Lessons from a one-week stock market crash Ruthless Criticism

The Hang Seng Index and “all of us”

Lessons from a one-week stock market crash

[Translated from GegenStandpunkt 4-97]

At the end of October 1997, share prices tumbled in Hong Kong, the next day in Tokyo, Singapore, New York, Latin America, London – the markets “went crazy” around the world. This event challenges all the television and newspaper analysts because one thing is clear: on the one hand, they are very sure that booming share prices will never have positive effects on the life of the ordinary person: “Exorbitantly soaring share prices are accompanied by millions of unemployed.” This is regarded as something rather curious, maybe even cynical, but normal and immutable. On the other hand, they conversely assume that “all of us” are negatively affected by the losses racked up on the stock markets of the world. Why is that?

Five Lessons from the stock market crash


When there is short-selling in Hong Kong, it is not something the Chinese or even East Asians may or can keep to themselves. There is a “contagion” from one stock market to the next, as they say. And that is quite logical, because the same actors use the same stuff on all the world's stock-markets. The international cabal of investors compare capital gains on all financial markets: interest rates and returns are compared as well as share prices and currency rates, credit is taken in one place to invest it profitably in another; they switch from dollars to deutchmarks and back, speculate globally on booms or depressions, shuffle billions of dollars, deutchmarks, yen or pounds sterling around the globe. Even “our” financiers are engaged all over the world with their investment capital, just as foreign financial capital is likewise placed on the stock-market in Frankfurt. So when a “speculative bubble bursts” somewhere in the world and billions of dollars or another world currency disintegrates into thin air in a few hours, the losses are not limited to one region but are as international as financial capital itself.


Millionaires and fund-managers are always affected as soon as the “stock markets go crazy.” But who after all holds such a profession? If money speculators lose a few billion in one day, why can´t “we all” keep cool and watch, since the rest of us do not have billions to lose?

Sure, there is the famous small shareholder, for example the one who has been implored to help in the privatizing of Telecom in this country. His savings have been well received, in order to prop up capital on the equity markets. On the other hand, he is after all a bit out of place on a stock market floor, as has been made perfectly clear in all the public statements about the stock market crash. As soon as shares tumble, the small investor is viewed with worry. He could “panic” and drive the whole thing “into the abyss” by his “frantic selling.” The dreary small saver hoping to insure a decent retirement or his kid´s education by holding shares has the dubious distinction of being declared the main risk for international money speculation. Two days later, those worries can be put aside. The small shareholder deserves praise for his “reasonable” behavior. There is, however, more to be said: people who think shares are a kind of cash box, only better, are “gamblers” who have no business in the stock-market. In this way, people who really “speculate” with their own money, who use it in order to get a yield for themselves, are held to be alien elements in this world, whereas professional stockbrokers are busy making more money with credit – therefore with other people´s property – in order to make credit increase. If so, the small shareholder is nothing but a footnote in international stock market events.


So the question remains: how can “all of us” nonetheless be affected by the stock markets?

What everybody knows is that the stock markets are somehow connected with a thing popularly called “the economy.” You may ask why. That is a question, however, on which there is a certain confusion among pundits: the relevant statements made during the excited days of the first massive price crashes started with the assertion that the stock market was a useful yardstick of all economic growth rates and ended with the information that “those people in the stock market” do what they want to anyway, which is why share rates can be risky as well, possibly signaling a “mistaken soundness” in the economy … Whatever, in the end everybody agrees on a certain connection to “the economy.” Another known fact is that “we all” depend on “the economy,” i.e., on the competitive success of capitalistic firms in this best of all economic systems. Insofar as conclusions can be drawn about “the economy,” all the experts agree in the end with very reassuring closing remarks about the occasion of the share crash last October: on the one hand, there was quite a collapse of stock prices globally, on the other hand, “the economy” in its own right and its “fundamentals” were totally sane. An interesting bit of information: the stock markets have no concern about everything that forms their real basis. They follow their own laws somehow … who cares how.

If that were the whole truth, then everything would be all right again: some stock market fools throw a few billions worth of printed paper into the wind, one or another of the bankrupt persons might jump out the window … but other than that, “the economy” runs its usual course in an undeterred and sane manner.

By no means is that the real truth. Everything is turned upside down in this tremendously rational economic system by its financial superstructure. Financial resources are created by the worldwide speculative transactions of financial businesses, as detached as they might be from the real world of production and trade. At the same time, these same financial resources provide the credit required by productive capital. As a consequence, profitable investments can be made through them and beneficial progress brought about. Increased economic growth can take place as a result, as well as the creation of lots of unemployed persons, the necessary outcome of each successful rationalization of the workplace. Financial resources are destroyed, on the other hand, through the collapse of speculative operations. The inevitable outcome is lots of bouncing credit which the allegedly “sane” capital invested in production had calculated on. As a consequence, the continuation of the productive capital is in jeopardy, which can not be too astonishing in a world where each capitalistic firm has its own department for currency speculation.

The declared purpose of the economy is the production of money and more and more money. If so, the relation between the “financial superstructure” and the productive fundamentals justly appears in that way: all the capitalistic resources at the disposal of the real world of production are the result of the most lofty speculation engaged in by international brokers. If so, the success and failure of all productive business sectors depend on the same stock market speculation, that is on a field generally known to be rather obscure. It could be a matter of complete indifference to everybody, if “all of us” were, as is generally known as well, not so totally dependent on “the economy,” on the money to be earned there for the odds and ends of our best laid plans ... It doesn't make any difference that “all of us” did not really think up this irrational nonsense, especially not as the best way to provide some means of living for human beings: the world, including its dead or living material, is precisely not owned by “humanity” at all but by some property owners. That name is telling: they have their hands and computers full in speculatively accumulating their property ....


And one thing is sure: whether or not their computer-based businesses will work out is up to “laws” that are ultimately unfathomable; the higher reaches of a market economy are full of mysteries even for its own actors and beneficiaries. Each commentary on the last stock market crash, in which the concentrated common sense of all the economic specialists could be found, admitted frankly that the stock markets and exchanges of this world – those providing decisive economic facts for the market economy, the most rationale and effective economic system of this world – considerably resemble madhouses: according to their information, whenever speculators take up their exciting business, it involves at least 50 to 90 percent “psychology.”

The story about “psychology” is completely beside the point, however. It is not about moods and quirks in these markets, but all about calculations, and the result is not a general war of nerves but real money. By typifying the transactions in this way, the confirmed fans of a market economy at least express this much: as if it were the most natural thing in the world, they assume the whole thing to be thoroughly determined by irrationality, so that nobody can tell things apart. And whenever you do not know what´s what anyway, nothing is easier than to refer to the “psyche of a human being,” known to be in general rather unfathomable. This provides some “explanation” of all the nonsense, and its justification on top of that. Obviously, an enlightened modern human being doesn't need more than that. On the contrary: the irrationality practiced on the stock markets has a principle. Speculations are made on the future success of capitalistic competition. Current money is made out of the expectation of how financial business will succeed in the future. As long as this expectation is shared by the majority of all other speculators, it works out. If not, it does not. Then they speculate on a collapse.

Consequently, speculators speculate on the effect of their own speculation. And for each performance in this circus they have even made up all sorts of “options” and “securities” which they then call financial “products.” All that is irrational, crazy, without a doubt – except that, however, it is completely reasonable and correct in a market-economy. Because what this kind of madness is really all about is the “creation” of money, of good old capitalistic money – the only form of wealth that counts in this world.


It goes without saying that none of the worried, well-informed experts commenting on the events becomes a critic of capitalism and its stock market: once the unchangeable irrationality of the market has been put beyond doubt, the course is set for the interesting question as to who has been the craziest this time. All agree on the answer: “we” have been overdoing it a little bit as well by driving up the “stock index to dizzying peaks during the last months,” but the “East Asians” have clearly overdone it the most. That is why the losses here are nothing but the long awaited “correction of overheating back to a sound level,” whereas in Asia a “speculative bubble has burst.”

And so everything is clear: from now on you can speculate on a “more solid basis,” in fact globally. A burst “bubble” is followed by inflating the next one – of course.