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A Peep into My Head
A Peep into My Head
WHATEVER HAPPENED TO CAPITALISM?
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Since the Industrial Revolution and the end of feudalism, our world has been dominated essentially by capitalism. Thus a study of 16-19th century economics will, of necessity is a study of the capitalist Mode of Production (including the imperialist mode of exploitation) at its unfettered best. However from mid-19th century, the disciples of Karl Marx took his writings out of the shelves, dusted them and took them unto the streets. They established a vast socialist empire. Thereafter, especially after the Second World War, socialism rose to become the chief antagonist to the capitalist system.
To me, the Cold War was neither about who could blow up the whole earth twice over first, nor was it about who could first colonise the sun, the moon and all of the solar system. It was about who could put enough food on the table for its people/ by the time the final whistle blew (early 1990s) there were more people on the socialist table than the system could feed, so socialism collapsed and the whole world gradually became a capitalist domain. Capitalism worked, socialism did not. Thus in the last two decades, capitalism enjoyed an un-rivalled access to the whole world.
Through the IMF/ World Bank group capitalism was generously shipped to all the nooks and crannies of the globe, including Eastern Europe, the very citadel of socialism- in a word, capitalism took over the world, dominated it, and then CRASHED
WHAT HAPPENED TO CAPITALISM?
The economy was good in the USA and Western Europe – every one prospered, and every Nigerian, for example wanted to go there; “It is better,” they reasoned, “to be a slave in America, than to be a king in Africa”. At first, for a little collateral credit was made available for everyone. In the boom, banks were lending everybody on any terms, now things have changed; they simply are not lending to anyone, no matter the terms – what a change!
Some sharp economists must have reasoned that waiting for collaterals before granting mortgages would just slow down the rate of economic expansion, besides reducing turn-over and leaving competitors a chance to grab prospective customers. So banks began offering to pay for/ build houses for all including those who have not demonstrated the capacity to repay even the first instalment; “what does it matter, if they don’t get round to repaying, we simply foreclose on (take-over) the house, evict the occupants, sell the house (at a profit) to ever-available buyers, making a tidy sum in the process”
It worked for a while. The houses got built, the home-owners slaved on multiple jobs, took another loan, fought in Iraq, did whatever they could and paid off the mortgages and became proud owners of a home whose value was rising daily. Millions of others could not pay up, so got evicted unto the streets (from where they could ‘start all over’) and the houses got sold – that was the sub-prime market at its best.
Then it happened the estate market got saturated; everyone who was house-worthy now had a house, only those who had defaulted on so many mortgages as to be denied a new one, and those poor and indebted individuals who can’t get any. Then by their millions, average Americans began defaulting on their mortgages, and for the banks, fore-closing was no longer the fun that it used to be. The houses no longer sold, and they few that ever sold sold at a discount and required so much marketing to be sold – the bubble had busted.
Grim though that is, but how did it result in a global financial meltdown, crisis, tsunami – whatever you want to call it? The sub-prime market ran into multi-billion dollars, it was that big. So big was it that individual commercial/ mortgage banks were unable to finance it while maintaining liquidity. So there were huge inter-bank lendings, and the sub-prime market was so good that big and profitable that bigger banks could not just resist it. They loaned to smaller banks and got their hands muddied in the sub-prime pie without being involved with the end-users.
It became global when banks defied national boundaries and bank A borrowed from B who borrowed from C, from D, etc. thus systematically calling up all the credit lines there is in the capitalist world, from Iceland to Japan to Spain to Dubai. When the ‘bubble busted’, in a desperate attempt to maintain liquidity in the face of credit non-availability and unsold fore-closed houses, the banks from the smaller ones up, made one last pull for credit and then the biggest banks (such as Lehman Brothers, an almost 150 year old financial empire) who had no one further up to borrow from began falling. Then panic gripped the entire capitalist world: customers wanted to withdraw their last penny from the banks before they went belly-up, and the few who had any money, were not depositing them in the banks, shareholders of banks, construction companies, mortgage homes and other companies whose shares had risen due to profit in the sub-prime markets, now wanted to throw away, even if, at a discount their shares. At first bold brokers were willing to gamble with a few shares, thus triggering further dumping of the toxic shares. Then the markets, FTSE, DOW-JONES, CAC, Nikkei, Hangseng and the likes froze and then dangerously plummeted to levels comparable to the 1930s recession. The crisis also ensnared other companies in one way or the other connected to the toxic sub-prime business such as the world’s biggest insurer, AIG. The very heart of the capitalist economic system was threatened. The financial sector was in crisis, so there was no credit to invest quickly in other stable sectors of the economy; the Wall Street and its equals all across the capitalist world were facing extinction in the face as the global economic order as we now looks set to be phased out. But could the states, which in the theory of capitalism should not be involved in the economy, just fold their hands and watch their economic system, economy and consequently the state roll into oblivion?

January 5, 2009 | 4:24 PM Comments  0 comments

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