, the world's economy would be doing ok right now.
Her name is Dakinikat not Dakinkat.
Anon... yow! BAD typo -- and I did it twice!

Yet you waited HOURS to bring it to my attention. I blame you.

(Kidding. Thanks.)
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