A Short Legal History of the Credit Crunch — Part 4 of 4

The suf­fering spreads

Our no­tional executive’s as­sump­tion about how in­dustry would help the banks and the eco­nomy out of the Credit Crunch was in one ele­ment cor­rect. Borrowers had bailed out the banks, but it was only by means of workers’ re­dund­an­cies, the strip­ping of the products of their la­bour, and in not a few cases an enterprise’s utter destruction.

The pub­li­cised sui­cides of various busi­nessmen, such as Adolf Merckle and Kirk Stephenson1 barely in­dic­ated the suf­fering that was passing through com­munity after com­munity as em­ployers folded and asset prices col­lapsed. In the UK, for ex­ample, the number of people com­mit­ting sui­cide rose by 329 to 5,706 in 2008 — the first in­crease since 1998. The rate of sui­cide among men went up from 16.8 per 100,000 people in 2007 to 17.7 per 100,000 in 2008; the sui­cide rate among women rose from 5 per 100,000 people to 5.4 per 100,0002.

Personal bank­ruptcies were at a re­cord 134,000 in 2009, with under a mil­lion more strug­gling secretly on the brink in­solv­ency3. A re­cent International Labour Organisation re­port4 stated that global un­em­ploy­ment was at 6.2%, with a fur­ther 1.5 bil­lion people in in­secure or vul­ner­able jobs. Although the so-​called de­veloped eco­nomies of the West ac­count for only 15% of the earth’s working pop­u­la­tion, they ac­counted for 55% of the in­crease in un­em­ploy­ment between 2007 and 2010. Among 16 to 24 year olds, the job­less rate stands at 12.6%.

Spain has youth un­em­ploy­ment of 40%, while young people in Southeast Asia and the Pacific are 4.7 times more likely to be un­em­ployed as adults. One of the root causes of the re­volu­tion in Tunisia was the un­rest caused by having a growing number of young people without jobs: the ILO es­tim­ates that in north Africa as a whole “an alarming” 23.6% of eco­nom­ic­ally active young people were un­em­ployed in 2010.

“God’s work” de­clared Lloyd Blankfein, CEO and Chairman of Goldman Sachs5. Capital is a wrathful ‘God’ indeed.

Danse macabre

The re­struc­tur­ings, in­solv­en­cies and des­perate but fee-​generating bond is­sues con­tinued into 2010. Now, how­ever, the prof­it­ab­ility of the sur­viving banks seemed to have re­newed their con­fid­ence in the face of public anger. It is al­most an abuse of in­tel­li­gence to follow a stratagem of at­tack as the best de­fence, but there is little other way to en­cap­su­late the modus op­erandi now ex­hib­ited as the states that had once hoped to ease the banking sector out of its crisis in a spirit of co­oper­a­tion, sud­denly found them­selves sit­ting around a table, having terms dic­tated by people they had once pulled from total oblivion.

And it really is dic­ta­tion; sub­divided into grudgingly ac­cepted or will­ingly in­ter­n­al­ised – last week’s pathetic an­nounce­ment by the UK gov­ern­ment of ‘Project Merlin’ suc­cess, which caused a Liberal Democrat treasury spokesman to resign in dis­gust, amounted not to a pun­ish­ment of banks but in fact a tax cut in their fa­vour6. The pro­cess of re­struc­turing through cuts and fee gen­er­a­tion re­mained the same.

As be­fore, the skill was in at­tempting to squeeze as much as pos­sible out of the bor­rower and then holding it in limbo, between in­solv­ency and li­quid­a­tion. Iceland had shown li­quid­a­tion was un­desir­able, at least, it was not de­sir­able yet7 – the Icelandic people had ac­cepted col­lapse and were now trying on their own terms to forge a quiet and simple eco­nomy, paying back with what they had and trying to avoid ad­vanced fin­an­cial­isa­tion altogether.

The banks and IMF had greater suc­cess with coun­tries such as Greece and the Republic of Ireland. The ‘ex­ec­ut­ives’ of the state, still mes­mer­ised by the myth of banking, were in place and car­rying out the re­quired ob­lit­er­a­tion of wel­fare and privat­isa­tion of state as­sets. But this polit­ical at­ti­tude of credu­lity was not every­where the same. In the United Kingdom and US, the ex­ec­utive was oc­cu­pied not by the faithful of the neo­lib­eral creed but by the fan­at­ical. In the UK in par­tic­ular, no diktat was re­quired. The market zealots knew what was ex­pected and it tied in oh so beau­ti­fully with the op­por­tun­ities of polit­ical pat­ronage and graft. Country after country was offered up and is being offered up, even as the ILO des­paired at the tinderbox con­di­tions of global un­em­ploy­ment and denounced:

the ‘narrow’ focus on re­du­cing fiscal de­fi­cits without ad­dressing job cre­ation will fur­ther weaken em­ploy­ment pro­spects [in 2011] for the 205 mil­lion un­em­ployed in 2010.‘8

Even the method of piling fee upon fee, which was il­lus­trated in re­spect of cor­por­ates in Part 2, was being ex­tended to states. Businessweek re­ported last summer:

July 27, 2010 (Bloomberg) — Bank of America Corp., owner of the most-​active subprime lender, Countrywide Financial Corp., earned $2.9 mil­lion in in­terest and fees for a line of credit Arizona used through June to bal­ance a budget un­der­mined by the housing– market collapse.

Morgan Stanley, fined $102 mil­lion by Massachusetts last month for al­legedly breaking home-​lending laws, shared in $579,000 of fees from helping run a $120 mil­lion bond sale for the state last week that pushed debt pay­ments from this fiscal year into fu­ture budgets. Wachovia Bank NA and Bank of America man­aged $400 mil­lion of Chicago trans­port­a­tion note sales in 2009 and 2010 to cover delayed state funds even though Wachovia’s parent Wells Fargo & Co. and Countrywide have been sued by Illinois for steering minority bor­rowers to subprime loans.9

The Businessweek re­port continued:

New Jersey, New Hampshire and other U.S. states also needed budget-​balancing help that en­riched the same Wall Street firms that touched off the longest eco­nomic slump since the 1930s by pack­aging loans to un­qual­i­fied bor­rowers. States is­sued $92 bil­lion of long-​term debt since Jan. 1, 2009, gen­er­ating about $488 mil­lion for banks based on the av­erage un­der­writing fee of $5.30 per $1,000 of bonds, data com­piled by Bloomberg show.

“You’re ba­sic­ally re­warding those who got you into the mess,” Arizona’s Treasurer Dean Martin said in an in­ter­view.10

If it ever was oth­er­wise, and there have been mo­ments when the pop­u­lous have carved out pro­tec­tions and rights to their own be­nefit, at some point each state came to exist for a single and sol­itary pur­pose: the susten­ance of fin­ance.

The manner in which all formal ele­ments of the polit­ical eco­nomy are now caught within a cir­cular logic which each per­forms how­ever un­will­ingly until death re­minds one of the Medieval tra­di­tion of the ‘danse macabre’. Here high-​born and low, ac­cording to the feudal hier­archy, are each ar­ranged al­tern­ately with death’s skel­etons in a dan­cing ring. The circle is crit­ical in rep­res­enting not just the ul­ti­mate equality of the dan­cers, but their turning ever round a hollow centre. In the famed Totentanz of Luebeck the skel­etons are drawn as lively par­ti­cipants while em­peror, priest and usurer ex­hibit a slug­gish state of nar­cosis. Faster and faster the tempo of the dance drives, each par­ti­cip­ating mannequin-​like in the soaring in­tensity, unto death.

RM Rilke, Totentanz, (1918)

Sie brauchen kein Tanz-​Orchester;
sie hören in sich ein Geheule,

als wären sie Eulennester.

Ihr Äng­sten näßt wie eine Beule,

und der Vorgeruch ihrer Fäule

ist noch ihr be­ster Geruch.

Bald wird ihnen allen zu heiß,Sie fassen den Tänzer fester,
den rip­pen­be­treßten Tänzer,

den Galan, den echten Ergänzer

zu einem ganzen Paar.

Und er lockert der Ordensschwester

über dem Haar das Tuch;

sie tanzen ja unter Gleichen.

Und er zieht der wachs­licht­bleichen
leise die Lesezeichen
aus ihrem Stunden-​Buch.

sie sind zu reich gekleidet;
beißender Schweiß ver­leidet
ihnen Stirne und Steiß
und Schauben und Hauben und Steine;
sie wün­schen, sie wären nackt
wie ein Kind, ein Verrückter und Eine:
die tanzen noch immer im Takt.

Danse macabre, RM Rilke (1918)
Stephen Cohn

No need for dance-​bands playing:
Within them sounds a-​braying
And hooting and screeching
Like nests of hungry owls.
They smell of a decay
First faint but soon in­creasing.

They sup­perate like boils.

They clasp the dancer tightly
(His ribs em­broidered over)
And with this gal­lant partner
They feel a per­fect pair.
He dances nuns, he loosens
(For they are all equal)

The coifs which bind their hair,
Takes one pale as a taper
And plucks the slips of paper
Which mark her Book of Prayer.

Soon all grow over­heated
For they are richly clothed
In robes and hoods and jewels;

Their heated rumps and bowels
Perspire, the sweat dis­gusts them;
Sooner they would be naked
As in­fants or as fools
Continuing, male and fe­male,
To dance in per­fect time.

Show 10 foot­notes

  1. http://​www​.msnbc​.msn​.com/​i​d​/​2​8​5​2​2​0​3​6​/​n​s​/​b​u​s​i​n​e​s​s​-​w​o​r​l​d​_​b​u​s​i​n​e​ss/
  2. Independent, Suicide and de­pres­sion on rise across UK, By Nigel Morris, Thursday, 18 November 2010 http://​www​.in​de​pendent​.co​.uk/​l​i​f​e​-​s​t​y​l​e​/​h​e​a​l​t​h​-​a​n​d​-​f​a​m​i​l​i​e​s​/​h​e​a​l​t​h​-​n​e​w​s​/​s​u​i​c​i​d​e​-​a​n​d​-​d​e​p​r​e​s​s​i​o​n​-​o​n​-​r​i​s​e​-​a​c​r​o​s​s​-​u​k​-​2​1​3​7​0​5​2​.​h​tml
  3. Guardian, Insolvency fig­ures hit re­cord high, 5 February 2010, http://​www​.guardian​.co​.uk/​m​o​n​e​y​/​2​0​1​0​/​f​e​b​/​0​5​/​i​n​s​o​l​v​e​n​c​y​-​f​i​g​u​r​e​s​-​h​i​t​-​r​e​c​o​r​d​-​h​igh
  4. ILO, Global Employment Trends 2011: The chal­lenge of a jobs re­covery, 25 January 2011, http://​www​.ilo​.org/​g​l​o​b​a​l​/​p​u​b​l​i​c​a​t​i​o​n​s​/​i​l​o​-​b​o​o​k​s​t​o​r​e​/​o​r​d​e​r​-​o​n​l​i​n​e​/​b​o​o​k​s​/​W​C​M​S​_​1​5​0​4​4​0​/​l​ang – en/index.htm
  5. Bloomberg, Blankfein Invokes God and Man at Goldman Sachs: Jonathan Weil, 11 November 2009 http://​www​.bloomberg​.com/​a​p​p​s​/​n​e​w​s​?​p​i​d​=​n​e​w​s​a​r​c​h​i​v​e​&​a​m​p​;​s​i​d​=​a​q​P​Y​J​q​l​C​z​OHo
  6. George Monbiot, A Corporate Coup d’état, 7 February 2011, http://​www​.mon​biot​.com/​2​0​1​1​/​0​2​/​0​7​/​a​-​c​o​r​p​o​r​a​t​e​-​c​o​u​p​-​d​e​t​at/
  7. War is just an­other market, one re­spons­ible for the cre­ation of a number of banks after WWII with ‘spoils’.
  8. http://​www​.ilo​.org/​g​l​o​b​a​l​/​p​u​b​l​i​c​a​t​i​o​n​s​/​i​l​o​-​b​o​o​k​s​t​o​r​e​/​o​r​d​e​r​-​o​n​l​i​n​e​/​b​o​o​k​s​/​W​C​M​S​_​1​5​0​4​4​0​/​l​ang – en/index.htm
  9. http://​www​.busi​nes​s​week​.com/​n​e​w​s​/​2​010 – 07-27/banks-charge-states-millions-in-debt-binge-to-fix-subprime-bust.html
  10. Ibid.

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