In a poll published by the Financial Times on 19 October, 80% of people across the European Union blamed the banks for the current economic crisis.
This is a longer version of this article than appears in the printed paper
In the UK, over 50% of people responding to the poll said that the crisis was due to "abuses of capitalism", and a bit over 10% that it was due to a failure of capitalism itself.
There is some plausibility in such views. After all, this crisis originated within the financial system at a time when non-financial trade and production was doing well in capitalist terms. Profit rates in the UK in 2007 were the highest since official statistics began. And the triggers of the crisis were new devices and machinations in the financial markets, not already well-known business practices.
The global financial markets constantly develop new tricks and dodges, some of them aberrant. But capitalist production of goods and services, in its present mode, needs "deep" and frenetic global financial markets; and those global financial markets cannot but develop a stream of new credit devices. That there will be aberrations is coded into the DNA.
Today a large number of global capitalist corporations which organise their production processes and their marketing, directly or through contractors, over a large number of different countries.
Capitalism has not always been like that. Though corporations with international operations date back a very long time, the rise of corporations which organise production and marketing globally has accelerated rapidly since about 1980.
By 1997 it was estimated that "about 30 per cent of world trade is intra-firm" and that transnational corporations were "involved in 70 per cent of world trade". By 1998 it was estimated that "the share of parts and components accounts for some 30 per cent of world trade in manufactured products. Moreover, trade in components and parts is growing significantly faster than in finished products, highlighting the shift to international production systems". (Exploding the Value Chain: The Changing Nature of the Global Production Structure, by Thomas C. Lawton and Kevin P. Michaels: http://www.ciaonet.org/isa/lat03/).
The entire economic function of capitalist governments has changed in line with this shift in capitalist organisation. Where before each capitalist government aimed to build up a relatively integrated industrial base within its own country, now each government strives to make its own country a "good buy" as a site for global corporations to perch in.
This sort of capitalist globalisation cannot be "put back in the bottle" of primarily nationally-based production systems without a huge unwinding which would only happen in a cataclysmic worldwide economic slump and trade war.
Capitalist corporations operating global production and trade necessarily receive income, keep working capital, raise loans, in a variety of countries.
Different countries' currencies have "floating" (variable) exchange rates. So, for example, the exchange rate between the Australian dollar and the Japanese yen is not fixed by some government decision. It varies according to market supply and demand - this year, varying from 104 yen to the dollar to 58 yen.
It is possible for capital to seek to move back towards fixed exchange rates. The creation of the eurozone is an example; another was Argentina's experiment with pegging the peso to the dollar; yet another was China's policy until 2005 of keeping its currency loosely pegged to the dollar.
But Argentina's experiment collapsed in chaos in 1999. Since 2005 the Chinese currency has moved from 8.27 yuan to the dollar down to 6.8. The current crisis will put great pressure on the eurozone, since it greatly restricts the options of eurozone governments in dealing with crisis conditions which will differ from country to country.
It is difficult to see how fixed exchange rates could be restored generally without a vast reduction in the flows of money across borders; and it is difficult to see how that vast reduction in flows could be possible without severely injuring the capitalist corporations which organise their operations across so many different countries.
So the big corporations have incomes, stashes, debts in a variety of currencies; and the relative values of those currencies change frequently and quite often dramatically.
The relative performance of different sorts of financial assets in different countries varies even more widely. A standard textbook, for example, lists rates of return over 1999, not a period of turmoil, from international bonds in the richest countries held by dollar investors over 1999: they ranged from minus 14.4% to plus 14.3%. (A Santomero and D Babbel, Financial Markets, Instruments, and Institutions).
Where, in what form, to hold their stashes? Where to raise loans? Big corporations have to consider these questions every day, and wrong decisions have big consequences.
Far from being gamblers, as simplistic populist denunciations of "casino capitalism" would have it, the big corporations seek insurance. If a big corporation has raised funds in yen, for example, so will have to repay debt in yen, but its income is mostly in dollars, it can seek insurance by buying yen "forward" (paying a certain amount in dollars now in return for yen to be delivered, not now, but when its repayment falls due). It is just capitalist good sense.
Likewise, the investors who have bought the bonds which the corporation issued in yen may seek to limit the risk that the yen return on the bonds, which looks good now, may turn out to be disappointing when measured in euros or dollars or yuan.
The Australian Marxist economist Dick Bryan has argued that "derivatives" (bits of financial paper which do not directly represent a real asset, but "derive" from such assets at one more removes, for example "yen futures") have come, on a global scale, to play the fundamental role of money in commensurating and equating commodities across space and time. We can argue about how far he is right to say that derivatives are "very much like money".But they play an organic and central role in today's global capitalism. They are not just some quirk thought up by financiers to the detriment of sober, serious, "real" capitalists. (http://www.workersliberty.org/marxists-crisis)
So the corporations or the investors go to financial firms. The financial firm may be able to sell the "forward" yen, and balance it with another transaction in which it is selling "forward" dollars to a corporation whose income is heavily in yen. Or it may just decide that, being a specialist on the question, it can estimate the future movements of the yen better than the corporation it is dealing with. If it does a lot of such transactions on a lot of different currencies and assets, it can afford to run a risk on some of them. Being an "insurance company" in the global finance markets is just another way of describing being a speculator, someone who takes increased risks in the hope of increased gain.
The markets become more and more complicated as financial firms seek more and more ingenious ways of laying off, balancing, or calculating risks. They can't abolish the risks, but the financiers say that "deep" financial markets - that is, ones with a big volume of buying and selling, where you can you find buyer for almost any proposition at a suitable price - enable the risk to be dispersed and balanced better. New computer technology and telecommunications have facilitated the development of ever "deeper" and more global markets.
In normal times, those financiers are right, in capitalist terms. "Deep" and complex financial markets do serve capital better. The vast, vastly complicated, and always-becoming-more-complicated structure of international credit has been an inseparable aide and accompaniment to the expansion of globalised capitalist production and trade.
Especially in boom times, there will always be operators at the edge (and sometimes a thick edge) of this financial system striving for quicker and bigger profits by taking more risk. That is in the nature of capitalism as a system built on greed and competitive profit-grabbing. It is not something arising from particular defects of regulation.
It has been calculated for hedge funds, for example, that even if their bosses have none of the special skill they lay claim to, and just have average luck with the relatively risky operations they go in for, the bosses can reasonably expect, say, five years of good results, enough to make their fortune. Then their fund may go bust. They can walk away (the fund is a limited liability company) and try something else.
There will be strong "vested interest" and "power of inertia" resistance to new regulations over the financial markets. Nevertheless, there will also be a strong drive, from central governments and government Treasuries and Finance Ministries, to formulate and impose new regulations.
New regulations may certainly shut down some shady areas. Maybe a lot of shady areas. Maybe they can make the financial markets much more sedate for a fairly long period. I don't know.
But - short of putting the whole system back into a much slower, more restricted mode, which would be crippling for the global corporations - it is inconceivable that the regulators could move quick enough to eliminate all the shade. It is also inconceivable that the regulators will ever get to know just how much "risk" is swilling around the system, and where.
How did the sub-prime mortgage crisis in the USA (a relatively small blip on the scale of the whole of global finance) spread so dramatically? Once the mortgage-based securities were known to be dodgy, no-one knew what else was dodgy or where it was. In a system which is all about moving risk about as slickly and quickly as possible, that is inevitable. It is also inevitable that once the music stops and bankers and others start looking hard at what is dodgy and what isn't, they find a lot more dodgy stuff than there appeared to be during the boom.
Inevitable, further, that the consequent winding-down of credit will in turn convert some previously sound financial paper to dodgy status. There is the same sort of snowball or "multiplier" effect in a credit crisis as there is in a crisis in production.
So, we already have what some advocates of increased regulation, like the Australian economist Steve Keen, demand: "a financial system that serves capitalism"! The current system of global financial markets is inseparable from the system of global production and trade. Inseparable in broad outline, not in every detail; but it is also inevitable that the system will generate "aberrant" details of one sort or another.
The current crisis does not show that the financial system is an aberrant addition. It shows that the axiom that "the markets" rule - should rule, must rule - the guiding principle of all mainstream politics for twenty years now - is an anti-human, destructive dogma.
