Post-capitalist irony

Ironically, the best case for the abolition of private ownership of production and finance is now being made by capitalism itself. For example, banks which until just a few months ago were firmly in the private sector are now state owned or controlled. As yet, the world as we know it has not come to an end following this remarkable turnaround.

Of course, George Bush and Gordon Brown have not become revolutionary anti-capitalists. Their actions are desperate moves to prop up the failing international financial system and save it from total collapse. Every day there’s another frantic response. Yesterday, America’s Federal Reserve made $30bn available to central banks in Australia, Denmark, Sweden and Norway, to ease money markets. The American government is printing money like there is no tomorrow.

What the crash of 2008 is demonstrating, however, is that a) the market-driven capitalist economy and financial system has failed big time b) there is no iron law that says private ownership is necessary and c) there are alternative ownership models which can actually work.

So the crisis itself indicates the solution. Shareholder-owned and profit-driven corporations and banks have produced chaos and an impending catastrophe. Let them be commonly owned and run for the benefit of society as a whole. Of course, the capitalist state and proxy governments like New Labour are only interested in keeping the system going, if at all possible, whatever the social consequences in terms of unemployment, repossessions and lower living standards. They intend to either wind up or hand back to the private sector the enterprises they have nationalised.

Yet this assumes that the financial crash is now under control and manageable. Some superficial observers even believe that current events lead back to a much more conservative financial system, where credit/debt is much reduced and the regulatory framework is tightened up. This back-to-the-future fantasy scenario is championed by liberal commentators like the Guardian’s economics editor Larry Elliott and Will Hutton, chief executive of the Work Foundation.

Serious analysts know that the credit crunch is only just beginning, however. The unravelling of countless trillions of dollars of fictitious “assets” has a long way to go and will be reinforced by the impact of recession, falling house prices and lower consumer spending. All eyes are now turning to another mysterious area – credit default swaps (CDS).

These are insurance-like contracts that promise to cover losses on certain securities in the event of a default. They typically apply to municipal bonds, corporate debt and mortgage securities and are sold by banks, hedge funds and others. Contracts can be traded — or swapped — from investor to investor. The instruments can be bought and sold from both ends — the insured and the insurer.

The CDS market exploded over the past decade to more than $45 trillion by mid-2007, according to the International Swaps and Derivatives Association. This is roughly twice the size of the US stock market and far exceeds the $7.1 trillion mortgage market and $4.4 trillion U.S. treasuries market. The top 25 American banks hold more than $13 trillion in CDS instruments. As asset prices plummet and companies go bankrupt leaving nothing but bad debts behind, the CDS market is ready to implode.

Yet another powerful reason to refuse to pay for the bankers’ crisis and to mobilise for the Stand Up for Your Rights festival on 18 October.

Paul Feldman
Communications editor