Re: [Marxism] Answering 6 questions on the economic collapse

["Joaquin Bustelo" <jbustelo@xxxxxxxxx>]

Steve Palmer writes: "If there are no claims on the assets, then how come
this is coming up in the bankruptcy court? I don't find this credible."

IANAL, especially not a corporate lawyer, merely a humble scribe. I believe
I accurately reported what someone in a position to know and understand what
is going on in this aspect of things claims is going on.  

Steve Palmer: "It's a bit like a high-wire act: journalists like to quote
the big numbers in order to shock thrill and scare their readers. The crazy
totals, like the whole mountain of derivatives, certainly nets out to
considerably smaller amounts. It's like taking everything in the credits
column and everything in the debits column, adding each up and then adding
both together instead of subtracting. Yes it's a big number, but when
tracked through the books, the net difference is very much smaller, and that
is what matters."

By and large what you say is true: "journalists like to quote the big
numbers" but those are the numbers they are given by people actually
involved. As to journalists being able to understand what they mean, by and
large they can barely check their bank balances at an ATM, never mind
actually balance a checkbook. 

I understand what Steve is saying about derivatives mutually cancelling out.
For everyone in a long position, whatever that might mean in a given case,
there has to be a short. The problem comes in when one of the counterparties
won't or can't pay, defaults. 

Normally in a conventional derivatives market like a futures market this is
minor: how much the market moves in a given day is limited and everything is
settled daily and long before a shortfall shows up, it is much more likely
that someone simply can't make a margin call and they're out. 

But with the new derivatives there are neither liquid markets nor margins
that operators need to maintain *for those specific positions* nor daily or
other regular settlement, but also there is no longer necessarily the
symmetry that allows these contracts to be easily unwound. My understanding
(again, from that Latin American guy and various others) is that one or the
other side may have sliced and diced their position into new paper of
varying terms and conditions, so that were it to be necessary to unwind
positions, it would be much more difficult, and this then turns positions
that mutually cancel each other out into ones that do not, at least not at
the same time.

An example is what they did to mortgages, if I recall an example given in
the NYT or WSJ recently. Okay, step one, mortgages were bundled into bonds.
Step two, a bunch of those bonds were collected into a pool, and then (step
three) the pool was sliced and diced into different tranches (the number 30
sticks in my mind). Step four, insurance was bought to turn a number of
those tranches into investment-grade paper, the only kind many
"institutional" investors (pension funds, college endowments, etc.) are
allowed to have, and step five, those obligations to pay people from the
income of the pool of bonds, under varying conditions and with different
priorities, were then scattered to the four corners of the earth through the
globalized financial system.

How do you "unwind" one mortgage from something like that when some poor
family gets foreclosed?

Steve Palmer: "It's not the absolute amount that matters, but the
consequences of the disruption in the chain of payments. There are numerous
stories now emerging in the financial press of the consequences of the
credit freeze. Hungary, Ukraine, Latvia, Estonia, Lithuania are all talking
with the IMF as a consequence. Several M&As have been called off. Airbus has
put off expanding it's production line. It wouldn't surprise me if Boeing is
deliberately dragging out the machinists' strike because the company can't
get credit it needs. States are having financing problems."

But what is CAUSING the disruption in the chain of payments? Initially, bad
mortgages, but once the chain of payments GOT disrupted, that meant that in
real time the derivative obligations do not necessarily balance each other
out, so the nominal face value of the transactions DO start to matter, at
least temporarily.

Six small, medium and large financial institutions exchange credits and
debits for a total volume of a million dollars and a net result of a check
for $1,522.73 to some trust fund. But if someone is unable to make a $10,000
payment that another party in the chain needed to complete a $100,000
payment, and so on, and although the NET might be insignificant, the
inability to clear the chain of transactions can leave one or more of those
involved in tatters, bankrupt. If the transactions can't be cleared and
settled in real time then the nominal face values of up to $1 million become
very relevant, even thought the next is just one thousand and change.

Steve Palmer: "Your belief in the robustness of the capitalist system is
impressive and your account of a dramatic rescue plan a charming fairy tale.
I'm still waiting on an explanation, without hand-waving, of how they can
turn this all round without slicing and dicing the US middle class and a
massive attack on the working class."

"I'm not sure who's expecting capitalism to collapse due to the sacredness
of contracts. All the contracts do is try to distribute the losses among
individuals and groups within the capitalist class; they aren't responsible
for the crisis. Capitalist crisis has nothing to do with the observance or
not of its legal niceties, but with insufficient surplus-value to expand its
capital."

Let me be very clear: I have NO belief NOR any disbelief in the "robustness
of the capitalist system" in some fundamental sense at this moment in time.
I have the observation that first, this mostly looks like a bubble bursting
setting off a financial panic to me, something that capitalism has been
known to have in the past and, should it survive, will have again in the
future, but is definitely a major disruption in the system.

The wiping out of whole classes of derivatives --which as Steve Palmer
explains in reality are contracts that NET will yield something like
fractions of a cent for every dollar in face value when fully settled and
paid all around-- is a measure that has been seriously mooted in the
financial press on the basis that the systemic risk they represent because
of the huge face values involved is too great even assuming the potential
profits from them is real value that would otherwise go unrealized. (Yes,
you and I understand that this is not true, no real new value is there, but
capitalist financiers and central bankers do not). 

According to the Latin American financial guy, he expects the U.S. to do
this, wipe out or force settle whole classes of these contracts and restrict
them greatly in the future, among other reasons, because it helps to
transfer the costs of the crisis to other countries, but mostly, because he
doesn't think confidence in credit markets can be restored UNTIL it is known
what these things are really "worth" and it is impossible to assign them a
price UNTIL confidence and normal operations are restored in financial
markets.

He thinks the toll on the "real" economy of jobs, manufacturing, and so on,
and not mostly in the rarefied world of high finance, is what will lead to
this outcome. 

I present this because at this point especially on this kind of list there
doesn't seem to be much of a need to convince people that something is very
seriously malfunctioning in the capitalist system, but there does seem to be
a need to alert people that people in capitalist circles do have ideas for
bringing the panic to a conclusion.

There is WAY too much "automatic" classless analysis going on, like the
initial tendency of some folks to insist on the nationalization demand,
which under current circumstances could only be and would be widely
understood as simply a rescue/giveaway to the banks, as Brown and Paulson
have now conclusively proven. And by "classless" I mean specifically, not
relating to class as social layers and forces in relationship to one
another, but rather as depositories for additive and subtractive economic
operations. Which brings me to the other main point.

And that is that this is not the first time I've been reading Marxists and
socialists of all stripes telling me that THIS latest crisis of capitalism
is FOR SURE the final and definitive one, or COULD BE, or that there is no
easy getting out of it, without squeezing the working people so hard that
they surely will rise up, or at the very least form a Labor Party and a few
more unions. 

In MY OWN real time personal experience, of course, that's only been going
on for the last four decades, but going back further, I know this has been
pretty much the standard Marxist narrative on every significant turning
point in the evolution of the system and quite often even minor downturns in
the business cycle for more than 80 years, since Lenin died. 

When Lenin was alive, at least the position of some Marxists, like Lenin,
was different, as embodied in the Comintern's second congress supplementary
theses on the national and colonial question that explained revolution in
the major powers of Europe was impossible UNTIL the flow of super-profits
from the colonies was stopped.

I think experience showed the theses were right, and a REALISTIC assessment
of prospects today should start by looking to understand the failure of the
great depression to lead to any successful socialist revolutions as a
function if what the second congress's theses posited, rather than simply as
the autonomous negative consequence of the hegemony of Stalinism and social
democracy, which is where analysis normally stops. The second congress
theses would suggest there is a material grounding to the prevalence of
those currents, just as Lenin, during WWI, sought to explain the collapse of
the second international as a revolutionary force in  a similar materialist
way in his 1916 article on "Imperialism and the Split in Socialism."

The standard explanations proffered now on this list about this crisis are
sky-high abstractions about the reproduction problem or insufficient surplus
value or the tendency in the rate of profit to fall, all based on various
illustrations and calculations in Capital.

But Capital also has a brief --very brief-- chapter on unequal exchange,
which Marx doesn't seem to have factored into his overall description of the
laws of motion of the capitalist system, because --or so it seems to me-- he
considered it to be a fleeting phenomenon that capitalism itself was
negating. While Marx observed and denounced the exploitation of other
nations by emerging capitalist nations, he believed that Capitalism itself
would erase the differences between nations as it drew them into capitalist
production, so this factor, while included in the description of the
emergence of capitalism, could also, like unequal exchange, be put aside in
a generalized description of the motion of the system as such.

There is no easy way to say this, but it must be said: MARX WAS WRONG. 

Capitalism as a SYSTEM is not just based on class exploitation, but also on
the exploitation of many nations by a few nations, and at the current time
and for the last 60 years, on the United States having at least a
disproportionate benefit of that exploitation of other nations by the
nations of the imperialist camp.

Thus the overall framework comrades work with is of a model of the system
where there are exploited and exploiting classes, but not exploited or
exploiting nations. And comrades look at the classes and they say, there's
no other place for increased surplus value to come from save the hides of
the workers. "As Marx explains in Volume III ..." and so on. 

But Marx ALSO explains the raping and looting of other countries, saying
capitalism comes into the world dripping blood, as well as how and why
unequal exchange happens and MUST happen between two economies with what
today we would call different levels of development. Marx didn't live long
enough to see that what happened in France, Germany and then the U.S., the
creation of two, three ... four  "Englands," was IN FACT a phenomenon of
early capitalism and that socalled "primitive accumulation" --or more
precisely its methods-- were a permanent feature of the system, and that
capitalism worked not to DEVELOP all countries as it drew them into the
world market, but to UNDERDEVELOP THEM, keep the majority "backward" and
thus victims of BOTH unequal exchange and of having to pay out-and-out
tribute in various forms, everything from having to provide troops for the
imperialists to having to buy dollars with real products and then being
forced by the imperialist financial system to keep those dollars "in
reserve" INSTEAD of being able to use them to get products back from the
imperialist countries.

WHEN some of our doom-preaching Marxists come up with an explanation of the
crisis that fully and centrally incorporates IMPERIALISM into their ECONOMIC
calculations, THEN I will look at them seriously and try to figure out
whether the analysis makes any sense. As for all the rest, I would ask them
to go back to James P. Cannon's theses on the American Revolution right
after WWII or the equivalent predictions from other currents, or the
analysis that pretty much all Marxist groups in the U.S. presented of the
Nixon wage price freeze and the "end" of Breton Woods, and explain just
where, how and why those analysis all turned out to be bullshit. Then
perhaps I'll be a little less skeptical.

Joaquin


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