RACISM & NATIONAL CONSCIOUSNESS | NEWS/COMMENTARY


Capitalism Collapsing onto the Backs of the People
November 13, 2008, 2:02 pm
Filed under: Uncategorized

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by Steve da Silva

Basics #11 ( November 2008 )

“What’s going on with the economy!?”, is a question and a concern that’s on everyone’s mind. “Recession”, “depression”, “economic collapse”, “decline”, “liquidity crisis”, “toxic assets”, “corruption”, “fraud”… Much has been said in the corporate media about what’s going on at the surface of the economy. But little – in fact, almost nothing – has been said about the cause of this historically unprecedented crisis that the global capitalist economy is currently going through. To understand what’s happening, let’s start with the more immediate causes…

The Sub-Prime Mortgage Scheme

Capitalism is an economic system that must constantly undergo expansion. When there is not sufficient demand in the economy to consume all of the products produced by capitalism, there is a crisis of greater or lesser proportions. Capitalism is the first economic system in history where too much productive capacity is a cause for crisis.

In the late 1990s, massive investment in the U.S. was being poured into the “dot.com” sector. Much of this investment proved to be worth a lot less than it was and in 2000 when these markets crashed, capital had to find a new place for profitable investment.

With the bursting of the “dot.com” bubble in the U.S. in the early 2000s, the Federal Reserve cut its interest rates and held them down at record lows, encouraging banks to recklessly borrow and then lend out as much money as they possible could. As banks began to aggressively push new loans onto people, household debt sky-rocketed and millions of families took on “sub-prime” mortgages worth the full price of their homes, which at the time of their purchase were ridiculously inflated in value as the housing market was on fire. People were lent this money at “no-interest” teaser rates to encourage people to take on mortgages that their household income really wouldn’t be able to afford in the coming years.

Thus, as soon as the housing market began to cool-off, the value of peoples’ homes plummeted and families began to go bankrupt at record levels, losing not only their homes but everything they owned. The African People’s Socialist Party in the U.S. has done research on how these loans were particularly targeted at Black and Latino families.

What has been the immediate consequence for capitalism of this record-high level of bankruptcies in the U.S.? Whereas financial institutions appeared to have so much value on paper – based on the debts Americans were supposed to pay off – as soon as people began defaulting en masse – the actual value of these institutions proved to be worth much less.

The “toxicity” of these shaky lending practices were not limited to a few institutions in the U.S. because the debts of Americans were being repackaged as secondary financial assets and sold across the world. So markets around the world have been exposed to the crisis.


The last three months in perspective

The signs of a massive crisis on the horizon began to be revealed in the late summer of 2008 with the collapse of a number of American financial institutions. First there was the failure and subsequent nationalization of $6 trillion in debt from America’s two largest mortgage companies, Freddie Mac and Fannie Mae, which signaled the complete collapse of the sub-prime mortgage market. The failure of those institutions sent ripples out into financial market in the U.S. and the world, leading to a series of other failures in the U.S (Lehman Brothers, AIG, Washington Mutual), and around the world.

As mortgage-backed bonds began to implode, other institutions were hit hard and banks stopped lending to one another, leading to worldwide financial meltdown. This is what commentators have been calling “illiquidity”.

The response across most major Western capitalist countries – such as U.S., Britain, France, and Germany – has been to pump trillions of dollars – or “liquidity” – into these failing financial institutions so that they could go on playing their same old game of profit-making.

With lending and consuming on the decline around the world, Canada’s manufacturing sector has taken serious blows, with tens of thousands of jobs disappearing over the last year alone. The response by the manufacturing sector in Canada has been to approach provincial and federal governments with their hands out asking for hand outs to the tune of billions of dollars. Canadians need to be asking themselves whether it makes more sense to hand over billions to private institutions, or whether we should be investing our public funds in public enterprises that produce for the people.


Capitalism, and Beyond…

Explanations of the crisis that try to reduce it to fraud or short-sightedness are not just ridiculous, but are outright lies. The crisis was completely predictable, and the current raiding of public funds that are being carried out against working-class and the middle-class populations around the world must have been planned for some time now. The only fraud we need to be aware of is how the last few months bare witness to the greatest transfer of wealth in history from the poor to the rich. And the crisis is far from over.

Left to it’s own devices, capitalism will find a way to restabilize itself. It’s an open question, however, how long this restabilization will take, and whether the world’s major capitalist-imperialist countries will enter into another round of wars before settling upon a new stabilized world order. As Western imperialist countries continue their wars against the people’s of the world – especially in the Middle East and Central Asia – they are threatening a new round of wars in order to challenge eastern imperialist countries Russia and China.

The only way forward for working Canadians, as it is for the billions of our toiling brothers and sisters, is to begin organizing ourselves for a future beyond capitalism, as the peoples of Nepal, Venezuela, Bolivia and many other countries are trying to do. Today’s crisis is demonstrating to us that this future has to be socialism.

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