[DEBATE] : Paper from yesterday's seminar

[Patrick Bond]

(Abstract and intro below.)

The US financial meltdown

Part 1: What really happened -
Roots of the economic crisis in overaccumulation, financialisation and 
‘global apartheid’

by Patrick Bond
Director, Centre for Civil Society and Research Professor, School of 
Development Studies
University of KwaZulu-Natal, Durban, South Africa
Presented to the Centre for Civil Society Seminar Series, 3 October 2008


This is the first of three papers presented at the UKZN Centre for Civil 
Society, about the US financial crisis (3 October), implications for 
South Africa (24 October), and social resistance there and here (31 
October). A version was presented to a conference on the Political 
Economy of Monetary Policy and Financial Regulation, in honor of Jane 
D’Arista, at the University of Massachusetts Political Economy Research 
Institute (PERI), University of Massachusetts, Amherst, 2 May 2008

Abstract
The global economy’s vast financial sector expansion – in the context of 
productive sector stagnation tendencies - has increased the leading 
powerbrokers’ capacity to devalue large parts of the Third World 
(including major emerging market sites), as well as to write down 
selected financially volatile and vulnerable markets in the North (e.g. 
dot.com and real estate bubbles). In contrast to the 1930s, this set of 
partial write-downs of overaccumulated financial capital has not yet 
created such generalized panic and crisis contagion as to threaten the 
entire system’s integrity. Shifting and stalling the necessary 
devalorization of overaccumulated capital, particularly as it bubbles up 
via financial sectors into speculative markets, entailed spatial and 
temporal fixes. In addition, extra-economic coercion has intensified, 
including gendered and environmental stresses. The result is a world 
economy that concentrates wealth and poverty in more extreme ways, 
geographically, and brings markets and the non-market spheres of society 
and nature together in a manner adverse to the latter. Reform of the 
system is long overdue, and the post-Keynesian political economist Jane 
D’Arista’s ideas for revitalized multilateral financial institutions, 
following Keynes’ International Clearing Union proposal, are worth 
revisiting. However, the context remains one of top-down inability to 
reform: severe bias in multilateral financial and development agencies 
amounting to a neoliberal-neoconservative fusion. Moreover, there is 
constrained space and political will at national level in most states. 
These factors compel us to consider – in a future paper - the exercise 
of social power from below, against the worst depredations of 
oppression, which are often experienced through the financial circuit of 
capital.

***

The US financial meltdown

What really happened - Roots of the economic crisis in overaccumulation, 
financialisation and ‘global apartheid’

Introduction

The crash of a variety of US financial institutions – at this writing on 
3 October, the five main investments banks, the two main home mortgage 
guarantors, the largest insurance company, the largest-ever bank to 
collapse and the Dow Jones itself (which on 29 September had the 
biggest-ever fall in share prices) – is being superficially explained by 
mainstream commentators. Many mention deregulation, corruption, greed, 
feckless borrowing by debt-addicted consumers, or a combination. Joseph 
Stiglitz adds ‘ideology, special-interest pressure, populist politics, 
and sheer incompetence’. Here is US political commentator Thomas Edsall 
describing the banal mainstream discourse:

The Huffington Post, October 2, 2008
Conservatives Seek To Shift Blame For Crisis Onto Minority Housing Law
by Thomas B. Edsall
Blame for the current economic crisis has been laid on many doorsteps, 
including the Gramm-Leach-Bliley Financial Services Modernization Act of 
1999; credit default swaps; hedge funds; the Commodity Futures 
Modernization Act of 2000; Alan Greenspan; and Phil and Wendy Gramm. But 
it has fallen to right-wing pundit Ann Coulter to blaze a truly simple 
path through the maze of credit derivatives, collateralized loan 
obligations, tranches, securitization transactions, and Thomson 
Financial League Tables. This gentle lady spells out the source and 
origin of the current economic crisis: “THEY GAVE YOUR MORTGAGE TO A 
LESS QUALIFIED MINORITY!”

Amidst the cacophony, we really need to consider structural roots and 
shoots of this crisis now – especially in a South African economy that 
suffers many of the same features of US financial capitalism (the 
subject of the next paper in this series). After all, there is no doubt 
that financial volatility remains central to the way global markets are 
developing, and that such volatility constrains economic, social, 
political and environmental progress in the Third World. The grounding 
of volatility as a symptom of deeper economic tensions also requires 
setting the stage politically. These are the main objectives of the 
second section.

Having done so, the third section allows us to consider two half-hearted 
and one visionary approach to global financial reform, from above. Time 
constraints do not permit me to dissect the various reform proposals for 
the immediate symptoms of the crisis, in the US financial institution 
collapses. Instead, let us retrace several global financial reform 
proposals to give global context. First, the status quo processes of the 
Monterrey Financing for Development agenda in 2002 led in 2005 to G7 
finance ministers offering sufficient debt relief as to keep borrowers – 
especially in Africa - paying both large downpayments and high rates of 
export earnings. However, the experience of such extreme Northern 
domination through the International Monetary Fund was the main reason 
for Latin American countries (and a few others) repaying the IMF early, 
threatening its own revenue streams. With these divergent forces at 
work, there was very little on offer in multilateral reform. Second, at 
least one country, Norway, made some tentative steps forward (e.g. to 
defunding the World Bank due to its water privatization fetish, and to 
canceling earlier corrupt shipping loans), but these were half-hearted 
and contradictory. Third, we can turn to a much clearer agenda for 
reform, by post-Keynesian financial economist Jane D’Arista in 1999. But 
no constituency for this project was built during the crucial early 
2000s, as the Jubilee movement’s weak Northern base and militant but 
strong Southern group found themselves marginalized, and as the rest of 
the global justice movement addressed issues not immediately concerned 
with finance – the topic of the third paper in this series.

So, with nothing breaking the deadlock and no enlightened capitalists 
ready to address the root causes, as witnessed by the limits of 
financial architecture debates, it is crucial to nurture an approach 
more respectful of deep-seated popular challenges to commodification and 
corporate globalization. Cases to be explored in a later paper include 
the challenge to multinational corporate power in the sphere of AIDS 
medicines patents and reparations for past ‘Odious Debts’ to regimes 
like apartheid. In the sphere of consumer finance, we will turn to 
experiences as diverse yet interrelated as the SA township ‘bond 
boycott’ and Mexico’s ‘El Barzon’ movements. Finally, aiming again at 
global financial governance, activists’ World Bank Bonds Boycott 
strategy, especially powerful during the early 2000s, is another way to 
disempower some of the most dysfunctional aspects of global finance (the 
Bretton Woods Institutions), and instead empowering investors to do 
something more useful with their resources.

Before setting out the case for enhanced, and more radical, 
internationalist civil society activism, the roots of the crisis should 
be explained.

FULL PAPER AVAILABLE: either write to pbond at mail.ngo.za or download 
(after 6 Oct) from http://www.nu.ac.za/ccs/default.asp?11,61,3,1624