Large banks are significantly responsible for the financial crisis that has been striking the world since 2007. However, they have walked out immune and with impunity not only from the crisis but also from all attempts to regulate them. ‘What crime is robbing a bank compared to the act of founding one?’
The Threepenny Opera
‘Changing to keep things the way they are’ is a very disseminated phrase from Giuseppe Tomasi di Lampedusa’s novel, Il Gattopardo. The French equivalent is also extremely famous: ‘plus ça change, plus c’est la même chose.’ Nowadays nothing expresses continuity in change more than the capacity large banks have shown of coming out unscathed from the global financial crisis they triggered themselves.
2007-2008’s global financial crisis caused millions to become impoverished, many to lose their jobs, solid companies to go bankrupt, and also countries and regions to tremble. For a brief moment it seemed that the global capitalist system itself was entering a terminal crisis. The answer many were expecting would come on the one hand from nation States and on the other from social mobilization. There were attempts to regulate, both at national and international level, and protests spread from one country to the next.
However, six years from that outbreak that endangered the prevailing globalization model, privileged actors from back then did not only survive but they’ve gotten back in the saddle. Responses to that challenge were overall weak or deceitful. In fact no one dared to step up and do what was needed.
Large bankers have gotten their way. They’ve mocked political leaders, regulatory entities, and outraged citizens. They’ve come out unscathed from the social and economic turmoil. Their managers keep getting billions in bonuses and at the same time have no problem paying expensive fines since they’ve got money to spare.
Many countries and companies have crumbled, several governments have lost their power, and the workers –if they’re lucky- have had to experience a drop in their real incomes and if they’re not, had to witness how job opportunities disappeared. Today almost all of us are poorer than we should be. Nevertheless, in the City of London or Wall Street nothing has changed. There the billion-dollar merry go round keeps spinning. We must ask, until when?
Recently the news of an enormous fine imposed by the American state upon the JP Morgan-Chase banking house spread like wildfire throughout the world, without this giant even batting an eye. In Europe authorities have ‘softened’ the commercial banks’ capitalization requisite that aims to keep these from taking too many risks with other people’s money and have greater reserves of their own. J.P. Morgan has admitted its wrongdoings and paid a fine of 2.6 billion dollars –a small share of the funds it has as backup for these ‘setbacks’ that others might call crimes (it is estimated that so far it has paid paid 20 billion dollars in several arrangements with the authorities). In Europe, the authorities backed down and moved along. In short, “nothing has happened here.”
The sign of the times is clearly impunity, confirming the mocking statement of a cynical Latin American big shot: ‘for us everything, and for our enemies, the Law’. JP Morgan paid the fine in exchange for not being tried in a civil court, and also in a criminal court of justice –based on obscure maneuvers related to the famous Madoff fraud (so far, Bernard Madoff is the only great executive thief to be imprisoned). This fine is merely an example from a long list of sanctions against American and European banks that have admitted to be involved in ‘petty little sins’ such as money laundering, setting interest rates to let their clients down, and gambling like a casino with the depositors’ money. News of this nature come and go every day and no one is shocked. Society has gotten used to being exploited.
Global income concentration makes the sack of bribery and tips to be practically bottomless. Fines and sanctions make a small dent on profits that the financial sector extracts from the productive sectors of the economy. And to top it all, in some cases large financial actors have the indecency to deduct the fines from income tax payments. It is not an exaggeration to conclude that financial capitalism has become parasitic, criminal and unpunished, on a large scale. To those who read this appreciation and consider it to be extreme I’ll say extremism is in the practice and not in its denunciation, which by the way I share with establishment publications such as the Financial Times.
In a recent article, the Financial Times’ columnist Philip Stephens claimed
that the changes in regulations that have been set in motion since the peak of the crisis are marginal. [[Philip Stephens, “Nothing can dent the divine right of bankers,” Financial Times, Friday January 17, 2014.]] Since then there has been a stronger banking regulation in Wall Street, especially after the adoption of the Dodd-Frank Reform Bill by the US Congress. But the system’s basic structure and its perverse incentives are still standing. What are those incentives? Large banks have convinced every government and a significant part of the people that they are too big to be let go bankrupt, and that they should not be kept from combining their specific commercial activities with financial speculation. Consequently, the basic and traditional function of banks –facilitating and making productive investment more dynamic- comes second in comparison with the more profitable speculative activity. The taxpayers and investors, meaning, citizens in general, are forced to subsidize the speculative activity of the banks, and in case of a crisis, must bail them out from their own recklessness using public funds. Under these circumstances, financial speculation is stimulated, not controlled. If a new crisis broke out, the only believable ‘bailout’ would be the outright nationalization of the banks and their restructuring, along with a serious judicial action against those responsible.
What are the causes of this sham change designed, as in Il Gattopardo, ‘for things to remain the same’? The easiest to discern are the immediate causes. Once banks have been ‘rescued’ from their own madness by the government’s use of public funds, authorities usually cut the lifeline to the financial sector and pay attention to real economy and its main problems: taxes, investment, unemployment, stimulating the repair and expansion of productive and commercial infrastructure. Having such concerns, they let banks go back to what they were doing. The amount of money banks handle, their global reach, and the speed of transactions make any attempt at regulation to be left behind the banking market’s manipulation. There’s another direct cause for the merely ‘cosmetic’ change, being that those who are in charge of regulations come from the financial sector themselves. This is like letting the fox take care of the hens. And finally, bankers are immune practitioners of macroeconomic blackmail, since they threaten politicians and society with denying loans to the real economy and if necessary, to ‘pack their bags’ and leave for greener pastures because they play in a global chess board, not a local one.
But apart from the immediate causes in this perverse situation there are much deeper factors that play a role in the structure itself of the global economic system we’re immersed in.
The concentration of wealth at the national and the international levels, that is, a wild globalization that lacks social accountability, a speculation that makes playing roulette more profitable than producing, with governments subdued by the logic of financial capital, require an effort of explanation that has usually not been present in the economists’ scientific endeavor.
The theory of late capitalism and particularly of the ‘financialization’ of the global economy is just emerging. To find it we must step outside ‘standard’ academic economic science and seek it instead in the work of those who are in charge of what used to be called ‘political economy’. Up until now the effort has been carried out by post-Marxist researchers, serious critics that have survived the shipwreck of socialist systems and have rescued analytic elements from that shipwreck that are still valuable. For the reader wishing to embark on a study of contemporary financial capitalism’s anatomy and physiology I recommend reading a recent volume, Profiting Without Producing. How Finance Exploits Us All, by Costas Lapavitsas, From the University of London. [[Published by Verso Books, London: 2013.]] The book reaches a sobering conclusion, which is: the need in all societies to implement the public ownership of banks and the social control of their activities. This goal is undoubtedly a certain type of socialization, but it is compatible with a serious capitalism instead of a ‘gambling’ one and is highly superior to the current model, which consists of the socialization of only the losses in a global casino of speculation.