The Fed will offer its, your, cash at par or market value of these securitized loans, minus a haircut of course, to anybody and everybody with a minimum of ten million dollars worth of the securities; the Fed, with commitments from the US Treasury, will offer these loans at the LIBOR rate plus 50 or 100 basis points, for three years, with the collateralized securities themselves the only collateral the borrower need provide-- in effect, allowing the borrower to walk away from the securities with the K.A.S.H. at any time, for any reason, without any recourse on behalf of lender-- the Fed.
So as not to frighten our intrepid financiers from this pot of gold in the middle of the black rain, participants in the TALF will not be subject to the limits on executive compensation that the Congress so thoughtlessly, callously, cruelly imposed on those taking the public's money.
Obviously, the latest version of Federal Reserve monetarism is derived from both the sophistry of Milton Friedman and the legendary larceny of Eddie Antar retailing stereos and VCRs to New Yorkers in the 1980s.
At 2 Maiden Lane in New York City a banner appeared over the Fed's battery of special lending windows: " Welcome to Crazy Feddie's. Prices So Low, We're Practically Giving It All Away! Our Prices Are INSANE!"
When the immanent critique that capital is of itself overtakes the process of accumulation, when the shadow overtakes, actually becomes the substance, the plans and programs for recovery stumble, falter, freeze rather than float, suspended in time while time runs out.
The Fed failing to enrol enough investors to launch the TALF as scheduled, has run up against this immanent critique. Investors rejected the terms of agreement with the Fed's agents, the Wall Street banks, terms stipulated in the enabling documents of the program. Nobody wants a haircut when Sweeney Todd is in the barber shop.
In response, the primary dealers, with agreement of the Fed, are creating special investment trusts that circumvent the terms and restrictions in the program. Under the new TALF roundabout program, the dealers would borrow the money from the Fed to buy the securities, package the securities into investment trusts as the trusts' assets, and then sell units-- portions, shares, ratios in the trusts. And of course, inevitably the dealers will issue debt instruments, collateralized by the cash flows of the investment trusts. All of capital's great innovations amount to little more than repetition compulsions.
3. Barking up Trees while the Forest Burns
Meanwhile, the scientists of the dismal science of political economy, circling the wagons around the pit that is called finance capitalism, fill the print, video, and digital media with their favorite theories of what, where, how, and why things went more than just wrong-- how capitalism has made its own existence so problematic.
True and non-believers in the perfectibility, not of men and women, but of commerce, the monetarists and Keynesians, social-democrats, populists, utilitarians, free market socialists and state capitalists produce their derivative theories upon derivative theories in a perfect reproduction, a fractalization, of capitalism's own output of derivative values; recirculating as insight, explanation, analysis the obsolete, obfuscatory political economy of the past.
So the political economists proclaim that the predicament of capitalism is the result of excess speculation, unbridled greed, overfinancialization, super-securitization, unabashed swindling and looting-- and all of the preceding reduces itself to the latest, most favorite, buzzwords-- fictitious capital.
Now comes the parade of professional political economists whose most important credentials, whose critical researches, into the predicament of capitalism can be condensed into four sentences: 1. "I told you so." 2. "I told you so before that impostor/my colleague, standing next to me, told you so." 3. "In fact, I told you so even before excessive speculation, unbridled greed, unrepentant fraud, unabashed looting, and/or excessive credit, even existed." 4. "My fee is $400. An hour. In K.A.S.H."
The sum total of the value in the first three statements is zero, of course, for it is the specificity of this predicament, its emergence at just this time, in these places, that is at issue, not a prediction that can be made and exists regardless of .... history. And it is just that history that political economy cannot, dare not, apprehend. Economics is nothing but concentrated history, and history is nothing but the metamorphoses of the social relations of production. So the political economists, true ideological warriors of their class, encounter crime, excess, fraud, but never history-- never the relations of classes, the organization of labor and the means of production that makes the crime, the excess, the fraud, at one time so inconsequential, at another time so overwhelming.
The capitalization, the securitization, of cash flows from debt payments, the stripping and repackaging of cash flows from debt instruments as instruments of value accretion in their own right, as distinct from the function of cash flow as payments on debt, can be traced at least as far back as the administration of that idiot/hero in the pantheon of political economy, Ronald Reagan. Then and there, taking heart from the double-dip recession of the early 1980s, the LBO merchants took to stripping assets from corporations bought with debt that was secured by the very corporations taken over in the buy-out process. Of course, the usual first act of the newly acquired company was, besides assuming the debt of the acquirer, was to authorize direct cash payments to old and new executive "management teams." The debt, and the cash payments, were secured by the cash generated through asset liquidation.
During this same period, the initial securitization of credit card debt was floated through collateralized debt obligations and collateralized mortgage obligations of the credit card and mortgage issuers. Collateralizing mortgage debt was not a new technique as GNMA, FNMA, FMAC, and the FHLBs had been issuing debt backed by pools of mortgages prior to this "privatization" of debt securitization. But privatization of this technique gave it a depth and breadth far beyond that achieved by the GSEs.
This "capitalization" process represents nothing so much as accumulation through deconstruction; accumulation through dispos-ition; wealth not through expanded reproduction, but through transfer; getting rich not by producing wealth, not even by pocketing the already produced wealth of others, but by disposing of the previously accumulated assets of all-- through the decomposition of capital. Liquidity through liquidation. There is nothing fictitious about the capital generated, or degenerated, through financialization. Or, more precisely there is nothing more fictitious about this capitalization then there is in all the capitalization of private property under capitalism-- which is to say, all capital becomes fictitious when it cannot reproduce itself quickly enough.
This process of capitalization however does in fact change the rate and the mass of decomposition and collapse of capitalist accumulation. "Real, productive" assets in capitalism have no existence separate and apart from their ability to support the apportionment, the rationing, the parsing, of profit that is represented by debt and debt obligations. Once that ability wanes, then these air mountains of debt weigh more than the Alps on the impaired vital processes of capital.
The financialization process does not diminish the ability of capitalism as a whole to achieve its all important rate of return, nor does it create a fictitious the rate of return in capitalism as a whole. It, the financialization process, is by definition derivative. It, the financial flows, are part of capitalism's mechanisms for establishing a general rate of return.
Every step of this way was, and is, measured by and with the change in the price of oil, from the price spikes of 1979 serving to announce the double-recession, forming the overture and the coda to asset liquidation; with the collapse in oil prices reverberating throughout the financial structure, bringing an end to the leveraged certificate of deposit method of tapping into accumulated savings of the public, the housing construction boon of that decade, leading to the S &L crisis at the end of the decade and making the first invasion of Iraq a dead cinch lock.
The recovery from the 2001-2003 contraction, brought about through dollar depreciation, reduced wage rates, and rapid inflation of oil prices through the second invasion of Iraq, magnified the use of leverage to liquidify, and liquidate, the existing reserves of the general public. Recalling the pain of the capital investment hangover of the 1993-2001 period, industry consumed capital at rates greater than a 1:1 replacement ratio. Annual capital investment fell below the amounts claimed in depreciation until 2005, while cash and marketable securities held by industrial companies increased. Even after the increases in capital spending of 2006 and 2007, and during the ongoing depression, US corporations continued to generate, and preserve cash, at record levels. Estimates are that in 2008, the non-financial companies in the S & P 500 index had accumulated reserves of more than $800 billion in cash and marketable securities in the United States.
With profitability generating more and more cash, with capital spending severely restricted, with oil prices flushing money into that great big pipeline called foreign reserves, with the US pulling the entire network of capitalism in its wake, there existed only one market large enough, liquid enough, to absorb the cash flows and achieve what capital must always achieve-- the distribution, rationing of profit-- and there were only the asset-backed portions, the commercial and consumer real estate portion of those capital markets, the US consumer debt markets, the US mortgage debt market, and the leveraged loan private equity portions available.
The importance of "financialization's" contribution in establishing a general, and satisfactory rate of return in industry grew throughout the 2003-2007 period. As cash assets expanded an increasing portion of US industry income was derived from non-operating sources, including interest, dividends, royalties, licensing fees, etc. Between 1996 and 2000, income from non-operating sources grew from 11.5 percent of operating income to 42.5 percent of the operating portion, but for the recovery years 2003,2004, 2005, 2006, and 2007, non-operating income measured 66, 64, 69, 72, and 70 percent of the operating contribution.
The increases in operating and non-operating income combined with the continued constriction on fixed asset accumulation produced a spike in the rate of return on net property, plant, and equipment for US industry. That rate measured 22 percent in 2003; 40.3 percent in 2004; 45.6 percent in 2005; 51 percent in 2006, before falling to 35 percent in 2007.
2006 was the peak in the rate of return for US manufacturing, and that peak and its decline were marked on the part of the ideologues, dismal scientists, and artists of flim-flam capitalism with euphoria. T hose actually compelled to engage in the reproduction of capital, those who form the living, breathing source of capital-- those wage-laborers-- marked that turn with increased class struggle. In the United States, that class struggle was led by the immigrant workers, whose uncompensated labor had been, and remains, so essential for controlling the overall wages, the general ratio of wages paid out out to the class as a whole, who poured into the streets of cities around the country on May Day. These demonstrations were the tangible proof that capitalism had indeed overproduced capital and had run up against its own ability to exploit labor at a rate of greater intensity enough to offset the decline in the rate of return.
A year or so after the workers had demonstrated the limit's to capital's reproduction, the US oil industry again pushed forward its own plan for offsetting its decline in the rate of return, triggering a run up in oil prices that took the economy from fever to convulsions and then directly into hypothermia.
4. Meniere's Capitalism
There are those dismal scientists who, believing that everything in nature must balance and that capitalism is most assuredly a force of nature, maintain that the predicament of capital is essentially the predicament of imbalance between US capital and the rest of the world, and by rest of the world they mostly mean mostly Asia, and by Asia they mostly mean China.
The source of this disequilibrium in capital is, supposedly, the balance, or lack of balance of trade between the US and China, indeed between US and the world. The excess of its imports over exports, leading to current account imbalances; the purchase of US debt instruments by foreign central banks making the US not just a, but the largest debtor country in world accounts, supposedly marks US capitalism as parasitic, enfeebled, sustained in its leadership role only by its military power, and the advantages accruing to the dollar as a reserve currency. These massive imbalances have disturbed the equilibrium of exchange that capitalism supposedly achieves during, and requires for, profitable accumulation and expansion.
Nothing in capitalism, either on the local, the national, or international scale is based on balance, on an equilibrium. The equality of exchanges in the market is an equality on in the measure of value, not in its accumulation, nor in its reproduction. Nothing in the origin and maintenance of capital, the exchange between the means of production organized as private property, and labor organized as wage-labor, is based on balance, or equilibrium. Nothing in the creation of domestic markets, in the exchange between city and countryside, between industry and agriculture requires balance or equilibrium. On the contrary, it is exactly imbalance that marks the accretion of value, the growth of the means of production, the development of differing industries with different rates of profit, the accumulation of capital.
Agricultural areas within a country will "export" more to the urban areas, in value, than they "import" from industrial areas located in and around cities. There is no necessity for balance or equilibrium in this exchange. There is no cumulative equality of exchange between developed and less developed areas. How could there be, given the meaning of developed and less developed? The "developed" areas of capitalism do not "balance" their payments to the less-developed areas by exporting equal quantities of values. The developed areas realize the profits accrued in production within their own, or other, developed areas.
The funds that accrue as foreign reserves in the People's Bank of China, in the Banco Central do Brasil are indexes to their own lack of development, their own weakened domestic markets, in particular their impaired agricultural productivity, to their roles as suppliers to the developed areas of capitalism; to the uneven and combined development of capitalism in its local and global networks.
The designation as the balance of trade, or payments, as a proxy for the actual conditions of capital reproduction, the actual rates of return, the actual exchange between the means of production and wage-labor, is not new to this era of late capitalism. This is a neo-mercantilism, linked to the mercantilist ideology of merchant capitalism that still maintains its dead fingered grip on capitalist political economy. Examining political economy in 1843-44, Engels wrote in DeutschFranzösische Jahrbücher :
Political economy came into being as a natural result of the expansion of trade, and with its appearance elementary, unscientific huckstering was replaced by a developed system of licensed fraud, an entire science of enrichment.
This political economy or science of enrichment born of the merchants' mutual envy and greed, bears on its brow the mark of the most detestable selfishness. People still lived in the naive belief that gold and silver were wealth, and therefore considered nothing more urgent than the prohibition everywhere of the export of the "precious" metals. The nations faced each other like misers, each clasping to himself with both arms his precious moneybag, eyeing his neighbours with envy and distrust. Every conceivable means was employed to lure from the nations with whom one had commerce as much ready cash as possible, and to retain snugly within the customsboundary all which had happily been gathered in.
If this principle had been rigorously carried through trade would have been killed. People therefore began to go beyond this first stage. They came to appreciate that capital locked up in a chest was dead capital, while capital in circulation increased continuously. They then became more sociable, sent off their ducats as callbirds to bring others back with them, and realised that there is no harm in paying A too much for his commodity so long as it can be disposed of to B at a higher price.
On this basis the mercantile system was built. The avaricious character of trade was to some extent already beginning to be hidden. The nations drew slightly nearer to one another, concluded trade and friendship agreements, did business with one another and, for the sake of larger profits, treated one another with all possible love and kindness. But in fact there was still the old avarice and selfishness and from time to time this erupted in wars, which in that day were all based on trade jealousy. In these wars it also became evident that trade, like robbery, is based on the law of the strong hand. No scruples whatever were felt about exacting by cunning or violence such treaties as were held to be the most advantageous.
The cardinal point in the whole mercantile system is the theory of the balance of trade. For as it still subscribed to the dictum that gold and silver constitute wealth, only such transactions as would finally bring ready cash into the country were considered profitable. To ascertain this, exports were compared with imports. When more had been exported than imported, it was believed that the difference had come into the country in ready cash, and that the country was richer by that difference. The art of the economists, therefore, consisted in ensuring that at the end of each year exports should show a favourable balance over imports; and for the sake of this ridiculous illusion thousands of men have been slaughtered! Trade, too, has had its crusades and inquisitions.
The eighteenth century, the century of revolution, also revolutionised economics. But just as all the revolutions of this century were onesided and bogged down in antitheses -- just as abstract materialism was set in opposition to abstract spiritualism, the republic to monarchy, the social contract to divine right -- likewise the economic revolution did not get beyond antithesis. The premises remained everywhere in force: materialism did not attack the Christian contempt for and humiliation of Man, and merely posited Nature instead of the Christian God as the Absolute confronting Man. In politics no one dreamt of examining the premises of the state as such. It did not occur to economics to question the validity of private property. Therefore, the new economics was only half an advance. It was obliged to betray and to disavow its own premises, to have recourse to sophistry and hypocrisy so as to cover up the contradictions in which it became entangled, so as to reach the conclusions to which it was driven not by its premises but by the humane spirit of the century. Thus economics took on a philanthropic character. It withdrew its favour from the producers and bestowed it on the consumers. It affected a solemn abhorrence of the bloody terror of the mercantile system, and proclaimed trade to be a bond of friendship and union among nations as among individuals. All was pure splendour and magnificence -- yet the premises reasserted themselves soon enough, and in contrast to this sham philanthropy produced the Malthusian population theory -- the crudest, most barbarous theory that ever existed, a system of despair which struck down all those beautiful phrases about philanthropy and world citizenship. The premises begot and reared the factory system and modern slavery, which yields nothing in inhumanity and cruelty to ancient slavery. Modern economics -- the system of free trade based on Adam Smith's Wealth of Nations -- reveals itself to be that same hypocrisy, inconsistency and immorality which now confront free humanity in every sphere.
But was Smith's system, then, not an advance? Of course it was, and a necessary advance at that. It was necessary to overthrow the mercantile system with its monopolies and hindrances to trade, so that the true consequences of private property could come to light. It was necessary for all these petty, local and national considerations to recede into the background, so that the struggle of our time could become a universal human struggle. It was necessary for the theory of private property to leave the purely empirical path of merely objective inquiry and to acquire a more scientific character which would also make it responsible for the consequences, and thus transfer the matter to a universally human sphere. It was necessary to carry the immorality contained in the old economics to its highest pitch, by attempting to deny it and by the hypocrisy introduced (a necessary result of that attempt). All this lay in the nature of the case. We gladly concede that it is only the justification and accomplishment of free trade that has enabled us to go beyond the economics of private property; but we must at the same time have the right to expose the utter theoretical and practical nullity of this free trade.
The nearer to our time the economists whom we have to judge, the more severe must our judgment become. For while Smith and Malthus found only scattered fragments, the modern economists had the whole system complete before them: the consequences had all been drawn; the contradictions came clearly enough to light; yet they did not come to examining the premises, and still accepted the responsibility for the whole system. The nearer the economists come to the present time, the further they depart from honesty. With every advance of time, sophistry necessarily increases, so as to prevent economics from lagging behind the times. This is why Ricardo, for instance, is more guilty than Adam Smith, and McCulloch and Mill more guilty than Ricardo.
Even the mercantile system cannot be correctly judged by modern economics since the latter is itself onesided and as yet burdened with that very system's premises. Only that view which rises above the opposition of the two systems, which criticises the premises common to both and proceeds from a purely human, universal basis, can assign to both their proper position. It will become evident that the protagonists of free trade are more inveterate monopolists than the old mercantilists themselves. It will become evident that the sham humanity of the modern economists hides a barbarism of which their predecessors knew nothing; that the older economists' conceptual confusion is simple and consistent compared with the doubletongued logic of their attackers, and that neither of the two factions can reproach the other with anything which would not recoil upon themselves.
This is why modern liberal economics cannot comprehend the restoration of the mercantile system by List, whilst for us the matter is quite simple. The inconsistency and ambiguity of liberal economics must of necessity dissolve again into its basic components. Just as theology must either regress to blind faith or progress towards free philosophy, free trade must produce the restoration of monopolies on the one hand and the abolition of private property on the other.
The only positive advance which liberal economics has made is the elaboration of the laws of private property. These are contained in it, at any rate, although not yet fully elaborated and clearly expressed. It follows that on all points where it is a question of deciding which is the shortest road to wealth -- i. e., in all strictly economic controversies -- the protagonists of free trade have right on their side. That is, needless to say, in controversies with the monopolists -- not with the opponents of private property, for the English Socialists have long since proved both practically and theoretically that the latter are in a position to settle economic questions more correctly even from an economic point of view.
In the critique of political economy, therefore, we shall examine the basic categories, uncover the contradiction introduced by the freetrade system, and bring out the consequences of both sides of the contradiction.
He wasn't kidding. And he wasn't wrong.
6. Was, Not Was; Is, Is Not
Capitalism exists in a condition, not a state, of continuous and dynamic disequilibrium. It "manages" this disequilibrium by maintaining its reproduction as capital. To do that capital must engage, exchange itself with wage labor. The more capital accumulates, the more of itself it must exchange with this opposite-identity in order to increase its accumulation. Yet in order to increase its accumulation, its rate of aggrandizement capital must continuously expel from the production process that proportion of living labor necessary to its reproduction, so that more of itself, its accumulated mass, can be animated by less of its-other-self, living wage labor. Consequently, the more capital exchanges itself with wage-labor, the relatively less of itself capital exchanges with wage-labor, and so its profitability falls. The faster it goes, the slower it gets. The more it reproduces, the more it reproduces itself as the enemy of its reproduction, and thus it embarks on asset-stripping, liquidation, devaluation, and destruction.
The resolution of capital's immanent critique of itself is not in bailouts, nationalizations, "stimuli"etc. For the bourgeoisie, the resolution is, and is only, in destruction of both identities-- the means of production, and wage-labor. For the working class the resolution begins, only begins, with the opposition to bailouts, nationalizations, etc. The resolution advances through and by acts of solidarity with those most intensely exploited in the build-up to the decline in the rate of return. The critical second step-- May Day 2006 was the first step-- is for all workers to oppose all attacks upon, all discrimination of immigrant workers. The class as a whole must insist that unemployment benefits include amounts for remittances to immigrant workers' families. Now that would be stimulating.
Address all comments to: sartesian@earthlink.net
