Can the Financial Crisis Be Reversed?

Interview of John Bellamy Foster for Página/12

Monthly Review, October 08, 2008

[John Bellamy Foster is editor of Monthly Review. This is the full text of the interview with Foster conducted by Página/12 (Argentina). A shorter version of this interview will appear in Página/12.]

Página/12: What is your opinion about the decision of the

Treasury Department to consider taking ownership stakes

in many United States banks? Do you think this is the right

political-economic strategy? I mean, will it lead to the

recovery of the system?

JBF: The Treasury Department proposal to purchase

majority shares in major U.S. banks (the extent of this is

still not clear) is, in a U.S. context, an act of sheer

desperation, following a whole series of increasingly

desperate actions. It signals that the crisis is out of

control. The standard operating procedure whenever there

is a major credit crisis is to activate the lender of last resort function and for the central bank to flood the economy with

liquidity, while bailing out large financial and economic

institutions that threaten to bring down the whole ship.

Since the publication in 1963 of Milton Friedman and Anna

Schwarz's A Monetary History of the United States, most

U.S. economists have come to believe that the Great

Depression was a result of the failure to open up the

monetary floodgates when necessary; that it had little to

do with the real economy. All of the prevailing notions of

how to deal with a financial/economic crisis grew out of this. This is the tradition that Ben Bernanke, the current

Federal Reserve Board chairman, comes out of. It meant

dealing with the problem primarily in monetary/interest

rate/price terms.

But in the face of this massive financial crisis, now 14

months old, and rapidly morphing into what looks like a full-

scale debt deflation on the order of the Japanese

meltdown/stagnation in the early 1990s -- even

threatening to turn into a new Great Depression on the

scale of the 1930s -- the U.S. government is bailing like

mad with bigger and bigger buckets, and trying absolutely

everything it can think of. It has poured hundred of billions

of dollars, and is prepared to pour trillions of dollars more,

into bailing out the financial sector (witness the Treasury

Department's $700 billion bailout plan, and the Federal

Reserve Board's declaration that it will be the buyer of

last resort for the commercial paper market, to the full

amount of $1.3 trillion). The lender of last resort has

changed into the buyer of last resort on a huge scale. An

array of tools has been unleashed to combat the crisis of

a kind and of a magnitude scarcely even imagined before.

Just the other day central banks across the world cut

interest rates basically in tandem. Nothing has worked.

The meltdown has continued. The financial contagion is

spreading globally, with all of Europe and now Japan

caught in the downswing.

It is only in these dire circumstances that the United

States, where private property is more sacrosanct

probably than anywhere else in the world, is talking about

some kind of nationalization of banks, if only limited. In

financial circles they are now calling this "regime change,"

borrowing the term of course from a different context. But

it is clear what it means: the end of neo-liberalism, and the

rise of aggressive government interventions into the

economy. It represents a clear recognition that this is not

a liquidity crisis that can be solved by pouring more

money into financial markets or by lowering interest rates. 

What difference does a reduction in rates make for a

borrower who could not obtain a loan at a higher rate and

now cannot obtain a loan at a lower rate? There's a lot of

dollars out in the financial world, the problem is that those

who own the dollars are not willing to lend them to those

who cannot be certain to pay them back -- and that's just

about everyone who needs the dollars. This is a solvency

crisis, where the balance sheet capital of the U.S. and

U.K. financial institutions -- and many others in their

sphere of influence -- has been wiped out by the declining

value of the loans (and securitized loans) they own, their

assets. As an accounting matter they are insolvent.

Will it work? Can they avoid a massive devaluation of

capital across the board? I doubt it. It is likely too late to

stabilize things in this way. Things have gone too far. The

crux of the matter is that the whole "Atlantic" economy is

in trouble, not just the financial sector. Consumption is

collapsing in the United States, where it represents more

than two thirds of total demand, and a good part of world

demand. Fifteen percent of the population is under water

with their mortgages. Real wages in the United States

have not risen since the 1970s and people are deeply in

debt and their circumstances are eroding. Unemployment

is way up and jobs are vanishing. Where the productive

base of the economy is weakening drastically, a falling

financial superstructure, finding the ground shifting under

it, is unlikely to be able to right itself.

As for the politics of nationalization of banks in the U.S.

and U.K., one should not confuse this, as is all too

common, with socialism or even radicalism, unless one is

talking about socialism for the rich. This is just another

desperate stop-gap measure aimed at preventing a full-

scale debt deflation. But as a sign of the total collapse of

the "U.S. model" of "free market" finance capitalism, the

moral and political consequences are vast.

Página/12: Which sort of policies should the government

implement to sort out this crisis, extending beyond the

financial market?

JBF: I don't think anyone knows how to "sort out" or stop

this crisis. What we are seeing is a lot of improvising 

while the house is falling down around us. There is no

possibility of avoiding a very severe world economic

crisis at this point; the object has shifted to avoiding a

deep debt deflation as in the 1930s. We are facing one of

the great crises in the history of capitalism; nothing this

bad has been seen in advanced capitalist world in eighty

years, since the Great Depression itself.

My own view is that the sole object at this point -- though

it is hard to imagine this in the United States at present

due to the weakness of labor and of working-class

organizations in general -- should be to reorganize social

and economic priorities to meet the needs of those at the

bottom. It is a fact that the U.S. economy over decades

has drastically weakened the conditions of the wider

population, which is at the root of the whole problem. So

addressing those conditions is the real key. But even if

that were not the case, the goal of those who identify with

the great majority of the population, with the working

class, the property-less, the poor, should be clear: to put

the employment, food, nutrition, housing, health,

education, environmental conditions of those at base of

society first. This is simple humanity and justice. Why

flood the financial world (which means first and foremost

the rich, the near-rich, and corporations) with trillions of

dollars ultimately at taxpayer expense, probably to no

avail, when something might be done for the greater

population? Marx said, in one of his ironic moments, that

the only part of the national wealth that was held in

common amongst all the people was the national debt. If

the wealth is not shared, why should the public take on

more debt, supporting the opulence at the top while the

great majority of the people are seeing their basic

conditions deteriorate? Let the system take care of itself;

let us devote our public resources to the people. More

good would be accomplished that way. Of course what

this means is a reactivation of class struggle from below;

something we haven't really seen in the United States in a

long time. I ended a lecture recently by saying that the

working class in the United States could learn a lot from

how class struggles have been waged in the streets in

Argentina. You may think your working class has not

accomplished all that much, but from our perspective

things look different.

Página/12: Do you think it is necessary to change the

regulation of the financial system or sector to solve the

crisis?

JBF: If you mean by regulations, placing more limits on the

financial system, it certainly will happen in the future after

the economy settles down to whatever level it will end up

at. But no real regulations will be imposed now during the

height of a financial meltdown. The Federal Reserve and

Treasury Department in the United States and the other

branches of the government, and of course other

governments as well, are doing everything they can to

combat a more catastrophic financial meltdown, including

getting the printing presses going (this is a metaphor of

course these days since now it is done electronically) in

order to pour liquidity and capital into the system. Beyond

that they want to "restore confidence," which is code for 

increased risk-taking. The goal is to get the "animal

spirits," as Keynes called them, going again. To inflate the

financial system they are reducing, not increasing,

regulations at the present moment; and that is how the

state authorities always respond to a financial crisis. They

have no choice as long as they represent the interests of

capital. Imposing tough regulations would make things

worse for financial interests that find everything closing in

on them at present. The goal is to get money flowing

again. So the answer is that for the moment at least any

real reregulation is not in the cards.

The truth is the advanced capitalist system has been

dependent on a process of financialization (the increase

in the financial superstructure relative to the "real

economy") as the main means of combating the

stagnation of production and investment for decades now

-- beginning in the 1960s, but accelerating in the 1980s,

and accelerating still more in the 1990s. It is the

underlying tendency to stagnation rooted in exploitation

and inequality that is the root problem. (This was brilliantly

and relentlessly explained in a long series of articles by

Monthly Review editors Harry Magdoff and Paul Sweezy

from the 1960s to the 1990s.) Financialization, the

blowing of one bubble after another (ideologically justified

by neo-liberalism), was offered as the solution to

stagnation in the real economy. It was this that mainly

spurred economic growth in the United States and

elsewhere at the center of the system given the

stagnation of investment in new productive capacity (held

down by existing overcapacity). Ultimately, however, there

was no "solution" other than the wiping out of capital: "the

real barrier to capitalist production," Marx wrote, "is

capital itself."

We are once again up against that real barrier. Hence the

issue of regulation/deregulation/reregulation is, at this

point, immaterial -- at least if one is talking about new

restraints on capital as a solution to the immediate

problem. Restabilization of capitalism requires what has

always been the saving function of crises: a vast amount

of existing capital must be extinguished to enable a

smaller surviving amount to begin again the process of

blind, crazed accumulation. But the real-world suffering

that would accompany such a massive "devaluation of

capital" -- the lost jobs, housing, self-respect, and the

misery, even starvation, which would follow on a global

scale today -- would mean the end of the U.S. model of

capitalism, since the rest of the world would never accept

such a result. What we need and must fight for is real

regime change: that is a socialism for the 21st century.

-- 【Yotu論壇提供】

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