FROM THE MONTHLY REVIEW EDITORS
As we write these notes in late January 2009 the economic depression is worsening with each passing day, creating previously unthinkable conditions. Even as production sinks and unemployment soars in the “real economy,” the implosion of the financial sector remains at the center of the crisis. It is now widely acknowledged in financial and policy circles that nationalization of the U.S. banking system, under one or another description, is inevitable. The Obama administration still resists what is referred to as a “complete nationalization,” with the government wiping out the bank shareholders and taking over the running of the banks. But every other option on the table involves further steps in this direction. Already the U.S. Treasury has received shares and other securities from 314 financial institutions in return for $350 billion in government bailout money.
To get an idea of the seriousness of the problem it is important to understand that the U.S. government in this crisis has thus far committed $8.5 trillion dollars in support programs primarily aimed at salvaging banks (through capital injections, loans, guaranteeing debt, etc.), while the banks continue to collapse. For example, the Treasury has already provided $40 billion in capital injections for Bank of America plus another $118 billion in debt support. Yet, the entire market value of Bank of America at closing on July 20 was $25.5 billion, only about one-sixth of the cash and guarantees that the Treasury had provided. Although the value of Bank of America’s shares, along with other financial institutions, rose subsequently, the January financial plunge set the alarm bells going. Between mid-October when the Treasury Department unveiled its $700 billion bailout plan and January 20, the Dow Jones Wilshire bank index fell by 56 percent (“Crisis Q&A: What ‘Bank Nationalization’ Means for You,” Deal Journal, WSJ.com, January 21, 2009; “Financials Plunge as U.S. Considers New Rescue Operations,” Wall Street Journal, January 21, 2009).
In fact there is now an all-out effort being made by the vested interests to increase government infusions to the banks in order to protect private shareholders, while simultaneously preventing the government from exercising increased control—and ensuring that where government does end up owning banks it will only be temporary. All of this follows a long tradition in capitalist economies, where nationalization is resorted to as a last resort in financial emergencies, only to be rejected later when the economy picks up.
The most extensive nationalization in a major capitalist economy took place in Italy in the 1920s and ’30s. As Ernesto Rossi observed in his study of “Nationalization in Italy” (in Mario Einaudi, Maurice Byé, and Ernesto Rossi, Nationalization in France and Italy, 1955), Italian capitalism adopted after the First World War an idea that “was simplicity itself. When profits were fat, they went to small private financial groups, as the proper rewards of the capitalist system; when losses were heavy, they were distributed among the taxpayers, as an expression of community spirit” (194). This continued among both bourgeois-liberal and fascist governments (capitalist rule in its most openly repressive and nationalistic form). Eventually, in the Great Depression Mussolini’s regime took over the three major banks through a state agency, the Institute for Industrial Reconstruction (IRI), which ended up owning much of Italian industry and became the right arm of the fascist dictatorship. Nothing like this is imminent in the United States, but the fact that nationalization of banks has sometimes fed into right-wing corporatist, even fascist regimes, should serve as a cautionary note for all of those who see nationalization as necessarily constituting a “socialist” advance.
Many of those advocating nationalization of banks in the United States today, whether on the right or the left, point to the relatively benign Swedish case of bank nationalization in the 1990s, which, while it ultimately benefited only the well-to-do, is presented as an example of good state-directed financial management by the standards of the system, leading to a quick reprivatization. This, however, occurred under circumstances widely different from the current deep world slump. Nor is it a model likely to be adopted in the United States, where capital is in a much stronger position to call the shots.
At the moment the strategy of the Obama administration, reflecting the demands of monopoly-finance capital, is to socialize the losses of the banks, making taxpayers pick up the tab, while avoiding as much as possible government ownership or control of banks—and even more so any appearance of nationalization. Government shares and warrants (options to buy stock) will continue to expand as more taxpayer money is injected into banks. But by retaining at least a small portion of private ownership, and keeping the government from exercising shareholders’ rights (for example, the government thus far has mostly purchased preferred shares, which do not carry voting rights) the plan is to keep the state as much as possible in the background.
Worse still, the current proposal being pushed by Obama’s Treasury Secretary Timothy Geithner is to create what is called a “bad bank” under government ownership that will buy up the toxic wastes from the private financial sector, removing them from the private bank balance sheets, and thus socializing the losses—even without necessarily nationalizing fully the major banks themselves. According to the Wall Street Journal on January 29, 2009 (“New Bank Bailout Could Cost $2 trillion dollars) the “bad bank” would need as much as $2 trillion dollars to be raised by issuing government-backed debt or through loans from the Federal Reserve to buy up the toxic waste. The secret of this gigantic fraud needs to be exposed: if these toxic assets were to be purchased at their current value then the general insolvency would immediately be clear from the balance sheet of every financial institution. The whole operation therefore requires that a vast gift of public funds be handed over to the care and custody of the obscenely rich incompetents who helped engineer the catastrophe. The nature of the salvage operation would thus most likely require that the government purchase this toxic waste at a price far in excess of its largely non-existent value. This should come as no surprise, since it is the same set of “masters of the universe” on both sides of the transaction. Indeed, all of this is similar to the original proposal of Bush’s Secretary of the Treasury Henry Paulson (concocted with the help of Geithner, then New York Federal Reserve Board governor, and Federal Reserve Board Chairman Bernanke).
How is the left to react to the economic crisis and to such attempts to socialize losses on the back of the population as a whole? Should we in the face of a depression and financial crisis be offering our own, slightly more benign strategies for saving the system? In September some progressives in the United States argued that it was necessary to support Paulson’s “bailout the rich” plan lest there be a depression. Three months later we have trillions in government funds handed over to the richest people on the planet and a depression. The crucial point, in our view, was captured by István Mészáros in his Beyond Capital where he explained that “radical politics can only accelerate its own demise...if it consents to define its own scope in terms of limited economic targets which are in fact necessarily dictated by the established socioeconomic structure in crisis” (950). Today a general strike in Guadeloupe enters its ninth day: its demands are for an end to capitalist exploitation. In France millions today marched for an anticapitalist response to the crisis. The realm of the possible, of politics, is expanding.