The end of financial capitalism

On April 2, 2009, a meeting of the so-called (erroneously) “Group of Twenty” (G20) took place in London; the purpose of this meeting was to discuss ways to save the global financial system. Too late. This is obvious: we do not have the resources to save this system - no matter how much we would like to. It is too big to save: the value of global financial assets is several times the size of the world's gross national product. In fact, the challenge is not to save this system, but to de-financialize our economies and then move beyond the current capitalist model. Why should the value of financial assets continue to be four times the total GDP of the European Union, and even more in the United States? What do ordinary citizens – that is, the whole world – get from such excess?

The answer is contained in the question itself. Studying the inner workings of the financial system that ultimately led to this global crisis will also allow us to imagine a future without financialization. The challenge is not to save the current financial system, but to begin large-scale de-financialization of the largest economies; Only then can the world move towards a “real” economy that will provide security, stability and environmental sustainability. A lot of work needs to be done to achieve this.

Logic

The period beginning in the 1980s was characterized primarily by the use of extremely complex instruments that participated in new forms of primitive capital accumulation, all of which depended on siphoning off taxpayers' money.

International companies that employed hundreds of thousands of workers in low-wage countries had to develop complex organizational formats, and to do this they used very expensive and talented experts. For what? To get more labor at the lowest price, including unskilled workers, who are very cheap in developed countries. The trick here is that millions of those cents saved become profit for the shareholders.

Financiers developed sophisticated financial instruments to swindle families with modest incomes out of what little savings they had, offering them loans for goods they didn't really need and (more importantly) offering them the opportunity to own their own homes. The goal was to recruit as many credit card holders and mortgage participants as possible to then turn them into an investment vehicle. The question of whether people would pay off a mortgage or a card loan was less important than the fact that there were a certain number of loans from which “investment products” could be formed. Once everything is formalized in this way, the investor is no longer interested in the borrower’s solvency. Using these complex chains of “products,” the investor generated trillions of dollars in income from the funds of people of modest means. This is the logic of financialization, which has been the dominant pattern since the very beginning of the neoliberal era, that is, since the 1980s.

lost their homes due to foreclosure bans Thus, in the United States, where these forms of primitive accumulation originated, an average of 10,000 homeowners per day . It is estimated that over the next four years, another 10-12 million US households will be unable to pay their mortgage; in the current conditions, this means that they will lose their housing. This is the inhumane nature of primitive savings: when people with moderate incomes are offered the opportunity to get their own home (which is actually a fantasy and a lie), many are willing to invest their small savings or future earnings in a down payment.

This kind of complex scheme aims to extract profits from wherever possible: both small ones from people with moderate incomes and large ones from the rich. This also explains why the global financial system is in permanent crisis. Indeed, the term “crisis” is in some ways a misnomer: what is happening now most closely resembles “business as usual,” the way financialized capitalism of the neoliberal era works.

Financialization, which has penetrated more and more sectors of the economy since the 1980s, has become a sign of both the dominance of this financial logic and the self-exhaustion of financialization. When everything becomes financialized, the financial sector can no longer pump out profits. Non-financialized sectors are required for further development. The ultimate limit is taxpayers' money, that is, real, (not yet) financialized old-style money. “Zombies” by Krzysztof Rybinski are also parasites.

Limit

What makes the current crisis different from all previous ones is precisely that financialized capitalism has reached the limits of its own logic. Through financialization, it has been extremely successful in extracting profits from all economic sectors. Financialization has penetrated such a large part of every national economy (especially in developed countries) that there are almost no areas left in these economies where one could move in order to extract non-financial capital and thereby save themselves. The rest of the economy could not provide the financial system as a whole with enough capital to keep it afloat.

Let's give an illustrative example: the value of global financial assets (actually, debt) by September 2008 - let's assume that the crisis erupted with the fall of Lehman Brothers - amounted to 160 trillion. dollars: this is three and a half times the value of world GDP. The financial system cannot be saved by pumping it with money.

This in turn explains how extreme forms of financialization have opened the door to abuses across entire economies. Before this “crisis” broke out, the value of financial assets in the United States reached 450% of GDP, in other words, 4.5 times the total GDP. In the European Union, the value of financial assets was 356% of GDP. To summarize, the number of countries in which financial assets exceed the value of GDP more than doubled between 1990 and 2006: from thirty-three to seventy-two.

Moreover, the financial sector in Europe has grown faster than in the United States over the past decade, largely because it started from a lower level: its average annual growth rate in 1996-2006 was was 4.4% versus 2.8% in the USA.

Even capitalist economies - we will now refrain from assessing how suitable this economic system is at all - do not need the size of financial assets to be four times the value of GDP. Thus, even based on capitalist logic, this method of throwing funds into the financial sector to overcome the financial “crisis” will not work, because it will only deepen the whirlpool of financialization of economies.

Scale

There is another way to illustrate the current situation: through quantities of different orders related to (respectively) the banking and financial sectors. In September 2008, the value of banking assets increased to several trillion dollars; At the same time, the total cost of credit default swaps (CDS) - the last straw that finally brought down the system - was almost 60 trillion. dollars. This amount exceeds global GDP. It was necessary to pay debts, but there was no money.

A more general illustration that also gives an idea of ​​the orders of magnitude created by the financial system since the 1980s: the total value of financial derivatives (derivatives, a form of debt and the most common financial instrument) has exceeded 600 trillion. dollars. Such financial assets have grown much faster than any other sector of the economy.

US debt levels today exceed those recorded during the Great Depression in the early 1930s. In 1929 the debt to GDP ratio was about 150%, by 1932 it had risen to 215%. In September 2008, the outstanding debt on credit default swaps - an American invention (and it is important to remember that it is just a type of debt) - exceeded 400% of GDP. Globally, the debt in September 2008 was 160 trillion. dollars (world GDP multiplied by three), while the value of unsecured derivatives was generally unfathomable: 640 trillion. dollars (14 times more than the GDP of all countries in the world).

These figures show that a truly “critical” moment has arrived - but, again, this is not an anomaly or a consequence of exogenous factors (as implied by the concept of “crisis”). On the contrary, this is a natural mode of functioning of this type of financial system. Moreover, every time governments (that is, citizens and taxpayers) have bailed out the financial system by buying back bad debt—since the first crisis of this phase, the crash of the New York Stock Exchange in 1987—they have provided the financial sector with a vehicle for further investment. into rush demand. Since the 1980s, there have been 5 bad debt buyouts; in each case, taxpayer money was used to pump liquidity into the financial system; and each time the financial sector used it as a loan to make transactions. In this case, the cornucopia has begun to dry up: we have run out of money and can no longer meet the needs of the giant financial system.

Bridge

Based on the above, we have to answer two challenges:

• the need to definancialize major economies;
• the need to move beyond the current capitalist model.

Both are difficult tasks, but it will also allow us to concentrate on the most essential facts. According to official estimates, there are currently 50 million unemployed in the world; The International Labor Organization estimates that another 50 million people will lose their jobs if the recession worsens. For those affected, these are tragic numbers. The same figures, however, look moderate when compared with the fact that 2 billion people in the world live in extreme poverty. This begs the question: How many “jobs” would be created if there was a system in place to feed and shelter these 2 billion? This would require the labor of not only these 50 million unemployed, but also another billion workers.

In this light, the financial “crisis” could serve as a bridge leading to a new type of social order. It would enable everyone concerned - citizens and activists, NGOs and researchers, local organizations and networks, democratic governments - to shift their focus to the work needed to provide housing for all, to clean up our water , make our buildings and cities greener, develop a sustainable agricultural system (including urban agriculture), and provide health insurance for everyone. This new world would employ everyone who needs a job. If you list all the tasks that need to be completed, the question of mass unemployment will disappear by itself.

The technology to support this work—fighting mass disease and producing enough food to feed everyone—has been around for decades. Yet millions of people still die from preventable diseases and many more suffer from hunger. Poverty has worsened: it is no longer a question of having just one piece of land with which a person cannot provide for himself; Today, being poor means having only your own body at your disposal. Inequality has also increased and taken on new dimensions; for example, a new class of super-rich people has emerged globally while the traditional middle class has become impoverished.

The history of the last generation confirms that the neoliberal form of market economy is unable to cope with the problems of disease, hunger, poverty and inequality; in fact, it only strengthens them. At the moment, the best results are shown by a hybrid of a pure market with a strong and rich state (as in Scandinavia); but most capitalist economies will have to undergo internal reforms to even come close to this model.

Be that as it may, the recent increase in financialization of the market economy has only exacerbated the negative effect of the logic, the center of which is the increase in income. In order to get even a little closer to solving the problems caused by financialization, it is necessary to enter a new economic space, which is completely different from the current one, with its financial aristocracy. This was the challenge for the G20 London summit and for everyone else.

Saskia Sassen is a professor of sociology and a member of the Committee on Global Thought at Columbia University. Her books include Losing Control? Sovereignty in the Age of Globalization (Columbia University Press, 1996), The Global City: New York, London , Tokyo ) (“Princeton University Press”, 2001). Territory, Authority, and Rights: From Medieval to Global Assemblages (Princeton University Press, 2006) and A Sociology of Globalization (WW Norton , 2007)