Re: [Marxism] Crisis may make 1929 look like a 'walk in the park'

["Joaquin Bustelo" <jbustelo@xxxxxxxxx>]

I tend to be pretty skeptical about these catastrophist predictions. Having
been introduced to the genre by the US SWP's Militant series on the Nixon
wage-price freeze nearly four decades(!) ago, the problems and
contradictions are real enough, and more than once have been followed by
significant dislocations or recessions, but never the kind of
all-encompassing crisis that was suggested by the articles (often, yes, the
predictions came with certain reservations, qualifications, probablies and
maybes, unless the author happened to be Jack Barnes, in which case there
was never the slightest room for uncertainty). For some reason this sort of
fortune-telling, not of an individual but about society as a whole, became a
hallmark especially of Trotskyism in the post-World War II period, and
correct fortune-telling was seen as a hallmark of a correct program. 

But that's not what I wanted to write about. I wanted to talk a little about
the roots of the crisis as I see them, stripped of all pretense about MY
being able to foresee another 1929.

For a long time, a LONG, LONG time, all the imperialist countries (I assume)
but most especially the U.S. has observably been manufacturing this
overwhelming mass of fictitious capital --"liquidity" as they say in the
central banking racket-- without any backing in the real economy. There have
been and continue to be, when you think about it, bubble after bubble
--especially in the U.S. economy-- produced by this massive surplus of
capital. 

One, for example, has been the extraordinary rise in pay of certain jobs,
like corporate executives, bookies on wall street and similar folks (and my
impression is that insanely exorbitant "compensation" continues to
escalate).

Another was the dot-com boom of the end of the 90's. That was initially
fueled by speculative capital, and in turn created huge amounts more of
fictitious capital in the form of the insane valuations of "high tech"
stocks. For a while there was an implicit understanding that you could use
those insane valuations of, say, amazon.com to buy, say, pets.com, but not a
REAL business like Barnes and Noble. But money is fungible and with the AOL
acquisition of Time Warner announced at the dawn of the new millennium, the
bubble began to pop. Because it meant that a "dot-com" in a soon-to-be dying
business (dialup internet access) with little in the way of profits and
perhaps 7,000 employees was able to take over a highly profitable company
10-15 times its size. The sheer absurdity of it meant that eventually, in a
couple of years, AOL-Time Warner came to be worth about 10% of what each of
the two old companies had been "worth," and since recovering to about 20%,
or half of less of what Time Warner alone was worth, it's been stuck there
for a half decade or so despite very solid performance. So a bunch of the
fictitious capital got burned up, so to speak, which was probably a good
thing, although I doubt Time Warner shareholders, or others similarly
situated, felt that way. 

A good thing because fictitious capital just like any other kind demands a
return, but by its very nature it does not contribute in any way to making
possible the generation of surplus value. So it leeches capital returns away
from other enterprises, in essence. But a bunch of that capital wasn't
destroyed and more is being generated all the time, and it went on
circulating in the financial markets and finally into the housing sector. 

It went there because the Fed maintained absurdly low negative real interest
rates for a long time. This meant credit, especially short-term (in housing
terms), a year or two or three became very cheap because money was available
at negative real interests rates from the fed. This is what underlay the
housing bubble. The price of real estate is just "capitalized rent" which is
figured at some specific interest rate. With the plunge in interest rates,
the purchase price of homes shot up. The rest was done by the banking
industry which de-linked any trace of rationality from the making of loans.
They had no intention of keeping the mortgages, no liability if they went
bad, so who cares whether the rube could pay or not. (Like in all games of
musical shares, when the music stopped the banks DID get stuck with a HUGE
amount of this paper, partly stuff they hadn't sold yet, but mostly stuff
their investment affiliates had BOUGHT. And here we see the wisdom of those
who in the 1930's decreed that you could be a bank or a bookie or a mark,
but only one. With de-regulation, banks still weren't allowed in the casino,
but their affiliated companies were. And for a financial capital monster, it
matters little whether your entire capitalization was wiped out by your bank
or your gambling at the roulette table of derivatives of bonds backed from
no credit check, no income check, no interest for three year mortgages.

Now, a good number of the people being hurt are petty operators/speculators.
I can't tell you how many people I know who went into petty real estate
speculation at the end of the Clinton years or first half of the Bush years.
And a lot of people who weren't speculating for a living at least in part,
did rely on speculation to get them through. So they'd sign up for ultralow
"teaser rate" mortgages, zero down, zero qualifications, counting on
(because the bankers told them ...) that in three year's time, the $130,000
house they had just bought for  $200,000, which they really couldn't afford
except for the first couple of years of no or ultralow interest payments,
would then be worth $300,000, so they could refinance with substantial
equity, getting a permanently low rate, and draw out from the house equity
the $10,000 or $20,000 penalty for cancelling the other mortgage early.

OK, so the bubble burst. In my subdivision of perhaps 100 town homes there's
only been one foreclosure so far, but people bought these cheap 1200 sq foot
town homes for as much as $155K, when from the mid 80's when they were built
and sold for around $50-$60K, until 1999 when I bought mine, they had
appreciated to less than $85,000. (I paid $86K, and had to put a couple of
thousand extra in the down payment to make the mortgage requirements,
because the appraisal was "low"). But the foreclosed one sold at auction for
$75,000; and there's been two other sales in the past few months for under
$100K, I assume of places that were pretty well used, as opposed to newly
refurbished, but also of sellers who I suspect were about to go into
default, which is why they couldn't fix the places up properly and hope for
someone willing to pay $120k-130K. Because looking at the sales data over
the past three years, these places were selling for around $130K, there were
at least a dozen of 15 sales around the same figure. 

I believe that what originally was manifesting as a bubble in CEO salaries
and then in equity prices became a generalized credit bubble after the year
2000, which found acute expression through the housing market, but probably
impacted other sectors in ways we don't know. The freeze-up in credit
markets has been much wider than just the mortgage-backed bonds; commercial
paper has been hard hit, with volume shrinking by a third or so, according
to one report I saw. This also explains, in an ironic sort of way, why
stocks haven't tanked: there is so much fictitious capital floating around
the financial system and its got to go SOMEWHERE. That stocks seem like a
relatively sane and safe investment under current circumstances of extreme
uncertainty tells you pretty much everything you need to know about how
crazy it is elsewhere in the world of financial instruments.

Does this mean a huge economic crisis? For the Latino community, I believe
it already is, because so many Latinos, especially the undocumented, were
involved in construction, and construction has collapsed. I don't care that
it isn't showing up in the employment-by-sector statistics very much, I see
it all around me. 

To what degree other layers of the working class will be protected from or
affected by the collapse, I'm not sure, and I also don't know and wouldn't
know how to guess how far it will spread. Clearly, it has already spread
SOME, you're seeing more and more of these hard-luck stories in the paper
and on TV -- and they don't single out "illegals" for sympathetic treatment.
They're usually white folks, with an occasional Black for "balance."

I'm not sure whether/how far it will spread as a MASS phenomenon because the
fed has been very accommodating, they're lending money to banks
hand-over-fist and taking these ersatz mortgage-backed bonds as collateral
at face value, instead of marked to market, which is supposedly how the fed
does business in order to avoid "moral hazard." (In bourgeois economics,
"moral hazard" is NOT letting people go bankrupt, starve, etc., as
punishment for having guessed wrong about how to invest or where to work. It
is supposedly a very bad thing, because how are workers supposed to learn
that they ought not to work for companies that will go bankrupt except by
letting them starve when the companies do go bankrupt? In theory, this
reasoning would apply especially to rich people and corporations --you don't
want them going to the casino, losing a ton of money, and then come crying
to the government to make them whole, because if the government does that,
you'll only be encouraging and enabling a repetition. By preventing the
"discipline of the market" from functioning, the government would be
encouraging economic inefficiency and therefore making everybody poorer, or
so the theory claims. In practice, rescuing the high rollers at the roulette
table is precisely what is done, witness the Savings and Loans fiasco of the
80's, the stock market crash of 1997, the moves around the collapse of a
monster hedge fund--I think it was called long term asset management-- five
or seven years ago, and so on). 

However, those examples also illustrate a truth, which is that rescues by
the fed (usually in cooperation with "the financial community" and other
central banks) do sometimes/often/usually (I'm not certain which is right)
"work," in the sense of staving off a paralyzing crisis like that of the
30's or anything close to that.

I know it is said that these fixes only work at the price of higher
inflation and/or further building up U.S. debt to foreigners and/or creating
an ever larger financial bubble. And I understand in broad outlines the
mechanisms involved. It is ALSO said that SOME DAY, the bill will come due,
and I grok that also. 

But I am pretty agnostic about the bill coming due despite my understanding
the logic, for a couple of reasons. The first is that the capitalists have
pretty much succeeded in staving off this kind of collapse in the major
imperialist centers since Jim Cannon was explaining the inevitability of
another depression and with it the death of capitalism right after World War
II some 60 years ago. And Cannon is long since dead, but imperialism is
still alive and kicking and doing basically o.k. The imperialists even won
the Cold War, something which, had anyone asked me prior to the fall of the
Berlin Wall, even a month or two, I would have dismissed as absurd.

But mostly I'm agnostic in the sense that I'm not sure the bill will finally
and irrevocably and unavoidably come due before we hit peak oil or the ocean
swallows Wall Street due to rising sea levels caused by global warming.
Perhaps someone like Henry Liu might have a competent opinion on this, but I
sure don't. 

As I see it, capitalism IS heading towards the brick wall, and not
necessarily the one of its "internal" contradictions (though far be it from
me to deny that this MIGHT happen), but certainly of the contradiction
between its infinitely-expanding nature, on one side, and nature's decidedly
finite scope, on the other.

At this time, that brick wall seems to be the imperative need to bring to a
close the hydrocarbon fuel age, both because of peak oil and global warming.

Perhaps some monster-huge world-historic scientific/technical/engineering
breakthrough, like the focus fusion theory and research that's been
discussed on this list a couple of times (if it works!), will come to the
rescue in terms of the peak oil/fossil fuel/global warming brick wall. But
there are many more physical limits in nature than just hydrocarbon
resources.

It's now past midnight where I live, and time for this Santa's Helper to do
some final wrapping for the morning. My children are no longer of the age
where things under trees appear by magic, but still they expect the rituals
to be followed. 

*  *  *

Well, I was too tired to allow myself to post this last night without a
fresh look, and with all the goings-on today, only now got a chance to
reread it an make sure it was basically ok.

Joaquín


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