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Banks and the Crisis of Capital: What Greg Smith Noticed

Banks and the Crisis of Capital: What Greg Smith Noticed

By Dennis Loo (3/16/12)

What follows were remarks that I prepared for Bank Transfer Day several months ago. The Occupy LA person who was going to read it for me got sick that day so it was never delivered. I'm posting them now because Greg Smith's resignation on March 13 from Goldman Sachs is in the news and these questions are being raised anew.

I want to give you some background on the reasons why these banks are so central to what’s going on and the crisis that the people find themselves in. I have to first go back in time some.

In the mid-1800s capitalism was in its free enterprise stage. But within fifty years, free enterprise had evolved into the monopoly stage. The monopoly stage is where banks and a relative handful of large industrial enterprises dominate and control most economic activity. This is what we see here today: a handful of banks control the financial activity of the nation and, together with several other nations’ banks, control the world’s economic fate.

How did this come to be? Some people say that the solution to this problem of monopoly is to get government out of regulating banks and other businesses and that everything will be fine if we let competition and free enterprise do their thing. This is known as Adam Smith’s “invisible hand” of the market: Let the market do what markets do and everybody’s needs will be met and the most efficient businesses will thrive.

This rosy picture overlooks two things: first, the historical record and second, the underlying reason why the historical record is what it is: the fact that the very nature of capitalist competition inevitably leads to monopoly. In order to maximize profit, as a business you try to squelch your competition. That is what every business tries to do and if you want to be a major economic player, that is what you must do. You must expand or die as a capitalist.

It’s like the board game Monopoly. The object of Monopoly the game is to bankrupt the other people in the game. If you don’t bankrupt them then they will bankrupt you. The same is true for these banks and big businesses in real life: they make more money if they can dominate the market. You dominate the market by buying up your competitors and getting bigger and/or by driving the others out of business. The drive for profits, in other words, this relentless competition under capitalism, leads inevitably to the victorious businesses becoming oligopolies and monopolies so that they can dominate their competition and thus make more money.

The drive for profit in free enterprise thus leads necessarily to undercutting competition and eliminating free enterprise. Thus, the very things that make capitalism what it is will always and cannot otherwise result in anything but oligopoly and monopoly. Politicians will not prevent this from happening overall because public officials exist to serve, not dominate, the business community. How could it be otherwise? How could you have a hugely lopsided economic system in which a few banks and large corporations dominate economic activity and yet a political system that isn’t affected by this huge disparity in the economy? How can you have an equitable political system when you have a hugely inequitable economic system? How can “one person, one vote” determine things when you have gigantic banks and companies that will of course lobby relentlessly and offer huge money for politicians’ campaigns and other inducements to public officials with these banks becoming so large that they can do what they want or else the whole economic system collapses? These banks are the elephants in the room and they get to do whatever they want to do.

Monopoly’s other name is imperialism. Imperialism is a stage of capitalism in which the pursuit of profit has been extended beyond national boundaries and into the attempt to control resources and labor on a world scale. Because other nation’s banks and big corporations are also doing the same thing, and because there is only so much pie to divide up, this brings banks and large corporations and their governments into violent conflict with each other over the labor and resources of the globe. This is exactly the dynamic that leads the criminal underworld into violent conflicts with rival families because they’re fighting over the same turf. Every so often they have these big get togethers where they try to work things out between them without resorting to slitting each other’s throats. You’ve seen this depicted in movies like The Godfather. But sooner or later they have to resort to killing each other again because they’re in ruthless competition with each other.

The same thing goes on except on the grander stage of the whole globe between different nation’s governments when they get together to divide up the world’s markets and resources. They call these gatherings the G8 or the G20 or the WTO. But sooner or later these get togethers and their agreements break down and nations do what the mafia does, go to war and try to settle these conflicts through force of arms. War, as the famous military strategist Von Clausewitz has said, is the continuation of politics by other, violent, means. That is what this country’s numerous wars – Iraq, Afghanistan, Pakistan, Libya and Yemen, with Syria and Iran in their sights – are all about. They’re about control over resources and strategic positioning. They are about Empire and profits. And they will use our people, our brothers and sisters, our mothers and fathers, our sons and our daughters, as cannon fodder for their bloody profits.

When a company becomes a monopoly or one of the oligopolies, this doesn’t get rid of competition. It actually intensifies competition, but it does so under conditions of monopoly where major banks and huge corporations fight fiercely for dominance and do so on a world scale.

The First World War was fought in the early 1900s because free enterprise capitalism had entered its monopoly stage. Nations and their banks and big corporations were fighting over who would have the biggest colonies from which to extract superprofits. Millions died in WW I, ordered into battle by the governments in order to violently decide which countries’ banks and large corporations would control the colonies and world economy.

As a result of the incredible strains and destruction that WW I caused and because in times of war and economic crisis the real priorities of governments become much, much clearer to millions – that these governments will willingly sacrifice the lives of millions of people at the alter of profit and the defense or pursuit of empire – revolutions tend to occur during times of crisis. People wake from their political slumber and see the horrors and suffering caused by their leaders and their economic system, and if there are enough revolutionaries around with enough influence among the people, they can and have led people in revolutions against these governments and their monopolies. This is what happened in 1917 when Lenin led the Russian people in the first socialist revolution.

Over the last several presidents’ administrations, under both Republicans and Democrats, stretching from Reagan to Obama, the regulations that were put into place during the 1930s and 1940s to regulate and monitor banks and other businesses in order to prevent a re-occurrence of the Great Depression were systematically eliminated. Regulations to prevent companies from dominating markets were lifted and banks and companies have been allowed to become bigger and bigger. In 2008 banks were holding risky financial derivatives of $183 trillion (thirteen times the size of the U.S. economy) at the time of the Lehman Brothers’ collapse and just before the TARP bailout. They are now carrying, as of late 2011, $248 trillion. Thus, the banks have not “learned their lesson” since the nature of their operations is not one in which prudence and foresight are rewarded or relevant to the logic of capitalist accumulation, particularly at this stage of development.

The New York Times reported on January 20, 2010 quoting the Inspector General over TARP, Neil Baroksy, as saying about the U.S. economy “we are still driving on the same winding mountain road, but this time in a faster car.”

The solution to this does not lie in elections and does not lie in trying to persuade the very people who are responsible for these crises to stop doing what they have been doing. The only way out of this is for the people to act in our thousands and eventually our millions, to put an end to this insane system and build a system not premised on profit but on meeting social needs.