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

by | 17 Feb 2011

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 Stephenson1http://www.msnbc.msn.com/id/28522036/ns/business-world_business/ 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 100,0002Independent, Suicide and depression on rise across UK, By Nigel Morris, Thursday, 18 November 2010 http://www.independent.co.uk/life-style/health-and-families/health-news/suicide-and-depression-on-rise-across-uk-2137052.html.

Personal bankruptcies were at a record 134,000 in 2009, with under a million more struggling secretly on the brink insolvency3Guardian, Insolvency figures hit record high, 5 February 2010, http://www.guardian.co.uk/money/2010/feb/05/insolvency-figures-hit-record-high.  A recent International Labour Organisation report4ILO, Global Employment Trends 2011: The challenge of a jobs recovery, 25 January 2011, http://www.ilo.org/global/publications/ilo-bookstore/order-online/books/WCMS_150440/lang–en/index.htm 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 Sachs5Bloomberg, Blankfein Invokes God and Man at Goldman Sachs: Jonathan Weil, 11 November 2009 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aqPYJqlCzOHo.  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 favour6George Monbiot, A Corporate Coup d’état, 7 February 2011, http://www.monbiot.com/2011/02/07/a-corporate-coup-detat/.  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 yet7War is just another market, one responsible for the creation of a number of banks after WWII with ‘spoils’. – 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.’8http://www.ilo.org/global/publications/ilo-bookstore/order-online/books/WCMS_150440/lang–en/index.htm

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 http://www.businessweek.com/news/2010-07-27/banks-charge-states-millions-in-debt-binge-to-fix-subprime-bust.html

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.10Ibid.

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.

  • 1
  • 2
    Independent, Suicide and depression on rise across UK, By Nigel Morris, Thursday, 18 November 2010 http://www.independent.co.uk/life-style/health-and-families/health-news/suicide-and-depression-on-rise-across-uk-2137052.html
  • 3
    Guardian, Insolvency figures hit record high, 5 February 2010, http://www.guardian.co.uk/money/2010/feb/05/insolvency-figures-hit-record-high
  • 4
    ILO, Global Employment Trends 2011: The challenge of a jobs recovery, 25 January 2011, http://www.ilo.org/global/publications/ilo-bookstore/order-online/books/WCMS_150440/lang–en/index.htm
  • 5
    Bloomberg, Blankfein Invokes God and Man at Goldman Sachs: Jonathan Weil, 11 November 2009 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aqPYJqlCzOHo
  • 6
    George Monbiot, A Corporate Coup d’état, 7 February 2011, http://www.monbiot.com/2011/02/07/a-corporate-coup-detat/
  • 7
    War is just another market, one responsible for the creation of a number of banks after WWII with ‘spoils’.
  • 8
  • 9
  • 10


Submit a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.


Join 4,406 other subscribers

We respect your privacy.


Fair access = access according to ability to pay
on a sliding scale down to zero.



Publish your article with us and get read by the largest community of critical legal scholars, with over 4000 subscribers.