[Translated from GegenStandpunkt analysis on Radio Lora, January 25, 2010]
The financial crisis has still not yet been overcome and for quite some time has been eating its way through global money-making in all business sectors. The public deals with the reasons and consequences along the maxim that what we have here is a special case, even a totally unnecessary accident in capitalism. As the main culprit of the current crisis, it has picked out the “bankster” who – out of sheer greed – has been ruining his own bank and together with it the economy. The impending collapse of the entire money economy allegedly lies in the excesses of speculators in harvesting profits for their employers. The question arises what then really is the normal job of all these financial agents at their banks, stock exchanges, real estate funds, and so on and so forth – don’t they all work to make their clients richer? And isn’t the rule everywhere: the more so, the better? As long as there’s no crisis, the bankers are after all honorable and highly paid persons, but now they have suddenly fallen into disrepute as if they were a criminal organization. Once credit trading and speculating in whatever you can think of are carried out responsibly, they are said to be very respectable and decent business activities. And this same business is all the same capable of messing up the entire world of this in principle marvellously functioning capitalism only because of an excess of “greed” by those who do it? Before finding these accusations all too plausible, it might be better to take a look at the solid business principles of these “masters of money.” What if the reason for the financial crisis and its harmful consequences lies more in the much-praised norm of a capitalistic money-accumulation than in a criminality of “banksters”?
Everybody takes it for granted that money “works.” An asset grows not only with the big money owners who invest their money constantly anew and in various ways. Even the poorest holder of a savings account is delighted about 2% in interest and finds it quite normal that his money becomes more, simply by itself. Really a fantastic thing, that money: the only thing you shouldn’t do with it is keep it under your pillow or spend it on food and furniture; instead, it must find its way to the financial market. For becoming rich, there is nothing needed but money, but of course as much of it as possible.
In pre-crisis times, the financial market kept its promise to increase money in a wonderful way. Many successfully made money, the yields were galore. They all bet on growth, invested their money in various ways, and anybody who has a say money-wise was engaged. This is the way in which they initiated an upward spiral in which each of them trusted in his success because all the others were successful too. As long as that functions, the public judgement is positive and considers speculating to be so important that even financially entirely inexperienced television viewers are always kept informed about growth rates or losses on the stock exchanges. It’s only normal that even decent regional banks then also speculate, and as long as the upward spiral is functioning, the banks and similar institutes create always new “financial products” that they keep on selling among each other in their so-called “retail trade.”
In 2008, the trade with these sorts of speculative papers all of a sudden came to a stop. There was talk of dodgy security businesses, not only here and there but across the board on the global financial market. It turned out that many of the fabulous securities that banks, insurance companies, investment-funds and so on and so forth had been selling in piles among each other were suddenly no longer money capital; and this simply because from one day to the next they did not sell any more, so they were no longer tradable. The losses in value then not only affected the papers that were on offer at the moment. Even huge amounts in already purchased papers, lying around in deposits and safes are entirely or in parts devalued. Hence a downward spiral gets going that puts a minus to the growth rates of pre-crisis-times.
In hindsight, as in every crisis, there are a few know-it-alls who want to have foreseen it: there’s rumors of “gigantic mis-speculations,” of a “bubble,” of unreliable, all-too-risky businesses. There was even talk of the accusation that it had been the practice to participate in a snowball-system which would never ever have been able to result in an accumulation. Such reproaches miss the point and completely play down what a money economy really is.
First point: the accusation of over-speculation. This reproach takes it entirely for granted that on the financial market each and every business is speculative anyway. Only: what does that really mean? Money changes hands for a security, a share certificate, or a loan against the promise of a future repayment with interest. The financial world immediately credits itself with the envisaged return, long before it has occurred, on their accounts as capital, as a growth of their assets. And they do, as if nothing could go wrong, and treat their returns plus interest as a fact, as something that can be taken for granted – something that proves to be well-founded because and as long as the upward spiral is taking its turn. The money owner who buys a security is pleased. He is rid of his money but is nonetheless able to project his assets accordingly, the expected increase included. So if everywhere the success of a speculation is immediately anticipated – which speculation is then reasonable and which one excessive? As long as the upward spiral runs, they all have done the correct thing. None of the know-it-all journalists would have been able to tell in advance where the “over” will start.
Second point: “too risky” in what way? Every financial agent knows the general risk entailed in speculation: his business partner may for whatever reason not be able to repay the loaned sum plus interest. In this case, it is no help that he is legally obliged to repay. But that must in no case be an argument against financial businesses. The world of finance has found the means and ways to deal with the insecurity of their businesses by fixing their prices. Even risky papers are allowed and expected to enter the market, they only have to offer high yields. They just transform the insecurity of their business into a mere question of price. All the banks, hedge-funds, and so on and so forth always want to have some of these high-yield papers in their portfolio, the higher the yield, the better. Which risk is too high will just turn out afterwards.
Third point: How is a “bubble” really discerned? In no other way than that it has already burst! The know-it-alls should better not pretend that there were entirely solid and undeniable businesses in the financial sector that could be neatly separated from those without foundation and prospects of success. When business is running well, it doesn’t do so because it is solid, in other words because it is based on secure earnings. The financial activists offer each other businesses on all levels of risk and regard a high yield to be a good reward for a high risk. There is only one thing that is really necessary for a business to come about: they have to trust their business partner to make the promised payments. And obviously this trust works as long as the bulk of business activities is running well and the upward spiral is going. Vice versa.
It is precisely this trust in their fabulous money accumulation that the operating authorities have withdrawn from each other at the beginning of the big financial crisis. With that, huge parts of the running businesses and the papers issued on them were just as “toxic” as planned new ones – and that immediately on a worldwide scale and in all sectors. The assets of the big money houses that mainly consisted in such papers whose value was based on mutual trust disappeared with the upcoming mistrust into thin air. The course of the crisis reveals that everything on as much as the whole globe depends upon whether and how the money accumulation in the financial market works. That gets to the heart of the "logic" of the market economy. A booming economy, profitable business, and worldwide economic success – that all depends on banks and agents of finance making use of it all as the basis of their own moneymaking. If and as long as they do that, the power of money to increase itself is the motor for a gigantic system of global enrichment without any inherent limits. But if they don't, then look out, for then it turns out that as soon as the power of money to increase itself doesn't work for speculators, then money simply disappears. Therefore, money only exists for the purpose of becoming more money, and it only exists within this process.
The revival of this madness, without greed and with a really great deal of responsibility – is that something to hope for?