MARCH 28, 2018
CounterPunchers such as
Michael Hudson and Rob Urie have long informed its readers about what goes on
in the financial sectors of the US economy in particular and the global economy
more generally.
Their writings are usefully
complemented for me by valuable accounts of how banking insiders do their work,
ranging from the more journalistic (Michael Lewis and Matt Taibbi come to mind)
to the more scholarly. Among the latter, Doug Henwood’s Wall
Street: How It Works and for Whom (Verso Press, 1987), although
published over two decades ago is still pertinent, especially in view of the
Senate’s recent vote, with Trump’s support, to roll back some of the Dodd-Frank
legal provisions regulating “too big to fail” banks– thereby of course
increasing the likelihood taxpayers will be stiffed yet again in the event of
another major banking collapse (deemed to be “inevitable” by Bill Gates).
If Henwood showed, among other
things, why the 2008 crash was virtually inevitable, Norwood’s book indicates,
likewise among other things, why another such financial disaster will be just
as unavoidable, unless significant changes are made, not just to the financial
sector, but to the prevailing system of capitalist accumulation in its
entirety.
The City makes four
principal claims:
+ “A small group of powerful
countries has a privileged position in production, commerce, investment and
financial relationships compared to all the others”.
+ “The financial system does
not sit on top of, or alongside what almost all economic commentators call the
‘real economy’; it pervades all economic activity”.
+ “The concept of finance is
not tied to a particular type of institution, or to a separate ‘financial
sector’. All kinds of capitalist companies conduct important financial
operations”. Norwood provides the examples of the Ford Motor Company and
General Electric, which have units engaging in financial-sector activity.
+ “It is a mistake to treat
the UK financial markets as simply being satellites of the US markets. To use a
more accurate astronomical metaphor, the relationship is better described as a
‘double planet’ system: rather than the UK simply orbiting the US, each
country’s financial market exerts a significant ‘gravitational’ pull on the
other, even though the pull of the US is obviously larger. More than that, the
centre of gravity for the global system is determined the balance of power
among all the major capitalist countries, a balance that will shift
over time as their relative power changes” (Norfield’s emphasis).
These claims are substantiated
via Norfield’s informative overview of day-to-day operations of the UK’s
financial sector in relation to its US counterpart, and the part it plays in
global capitalism.
While these financial sectors
provide mechanisms which oil the levers and cogs of the real economy, they
nonetheless require an important fiction for many of their operations.
Organizations (and the
individuals who run them) in the financial sector extract revenues from assets
which have not yet created value, and which may never in fact create the
anticipated value (because the assets in question “tanked”). The revenues
extracted in this fashion are from asset-prices which move up and down in the
market, with a more or less appropriately employed broker then placing a bet on
a price, while of course not getting caught out by the market when prices
fluctuate.
These are bets, says Norfield,
but we should resist the temptation to view the market as a mere casino– the
market operates, ultimately, in order to take control of the world’s
resources. The betting element ensues from the fact that no value is created
by prices simply going up or down, even if there is a “return” to be reaped by
the broker/investor who happened to make a good bet on a particular price
movement.
Marx used the notion of
“fictitious capital” to describe money gained in this way, and Norfield shows
us how fictitious capital works today, rightly characterizing it as a form of
“constructive parasitism”.
Norfield’s argument in this
book shows why we need to disregard the conventional wisdom that the
much-publicized malfeasance and corruption prevalent in the financial sector
can only be addressed by draconian punishments for those running banks and
investment houses who stray from the “narrow” path of probity and rectitude.
An example of this wisdom is
provided by a US congressional aide who, during the 2008 financial
crisis, said to
Matt Taibbi with reference to Lloyd Blankfein, the egregious CEO of Goldman
Sachs: “You put Lloyd Blankfein in a pound-me-in-the-ass prison for one
six-month term, and all this bullshit would stop, all over Wall Street.
That’s all it would take. Just once”.
Punishing individual parasites
will not overcome the conditions, intrinsic to capitalism, which conduce to
“constructive parasitism”. With the ready connivance of the political
order, ways will be found to maintain this systemic parasitism, while perchance
this or that financier, deemed dispensable by the ruling elites, gets pounded
in the ass behind bars.
Financialization per se may
not generate value, but instead enables its operators and beneficiaries to
harvest “earnings” which can then be used to acquire and control resources in
the real economy.
For those who know a little
religious history (and this is my extrapolation from Norfield), the deployment
of these fictions in the creation of fictitious capital is somewhat analogous
to the medieval sale of papal indulgences. Riches accrued to the papacy
from their sale, but the indulgences themselves were fictions, despite the
pretense they were otherwise.
No pope worth his salt in our
somewhat more cynical times would get away with trying to enhance the “earnings”
of the Vatican Bank by flogging off these conjured-up indulgences to believers.
If insider accounts are to be
believed, the Vatican Bank today espouses realistic banking practices and makes
its money from deals with the mafia. O tempora, o mores!
Norfield’s book shows, in
principle, that any effective arrival of this cynicism with regard to
capitalism will have to be coterminous with its demise, just as its
post-medieval equivalent in Christianity led to the expiry of the sale of papal
indulgences, and the breaking-up of the church.
Until this happens to
capitalism, those who benefit from these fictions of capital—the Trumps,
Waltons, Murdochs, and Kochs of this world– will exert a ruinous command over
our lives.
Anyone convinced that our
lives are bettered by Trump, Murdoch, and the Waltons and Kochs, in all
likelihood had an ancestor or two who believed they secured their salvation by
purchasing indulgences from a medieval pope.
Today’s financial capitalism
is a systemic racket akin to the one run by medieval Christianity, since each
like the other is an occultation, albeit with terribly real effects.
History shows that medieval
Christendom bit the dust, so the solution with regard to capitalism’s fictions
is thus really so damn simple; and yet its implementation so damn difficult.
