The answer to the question posed in the headline above is “probably not”, but the avatars and born again prophets of the miraculous curative powers of the Church of Free Market Capitalism are trembling around the world today. As a system it probably hasn’t yet run out of answers to its periodic crises.
Nevertheless, global capitalism is staggering and the system shows signs of breaking down, if only temporarily. Capitalism has shown throughout its history to have amazing powers of recovery and capacity for rejuvenation and I suspect it will pull off yet another recovery, but this will be followed, as inevitably as night follows day, by yet another crisis.
This past week two more megabanks in the United States – Washington Mutual and Wachovia – went belly up. The former was seized by the US government and is being sold off piecemeal with the government, presumably, picking up most of the worthless paper that had been passing for assets.
The latter, bad loans and all, has been bought by an even larger bank, the Citi Group. I predict that in a few years, unless they can unload their bad loans at taxpayers' expense, the buyer banks will themselves be subject to crisis. The folly of a two decade-plus orgy of speculative profit taking will be back to haunt those banks that seem today to be the winners.
In Europe, in the meantime, the three Benelux governments have taken over one bank, Fortis, while another bank, Dexia, has been rescued (they hope) by an infusion of government capital. The British mortgage bank, Bradford and Bingley, passed into state ownership in the last several days. Even in staid, stolid, and prudent Iceland, the government has been forced to intervene to prop up a bank.
In the meantime shares are falling globally, on all the world’s primary stock exchanges. Economic problems cause price fluctuations and capital flight. This in turn causes panic which fuels an even more frenzied movement of capital.
The underlying cause of the latest crisis of capitalism (other than capitalism itself) is the frenzy of speculative credit instruments that have emerged, particularly in the United States, over the last three decades. This orgy of chasing quick and enormous profits at the expense of prudence is the logical outcome of Reaganomics and Thatcherism. Three decades ago Ronald Reagan campaigned on the slogan of “getting government off our backs.” The result was deregulation of the finance sector. Unregulated and left to their own devices, the bankers and financiers ran amok. That is the nature of capitalism.
The proximate cause of the latest crisis is the collapse of the housing mortgage system and, as a consequence, many of the banks that leaped into this speculative cesspool with dollar signs in their eyes and little good sense. Greed – and this was serious greed – led to short term, bottom line fanaticism. Quick profits, high share prices, extraordinarily excessive executive compensation and no brains. They built a house of cards and, over the last few months, the chickens have come home to roost. More and more American homeowners could no longer pay their high interest mortgages. The cards at the bottom were pulled out. Prices fell. Trying to protect their declining assets, the banks foreclosed, the housing market collapsed, and the banks were left with huge losses, a credit crunch, and a liquidity crisis.
Last week, President Bush, the current Pope of the Church of Free Market Capitalism, decided that bankrupt financial institutions and their billionaire owners needed to have their assets protected by working people — the American taxpayer. So, along came the so-called bipartisan bailout plan that would have the government spend up to $700 billion buying bad debt and defaulting loans from banks that should never have loaned out the money in the first place.
In a stunning defeat for the leadership class of both American political parties, the US House of Representatives rejected the massive taxpayer subsidy to capitalist excess and irresponsibility. The conservative Republicans who opposed the bailout did so on the grounds that this was a step on the road to socialism. These people are the ultra-fundamentalists in the Church of Free Market Capitalism. Actually, it’s just another step in the road to state-subsidized capitalism. This is a system in which the state guarantees profits to the rich that are paid for by working people.
The Democrats who voted against the bill did so because they were feeling heat from their constituents who were complaining about having to save profligate capitalists. The opposition has been mainly posturing. I predict that new legislation will be written with purely cosmetic changes and that both the recalcitrant Republicans and Democrats will get on board in support.
I am reminded that I write this week’s column on the last day of September, 2008. In October 1929 the stock market in New York collapsed, ushering in the Great Depression. Hang on to your hats, boys and girls, we might be in for one helluva ride.
Nearly two decades ago, in the aftermath of the much deserved implosion of Leninist communism in the then Soviet Bloc, there was nearly universal celebration in the West. We had won the Cold War: ideologically, economically, and militarily. Hurrah!
The American philosopher, Francis Fukuyama, penned a triumphalist essay in the neo-con journal, The National Interest. He entitled it “The End of History”. The essay was later turned into a book and Fukuyama was hailed as the post-communist philosopher of the future for his encomium to liberal democracy and free market capitalism. The essence of Fukuyama’s argument was that the end of the Soviet Union marked the end of any plausible challenges or alternatives to the hegemony and moral superiority of free market capitalism and liberal democracy. There were no conceivable historical alternatives. We had arrived at the end of history.
History’s aftermath hasn’t lasted all that long. Long before Fukuyama, a far more prescient observer of the history of political economy asked the question: “What is the modern state, but the executive committee of the bourgeoisie?” As one watches modern capitalism cooperate with the modern state in extricating capitalism from its own excesses, one is reminded as to how extraordinarily correct Karl Marx was… and remains.
The epitaph on Marx’s tomb at the Highgate Cemetery in London is from his Theses on Feuerbach, written when he was only 27 years old. In the 11th Thesis Marx asserts, “The Philosophers have only interpreted the world in various ways; the point, however, is to change it.”