Alan Greenspan, former head of the US Federal Reserve, admitted yesterday that the credit crisis had exceeded anything he had imagined. Talking about the operation of financial markets he said: “I had been going for 40 years with considerable evidence that it was working very well.” Either he was looking down the wrong end of the telescope, or his theoretical models were wrong.
Speaking before Congress, Greenspan, who stood down as chairman of the US central bank in 2006, said the crisis had left him "in a state of shocked disbelief". That sense of bewilderment has produced all sorts of reactions. For example, this week, the Financial Times said: “When the US authorities allowed Lehman Brothers to fail last month, nobody expected that the decision would trigger a wave of nationalisations, rescues and government interventions across Europe.”
Just a few phrases from the discussion on BBC2’s Newsnight last night (a UK TV news magazine, for those reading from abroad): “A remarkably steep downturn”; “Business failures inevitable”; “Could turn out to be quite frightening”; “This recession could go on a long time”
This quite sudden series of admissions is the conscious expression of the dramatic, unprecedented global crisis as it is reflected in the minds of economists, financial analysts, and politicians the world over. It marks a moment of qualitative change in the trajectory of the global financial and economic crisis as it transmutes, its effects leaping from banks and financial institutions to threaten and bankrupt a collection of countries.
As the BBC’s Robert Peston put it “Queuing up for the intensive care ward are Iceland, Hungary, Pakistan, Ukraine and Belarus, all of which are in discussions about accessing special loans from the International Monetary Fund, the emergency medical service for the global economy. But there has also been a substantial withdrawal of capital from South Africa, Argentina and - most worrying of all - South Korea.”
Why the leap? Having exhausted the profits to be made from the banking crash, speculators have moved their attention to the currency exchange market where the volume and scale of transactions with fantasy finance outdistance the rest of the credit markets by a degree comparable to the difference between our solar system and extent of the known universe.
How could they all get it so wrong? And how, as many are now saying, could Marx be so right? What can we learn from something written almost one and a half centuries ago? As one of his main critics put it soon after Das Capital was published in 1867, the real value of Marx’s inquiry is ‘the disclosing of the special laws that regulate the origin, existence, development, death of a given social organism and its replacement by another and higher one”.
The dialectical method that Marx used was, and is scientific. It enabled prediction on the basis of a general understanding of how things change, which he took in its upside-down from the German philosopher Hegel. Marx used this method to guide his detailed empirical and historical study of the rapidly developing and already crisis-ridden economy. This approach enables us to follow quantitative changes and be alert to the moment when limits are reached and have to be breached – the moment of qualitative change, the leap to something new.
Others have continued that work since. We used it in our analytically prophetic book A House of Cards, from fantasy finance to global crash, published one year ago, whilst Gordon Brown was assuring the world about sound fundamentals. There are many more qualitative changes afoot. Many supporters of state intervention are beginning to realise that the game is up. The cost of fixing the crisis is just too great. Limits have been reached. Watch this space.