What are financial markets and what do they deal with? As a simple first formulation, one can say: debts are traded on this market, and these debts have the peculiarity that they generate money for those who make them. Money loaned brings in more money.
This is very obvious to everybody. It is a matter where everybody thinks: this is not worth a fuss, because it is certainly clear that if someone lends money, they eventually have to get it back again with a little something extra. In law, the issue is also simple and widely accepted: it is legally prescribed that someone who lends money to somebody else has a right to get it back in the promised time period and to collect interest on it. But the circumstance that it is legal and therefore unobjectionable does not answer the question as to its logical basis: why is it a simple fact that simply lending money results in more money? Where does the increased money come from? To say that it is mandated by law does not identify its source. One can, of course, think: well, there are always people who need money, for whatever reason, so it is good if there is someone who lends it to them. If someone thinks this, deriving the credit system from the absence of cash, then one only need be reminded of the size of the bank skyscrapers to see that even this huge need for cash, felt by everyone who is in a tight spot for whatever reason, could never by itself develop into a business that, in all the statistics on advanced capitalist nations, ranks as the largest, or second or third largest industry in the whole nation. If money can be earned on such a grand scale by debts, by loaning money, then it is clear that the basis for it must be a very solid, essential and continuous need in this society. Everybody who would like to buy something that he cannot afford experiences this need on the market, but this kind of saving in reverse, borrowing money in order to buy something that he could not otherwise afford and paying for it in installments, would still be too narrow, insecure and ridiculous a basis on which to erect such gigantic bank towers. For loaned money to become more money, something must happen between the loan and its being paid back with interest. There must be a basis for it, a source for the monetary increase that happens between the money being loaned and its being paid back; something more substantial than what happens between a consumer buying a car and blowing the borrowed money on a use value. What takes place in between is also not really a secret to anybody: it is the action by which one “does business” in the so-called market economy, and which always starts with money being spent. In order to make more money from money, one can't keep it, but has to spend it. One does not buy something to live on, but something promising, like means of production – one can do something with those. You do not need to think of big factories; the means of production can also be a small pub in which one offers a service. In any case, the money one spends must be spent productively in the sense that one produces something, a commodity, a service or whatever, which results in more money than one had before when it is sold. The logic of business is that simple. This is how to correctly trace the spending of money that then becomes more money. It does not do this by itself, but by something being produced in between. What goes on behind the sale and what brings in more money than before is the production of a commodity or service.
This is the elementary wisdom of classical political economy and Marx, and the production of money is ultimately based on this process; it simply depends on hard work and creating more commodities for sale, in value, than they cost. But we will come back to the subject of work later. Now as a first basis, we hold that what is produced – and it is a matter of producing – is something that has the goal of being turned into money. In between, in what one calls the production process in the market economy, money is produced; money is inserted into and extracted out of the production process, and this is the real and substantial source for the fact that money can be earned by lending money under the name of interest.
2. Credit: How banks make money into capital
It is now time for our question: “what then is the source of this business sector?” This is half answered by the fact that finance is denominated as a separate industry, i.e. in that production is bracketed by money. Money is used productively when a sum of money is turned into capital, and it is turned into capital just by being used productively. Money capital, which frames this money production process, has a condition, a prerequisite, a means that allows it to increase, and this is the first half of the answer to the question about its origin. However, the second half is still missing, namely: the money owners, the banks who dispose over money, are dealers in loan capital who get rich from it, only they do not have to first obtain financing for a production process and then afterwards help themselves to its results. There has to be an equally basic need by the other party, by those who initiate a productive business. Not just occasionally, but almost always, they need more money for their business activities than they have. If companies could set things in motion by themselves and only lacked money from time to time, there wouldn't be much of a commercial basis for a big bank. The subsoil of Wall Street might be solid, but skyscrapers would not be built on it. It also requires that there be a quite substantial, permanent need on the part of the business world, meaning: all those who use money to initiate something productive, who actually transform money point by point into capital, thus who organize a production process at the end of which a product has been produced which pays off in additional money; money that has been created, earned. There must be the need to apply for always more money than one has.
In order to underline the basis of this whole system, remember two needs that are relevant here: one is that everyone who needs to insure that their business runs continuously has to set aside money so that they have money available and the other is that in order to transform money into capital they always need access to more money than they have. Because it is part of the stupidity of profit seeking that even after one has produced some useful good, one is not finished, the work is not over; one must wait, sometimes forever, to bring in the money that one is trying to fetch with it. A product is produced, the businessman has done his service, or else another businessman, a merchant, buys the product in order to re-sell it, puts it on display, and then there is the problem that one must wait for it to be sold. The sales period comes after the production period in which the businessman has invested his money as capital; the whole turnover period takes an amount of time that is not foreseeable during production. A plan can be drawn up for when one will be ready to produce, but it is an open question when the thing will be sold. After money has been spent in the first stage of goods production, one must once again have money at one's disposal in order to continue the next phase of production, because one has not yet earned the money that one wanted to produce in the form of these goods. This is the problem of turnover time, the speed of selling, and it is based on the continuity of the process of earning money: One is not yet finished with whatever it is that one invested money in if one hasn't sold it and received back the money which enables business to continue.
This problem of capital turnover is the business pursued by the merchants who, even before the banks, came upon the bright idea of doing it in an easier way: someone who has produced goods and delivered them to a dealer will get a voucher saying that he has already delivered them. He gets a certificate from the merchant saying that in three weeks, or however long he gives himself, he will have sold the thing, so he promises to pay in three weeks. This voucher – payment in three weeks – is given to the one who has delivered the products and – this is crucial – he can now take this voucher to his own supplier, from whom he buys his means of production. In the case of a barkeeper, he can go to his brewing company with this voucher and say: “I am ordering the next round, here's my voucher, because the person who bought this from me will pay me in three weeks, and you can count on it just as well as I can, so if you give me your beer, I’ll give you my voucher.” And business continues. These vouchers are called bills of exchange because they are based on this erratic way of changing hands, going from one owner to the next, and this process is covered by a huge amount of legal regulations. The problem of capital turnover is overcome by this type of commercial credit.
Of course, this commercial credit has a certain catch, because someone who gets this slip of paper never knows for certain whether the person who originally signed it is an honest person or a charlatan, and even if he is an honest charlatan it is not entirely clear whether he can really pay it back, let alone in three weeks. That’s why the acceptance of such bills of exchange is vested by the state, because even the strictest possible regulations are of no use if there is nothing to be had. So that anyone who receives such a bill of exchange has something in hand and can try on his part to pass along this bill of exchange, the only question remains: will this really be paid in three weeks? This is a permanent emergency situation; it is noticable in every business that, as soon as a turnover is initiated with capital, as soon as a sum of money should change into more money, it has the problem of capital turnover, which arises from always having to go through the hard slog of producing and selling. The institution of the bill of exchange – that is, early payment with a promise to pay – is always used, and always re-creates the problem: what is my bill of exchange really worth? Can I really use it as a means of payment as freely as I would like?
The use of a promise to pay as a means of payment is the entry-level drug for bank capital, because the banks are happy to accept these bills of exchange in the end and put down money for those who deliver them, thus concluding their business so that they finally have real money in their hands. Of course, the bank does not do this out of friendship, but because it promises to benefit from it. It draws off something extra for itself. “Drawing off” sounds better in Frankish Latin and means a “discount.” This is not a discount store, but the discounting of bills of exchange, retaining something from a promised sum, and not an arbitrary amount, but – because banks are fair – a fixed percent. This is the so-called discount rate which the banks calculate for accepting bills of exchange. In this way, the bank makes itself the creditor of the debtor's bill of exchange and releases whoever has taken the bill of exchange from it. This is one source – and indeed a source that never dries up – of the bank lending business, a type of business whose essence is: here is an already produced value, a finished product which is already worth its money, thus it also includes the sum of money for which money was invested as capital – quite simply, the profit. It becomes a product that already includes the profit and only has to be sold, i.e. transformed into real money. Here credit, the money lending of the banks, transforms – for interest – an already existing additional value into money sooner than the market would otherwise, because the money is needed.
The other equally crucial, and to that extent just as large, branch of the banking business takes up another problem of profit-making, namely: anyone who draws up a business plan must first have the money to get it going. Most people do not have enough money; for instance, someone might have an ingenious idea for a website but no money to market it, to explain to people what he has and why they should order it from him; he needs money that he doesn't have. That is the simplest form of profit seeking by which money can earn more money: someone has a business idea, but lacks the necessary amount of money for it. Whether it should give money to an oddball like this is considered only a minor problem by a bank, but this same problem exists just as much at the top levels of business, and there the difficulty becomes much bigger. That is, if a company like General Motors says it is not going to be as successful as it had originally planned, then one thing is clear even for the largest company: it suffers from competition. Its competitors offer goods in better versions, with more advertising, perhaps even cheaper. And even if business is good in competition against one's peers, from the smallest up to the biggest company there is the incessant problem that it isn't good enough. Or if it was good enough, then one wants to make sure it will continue in the future as a good means of competition. So a company always has to hustle, dazzle the public, make its goods cheaper, and add new features in order to increase its market share. To do this, it always needs one and the same thing: more capital than it has already earned. Of course, some big companies can handle this by investing out of what they have already earned, and sometimes they might even have so much left over that they don't know what to do with it all because it might no longer be profitable to invest in their own business. Capitalist companies compete among themselves, so they always have the problem that they need to grow to win the competition. The stupid mantra of business is “to stand still is a step backwards,” and anyone who is not growing has pretty much lost the competition. So where do the funds for growth come from? Again, the bank is of service here, and this is another commercial basis for the banking business, which has the small but noteworthy paradox: the means for capital to grow is size. The bank lends money, making available today an amount the profit-seeker will only reach in the future. This is the second long-term, solid basis for the banking business, which is why debt, or granting credit (seen from the other side), does not ensure that the money the bank gives away will yield more money simply as a result of it having been given away for a certain period of time. The banking business is based on the fact that it frames an elementary need of normal profit-making in front and in back; it initiates business or just enables it or promotes it in general, and rakes something off from the fruits of the promoted or expanded business.
One can now ask how the banks manage to do this. They can do this because they manage all the payment transactions of an enlightened modern society; they administer virtually all the payment flows that pass hands in the society. Right down to the welfare recipient, everyone needs a bank account into which the employment office, social agency or whatever transfers a check. Beggars still get cash, but everything else takes place through the recording of entries and checking accounts. This is the end point of what started centuries ago on a simpler level: the banks handle the due payments of the business world and all the customers of the business world, the whole big community of consumers. They take the money of the society, at its source in fact, in trust. They collect the money of the society and cover all the payments between everybody who has to pay each other. Then somebody who has deposited money doesn't have to worry about anything except that the bank follows his instructions about whom it should pay and that his account is somehow covered. The first and initial basis for the ability of the banks to do this kind of lending business is that they command over the money of the society.
From the outset, the banks have not been content with being the trustees of strangers’ money. If someone entrusts money to the bank for the payments he makes, then the bank says, “ok, done,” but the money the bank has received can't just sit someplace idle. The bank knows what to do with it so that it can proliferate: it loans it out. It uses the freedom of the money entrusted to it and organizes loan transactions. Now one wonders: when the account owner wants to pay for something, where does the bank get the money if it has already lent it out? You can ask your bank where it has put the money you deposited in your account and it will show you a record for, say, $100. It will show you any $100, so you are only sure that the money you deposited or that your employer transferred into your account is the stuff with which the bank is doing its lending business. The bank views payments or money orders as basically no problem because what is paid out on one side flows back in again with the money it gets in an account. Its whole problem of having to take responsibility for payments, when it has already invested the underlying money in a completely different way, is for the bank more or less the problem of juggling outflows and inflows of payments. It is true, of course, that it would not be a good bank if it lent all the money and then suddenly payments arose all at once on the money that it so easily doubles. But the trick here is just what they call the art of settling outstanding balances, liquidity management, the hustling around of accounting digits within a bank. When the settlement takes place, only one book entry at the same bank really has to occur from one account to another, and nobody even notices that this money does not actually flow at all, but was lent long ago.
This technique of using deposited money as the material for a lending business changes the status of the bank in a crucial respect. From then on, it is no longer simply a trustee of the entrusted money, but the trustee relation (you give me your money and I will cover your payments with a tiny fee for myself) becomes a debt relation which the bank enters into with its depositors. It is no longer simply the promise “I will keep your money,” but the money entrusted to the bank becomes – from the bank's point of view – a debt that it has to the depositors. Thus, in collecting money, the bank becomes in some way the universal debtor of its customers, but this concerns only the status it has towards those who until now were called its depositors. This now gets the character of a claim which the depositors have towards the bank, and the bank owes on the basis of this legal relation. It is a debtor to its depositors, it must promise repayment to them at any time, and it must operate with a promise to pay. This is how the bank gains the freedom to use the deposited money as loan capital in the sense just described.
There are a lot of legal regulations about this at the moment; for example, the golden rule: if somebody simply deposits his money in the bank, the bank may not use all of it as loan capital, thus use all of it for its credit business, but must keep some fixed percentage, determined by the government, as a cash reserve. From every deposit, it must set aside a certain amount in a reserve fund which it may not lend from and which is still good if real payments have to be made that are not settled by account transfers. Then it can fall back on money, on a percentage of its deposits which it has kept for itself. There is the extra rule that the bank must not only maintain a cash reserve, but also must hold something like a minimum reserve with the central bank so that it can always collect money from a reserve supply to a certain extent. This rule is also very necessary, because one thing is clear: the bank is pained by every dollar deposited in it which makes it a debtor and that it cannot loan, because it is then losing business; that is why it tries to hold this cash reserve to a minimum, which of course has its risks if it then has to pay it back nevertheless.
The technical aspect of this achievement consists in the money that the simple account owner thinks of as his asset with the bank: his claim he can use to pay for the checks he writes, the transfers he signs, or that he can use like a credit card and give to any credulous cashier so as to take home a commodity without being called a shoplifter. Everything that is recorded there is seen by the bank's customer as a sign of the money he owns; a money sign. This is not true, because this is a sign for the money that one has entrusted to the bank and that the bank has loaned out. Strictly speaking, it is a sign for the credit that the bank has awarded, on the one hand, and for which it takes responsibility to its depositors, on the other, because it promises to pay them. What was originally just a sign of money – and also still looks like a money sign because one can still ultimately collect a money voucher with it – is actually a sign of the money continuously lent out by the bank: a credit sign.
But this is only the relatively boring, technical side of a larger economic advance that the banking world undertakes with this type of credit lending: with their business activities, the banks not only transform a certain amount of money into capital here and there by lending it, but in principle their type of money management transforms all the money that is earned in this society, thus every sum that is realized in the value of a commodity or service, all the abstract wealth (abstract meaning that the value of a commodity or service is expressed only in money) into capital. Every sum of money in the society that comes into existence and falls under the custody of the bank is capital. This is the achievement of the bank. Now one no longer needs to first use money to open up a business, produce something, exploit people with hard work, so that in the end there is a commodity one still has to sell so that one finally transforms money into capital. Money generally no longer needs to take this hard slog because every sum of money guaranteed by the bank is already thereby capital. The bank already possesses the wherewithal, it lends it, it collects interest, the whole hard slog in between in which the money is increased, in which more value than before is created and transformed into money, is cut out.
Through this service, the bank takes every sum of money that exists in the society and gives it a new use value. When one wonders what the use value of money is, one usually thinks that it can simply be used to buy something. It is already absurd enough that one gets power over the goods of society through a thing that one has. Marx has a lot to say about this, and he explains that it is actually a relation of the social division of labor and how a society maintains itself when goods are produced and sold on the market. But the absurdity is that this relation of the division of labor is fixed in the ownership of an object; and this is money. And money is not a certification for a successful division of labor, it is just a piece of the power of access to the goods, to the value, that money represents. The state in fact stands behind it: you must have three dollars to give to the cashier in order to come out with a hamburger. One thinks of this as the original use value of money; that it is for accessing goods. Here Marx says: this is absurd, it is reminiscent of primitive people in the bush who believe in a fetish, who think if they worship a wooden pole they will win a war. But if one thinks this absurdity is at home only in the deepest bush, one has made a poor distinction because, in the advanced bourgeois market-economy society, it is even much worse, because here one believes not only that the thing that one has in hand in the form of money is ultimately merely an electronic accounting deed, but this thing gives power over the goods of this society on which work has been performed (and one is up to one’s neck in things) and it is the means of command over social wealth and its producers; one can even buy labor power with it. But this kind of fetish is, to a certain extent, only the lowest and most rudimentary type of use value of money. If a whole functioning market economy and banking industry has opened, then money acquires still another use value, and one can buy this use value as a businessman. The businessman buys himself a sum of money; he buys it for an absurd amount of money. One thinks at first that he merely puts down the amount of money that he has. But the use value of money is that it makes more money from this sum of money. That’s why the price of a sum of money also consists of the interest on this use value – that it increases – a sum called interest. And then one gets the sum of money, which is to increase, puts it to use, uses its use value, makes it increase, and then one returns this sum because it has done its service, one has earned more money with it, and one pays for the use value of the money.
The social achievement of banking capital consists in the creation of a new use value of money. This point can be made simpler if you think of the ads for savings banks in the subway station that promise: while you wait there for the next train, more or less in vain, your money works with us. What is meant by this metaphor that money works? Exactly this: as soon as one entrusts one's money to a bank, a thrift institution, or any loan capitalist, it takes this to be a guarantee that this sum of money functions as capital, that it spits out an additional amount. The bank even promises this to somebody who puts money in a savings account: “I will make more money than before from your savings.” It promises and makes it true that the entrusted sum of money becomes capital, money capital, and that is based on every sum they get their hands on functioning as money capital: it produces an increase in the form of interest. Two social relations are connected with this. One is: in this way, something like social capital becomes a reality. A government statistics office can try to add up the capital, thus all the sums of money that are invested in this capitalistic society, so that eventually it has a gigantic sum and says: this is the social capital. But this is only a sum that is added together from competing companies. The banks, however, collect all the money from everyone who has leftover money, even from everyone who has outstanding payments, thus from all the capitalists; the bank collects all the capital of this society that is left over, that is not engaged in the production process. This is their great accomplishment. Everything that is outside the production process as money value somehow in motion, the bank world collects and in principle makes accessible through their loan business. That is the sort of socialism that is true to capitalism. This is the socialization of capital that is collected and made available for the perpetual big money needs of capitalist business entities. It is immediately noticable that this kind of collectivization of private property has the character of a pool of sharks, because the competition between those who borrow money does not end there by any means, and the relation of the banks to those granted the money for the continuity of their capitalist production process is far from a friendly act between brothers, but is ruled by competition at every point.
Two important points should be made about this competition. One is: someone who goes to the bank and wants money is not automatically embraced by the bank according to the motto: “I have money I can lend, I already sit on so much, at last somebody will get it.” To the contrary, whoever gets money, unless he is very canny, must prove that his business is profitable. Then he must do what capitalists are otherwise terribly reluctant to do: open up his books, give information about his business practices, tell what he wants to sell to whom and at what price, and all his prospects. Everything that they keep strictly confidential and might not even inform the tax authorities about, they must disclose to the bank examiners, and the examiners compare those to whom they give credit, how much, at what interest rate. The bank differentiates according to the extremely unfair motto: “whoever has the worst business must pay the highest interest rate.” There is no pity: “oh God, your business is so bad, I’ll give you the money a little cheaper.” This would happen between friends; between capitalists, exactly the opposite: loaning money is always risky and the bank enters the risk, even gladly, but defrays it, so the interest is higher. The worse a business is, the more expensive the credit is. If a commercial customer wants money from a bank for some capitalistic project, he must compete for credit from the bank, and fight for an advance; they reciprocally blackmail each other. Because it is really only a show of strength between these two parties that decides how much credit one gets and on what terms. In this respect, this is the solidarity of the capitalists: their private property is thrown together so something exists in money form to be lent to those who can and want to make more money from it. The solidarity of the capitalists happens as a new sort of competition, namely between lending capitalists and those who borrow. This is how capitalists make common cause – by competition.
The other point is: whoever borrows money to continuously run his business, to thereby run it better, to have more money at his disposal than before or to increase it absolutely, does this for reasons of competition, thus in the interest of being better off as a competitor. This means, of course: the credit given away, precisely because it results from the needs of competition, has the effect that it heats up the competition between those who borrow money. And indeed it is not only because of this that a bigger wheel turns and more goods are thrown on a market that is already overcrowded and some are thrown off the market. In this intensified competition, the bank that lends the money also bets on success in the competition. It anticipates the success of those it lends money to; they should already have earned success in the competition beforehand. The future amount is anticipated; today’s funds anticipate that the capital will reach this future amount. That's why the bank is dictatorial about this success occurring. As if it was not enough that these crooks compete with each other like mad, it becomes, through the patronage of the bank that lends them money for the competition, an objective constraint that they have to achieve competitive success. Here is a nice basic formula of capitalism: for the capitalists, advancing their business in their own interest becomes a constraint. As a result of its interest in loaning money and using it to help a business get ahead, the bank becomes the promoter of a necessity, a practical constraint to achieve this competitive success, even up to the level that in failing the businessman can write off his interest along with the business and still has to sell his house and jewelry in order to get the bank its money back after he goes out of business. This is the humanizing, socializing effect of bank credit.
The second point concerns the question: what does all this actually have to do with the people who do the work, those who, in the production process bracketed by finance capital, are responsible for setting in motion the production process and the retail trade so as to produce the commodities by which surplus value is made into money, thus increasing money? How does this relate to the employees of the department stores who have to bring these goods to people so that profit-bearing commodities are realized in money? Previously, we had the formula: if the entire circulation of money is in the hands of the banks, and they make credit out of all this money, then its use value is to function as capital in the increase of money capital, virtually independently of whether a production process really takes place in between; the nature of money capital abstracts from this. A kind of abstraction exists if money lending is so highly developed that every Dick and Harry gets lent money, something we just ruled out as a real basis for money capital. But if one only wants credit to occassionally buy a commodity that one cannot afford at the moment, one can get credit, and then one has to vouch with one’s income, a teacher's salary or whatever, for the fact that the borrowed money will really become more money for the bank, thus become capital. The bank is so brazen and so free that money is also loaned out even if the production process that produces more money does not take place. Then, instead of changing money into capital, it compensates itself with the normal incomes of its customers. In former times, this was called usury; today, interest rates of 15% on credit cards are not unusual.
What the bank carries out is the equation that money has the use value of increasing, and this is objectified in this whole enormous financial sector. In all seriousness, it is the basis for the appearance that money really has the quality of being able to increase by itself. A banker who is asked how he actually earns his money will never, ever say: “this is what I set aside for myself from the profit that the proles create for the companies.” He would never say this because he does not know it; it is not in his point of view. He is firmly of the view that the source of his profit is his skill in handling money, that he lent it here and there and to this one and not that one – and we have not even talked about securities yet; his money is earned by his talent for lending capital, correct bill discounting, always being solvent at just the right place, and having kept the reserve fund small. On the one hand, the brutality of capitalist relations is so obvious here: the domination of property over labor is nowhere so brutally striking as in interest-bearing capital, because here the equation becomes true that property is only a legal title to an appropriation from the products produced by the labor of the society. The brutality of interest capital is this fetishism of property, money as a means of access, and money not only as the access title to goods, but to more money, thus money as the progenitor of more money. Property as a means of enrichment from the work that others perform is the brutal side of interest capital. This brutal side expresses a certain truth about what's going on in capitalism: property means the power of access, and also in fact access to the labor of those who are exploited in the production processes. The other side, the normal, job-creating capitalist, surely does not want to know that loan capital, interest-bearing capital, accesses labor as its source and the bank capitalist, or whoever shares his point of view, knows nothing about this. Thus both coincide; in interest-bearing bank capital, the truth about capitalist relations of production – all productive power lies in property, property is the means of command over all labor – is realized in one pure form, on the one hand, and, on the other, this basis, this source of the whole story, absolutely disappears in loan capital as such, in interest-bearing bank capital. This is the fetish we spoke of earlier, and this is incidentally also our explanation for how a given sum of money becomes a bigger one. This process is inherent in interest-bearing capital, and interest-bearing capital has the quality that in it every sum of money is, on the one hand, realized and, on the other, extinguished.
This has a few amusing consequences, and some quite unamusing ones, for the opinion this market-economy society has of itself. These are the points Marx developed in the trinity formula in Volume 3 of Capital. To explain it in detail: there was a kind of theory in political economy about this market-economy circus, as many people asked the question: where does the wealth of the society actually come from? How does it happen that there are new products year after year and also the tendency that it always gets wealthier. The question they asked includes the possibilities they allowed: is it, for example, the state or luxury spending that spawns such uncanny wealth year after year? Then they came to the production process and broke apart its proceeds into components. There was the power of interest-bearing capital, money that is loaned to the productive capitalist that produces earned interest. This played quite a big role in the theory. But as one can see: a part of the social wealth that reproduces itself this way goes back to the fact that money is behind it, property, thus a part of the social product, the value of the product, arises from the fact that capital is in motion, which belongs to them. One sees this in interest-bearing capital. Another part belongs to the workers, one sees this in the fact that they live on what they are paid; what they get is also their contribution to the whole. Then there are still those who bear the hardship of employing capital and labor, the productive capitalists. They also perform work to a certain extent. Their work, their entrepreneurial work, is somehow a source of social wealth; one can even say that it is wage labor to a certain extent, in that the capitalist is his own office worker or, as they are called nowadays, manager – and if the wages of management were a little bit higher in those times, this was not disturbing at all. In any case, they were part of the sector that works, and their income was the value of their work. And if the work of management was worth a thousand times a wage, this was fair. And as a third source, they had the landowners on which ground rent is paid. Keep in mind, with mortgage banks, rent to this day is a giant source of income. However, all this does not matter, the essence of it is that this equation – money per se is capital – dominates social consciousness in the viewpoint that a lot of things might happen in our society, but certainly not exploitation. Exploitation might possibly exist when a john cheats a whore of her wage, then perhaps she has been exploited. Or, according to the leftist idea, a worker who gets less than a “living wage” is perhaps exploited. But in the normal run of business, exploitation is nowhere to be seen, because when capital is contributed, it is pure capital that is contributed, as can be seen in its earning interest. This is even the point of view of the capitalist who employs it, posting in the books “what this cost me.” Here Marx cannot calm down about the fact that a part of the profit is registered by the capitalist in an advance, because if he is loaned $1000, and he must pay $50 a year in interest on it, then not only 1000 are spent by the capitalist for his business, but 1050. This can be multiplied a million times, and then one has the calculations of modern capitalists.
This fetishism of money, this insane equation that money is already capital, belongs quite essentially to the self-consciousness of the free market society. Nowadays, hardly anybody is interested in its real reasons, because the need to justify this economy has disappeared. Hardly anybody asks: how can it be that there are so many working poor, so many who are even poorer, and so few who are rich in this society. In the metaphor that these are scissors that somehow diverge further apart, the matter is already taken for granted. There is hardly any public effort to justify the results of modern exploitation with a theory, much less an economic theory. Nowadays this is acquiesced to as self-evident, under the motto “everybody wants to complain that they are badly off, but they should be happy that they have a job, because if they don’t, they know what a job is worth.” Nowadays, this is what passes for a justification. Incidentally, this also applies in intellectual circles; if one tries to learn what economic research institutes have to say about the wage question, one notices that no justification is needed to argue that workers must, of course, be made cheaper. And in this respect, any interest in explaining loan capital and placing it in relation to labor is quite passe nowadays. It might be a joke to some researchers to say that one must investigate this economy, that it is not right that this apparent autonomy of loan capital has these ideological consequences, just because the need for justification is now extinct. That's why most workers’ representatives find no reason to fault the exploitation carried out by their firm, because at least it creates jobs, or it is even admirable that it creates jobs, while they do see a competitive situation between their own firm and the bank which has put money into this firm; a competitive situation that can sometimes even lead to the failure of the business, the bank switching off the juice to the firm by not giving it more credit, and the business grinding to a halt. Then, of course, the jobs are also gone, then the exploitation stops, and with the exploitation, of course, also the wages that people get in return for doing their service to the company.
When critical thinkers still perceive a clash of interests in this society, it is usually not between the staff and the firm, but between the firm, including its staff and their wonderful jobs, and the bank which has given it a lot of credit and maybe no longer gives it credit because business is bad. This is the morass from which arises the idea that all the hardships of capitalist society are due to conflicts between money capital, which carries out its accumulation without the production process, and the production process, which is responsible for such accumulation. When all the hardships of the society are traced back to this conflict, it is overlooked that this is nothing but a conflict of interest between hostile brothers of the same class; and that the wage laborers are the ones who are ripped off in the production process, who generate more money than they cost, and who in the end must be responsible for the payment of interest. That's why we have talked about banking capital, loan capital, as a form of socialization of private property, just so that nobody ever mistakes where the lines are in this society. All the conflicts in this socialization of money, all the conflicts of interest between bank capital, on the one hand, and its borrowers, the global companies, on the other, are conflicts of interest between capitalists, and it is on this basis that the money of the society is made available to anyone who wants to use it capitalistically. This is the basis of solidarity, if you will, for all the hostility and antagonisms between honest firms, including small ones, and the bad major banks. They all belong to one and the same class.
3. Securities: How banks make debts into capital
Following these explanations of what drives finance capital, we will now identify what the banks organize with their lending and discounting business. They do this, of course, as capitalist enterprises with the aim of enriching themselves. The banks pursue the same goal as every capitalist enterprise: to make more money from an initial sum of money by using it capitalistically. They want their business to grow, and they not only want to grow, they have to grow, because banks are also in competition with each other. Competition gets interesting now. The ideal of every bank is to gain a monopoly on social payments, to earn everything that can be earned through the discounting and lending of money, and to capture others’ cash transactions. A crucial new point should be added to what has been said before about the business practices of the banking world, which also leads to a new level in the bank business: the banks do not simply wait around like the corner hairdresser for somebody to come along and let them lend money, and they also do not simply wait for somebody to come along and entrust his money to them. They do not deal with this problem of trying to get customers for both sides of their business just by advertising. They make themselves into into the active subjects of the lending business in which they earn money. How do they do this? We have explained that the banking business is based on a perpetual need of productive capital: normal profit making. It is based on this, but not everything has been said about this. The banks are business ventures that make something from this basis. On both sides – getting money deposits and granting credit – they know how to help themselves to something over and above their basis in the commercial business of other capitalists. The thing they invented for this purpose is called “securities.” Bonds and shares are the two most important forms of securities, which is how the banking world goes on the offensive.
What does a bank do when it creates a security? If we first take a bank that issues a security in the simple form of a bond, this consists first of all in nothing other than the bank's promise to pay interest to somebody who hoards money. And this is not simply a promise which it writes on a billboard and then waits for somebody to pass by. It writes this promise literally or ideally on a sheet of paper and explains that this is a paper which contains nothing but its promise to pay interest – here is a million with 5 per cent interest, due every year, to be repaid in 5 years. It has done nothing else by printing such a paper. And it does not only call these papers securities in an ideal sense, but vouches for them with all the power it has as an authority with the ability to dispose over the money of society and gives them something like the character of a commodity. Hence they are worth what is written on them, this million, simply because it promises to pay interest on them. This promise is made on the basis of its business. But from its business, it derives the audacity to promise participation in its business – a small 5 percent participation – to anybody who puts down money for the continuation and extension of this business, and the assignment of this promise to a really-existing property value exists before the sum exists. The bank acquires this sum by selling these things.
One can, of course, say that this is ultimately no different than a loan business: someone buys this swindle, lends the bank money and gets interest for it; this is its trivial basis. But from the point of view of the bank, which makes itself the subject of the creation of a property asset by its promise to pay interest, when does this property value become genuine? When does it become real for the bank? Basically, it happens by the same act by which really produced, honest commodities become money: at the moment when the thing is sold. The sale of a security is to a certain extent its own confirmation that the bank’s promise to pay interest is worth as much as whatever it gets for it. It creates a property value for sale and takes the overhead for itself. And this is better than maintaining checking accounts or opening current accounts, because this way – and this is crucial – the bank grabs the available money of the society and directs it into its balance sheets rather than letting it hang around in others’ current accounts. If it gets it from its own current account owners, it has at least obtained the crucial improvement that it not only uses the sum of money that the person has entrusted to it as leveraged credit, but it also does not take the step from trustee to debtor of the value, as they do constantly, ever further. If it asks its account holders, “buy my securities from me,” then it takes possession of this money for a period of time at a fixed interest rate and can proceed with it as if it were its own property. This is no longer others’ money that has to be somehow guarded in trust; this is now its maneuverable mass, for as many years as are fixed by it, and anyone who tries to prematurely cancel even just a savings book with a 3 year cancellation period is confronted by the bank with the information that he has to refund his interest. Also, in keeping with this point, the banks go on the offensive with the acquirers of money deposits through the creation of securities, by opening a business with securities as their products. As said, their promise to pay interest becomes a commodity for sale, a property value, available for purchase, which is marketable on this ominous thing called the financial markets, for which they create the material with securities.
It gets even better with the second variant of the security, the share. What is this? Whoever buys a share accepts that this is somehow the share capital of a firm and that somehow the money he initially puts down for the share goes to a company and the company uses it for its business. As with loan capital, a company needs money, borrows it, and gives a certificate of indebtedness in exchange. In this case, the IOU is called a share. For the company, it simply has the charm that it never needs to pay it back; the share is already a kind of credit, but a credit without a date of repayment; a share is only given away money and a claim that one obtains interest in the profits of the company, an interest over which the company ultimately decides. It is, to a certain extent, nothing but a company’s promise to pay interest. This is the other variant of stock, issued not just by banks, but ultimately also by banks; these are promises of interest payment from joint stock companies, and not at a fixed interest rate; they are share certificates. So what does this share certificate do? It is tradable, one can buy it and sell it in the financial markets as a true title to property, and with this relation – a sum of money becomes more money – it separates itself from the whole production process which takes place in between, on the one hand, and, on the other, it incessantly becomes a mirror image, or caricature, of what is happening in the company. The company knows it can do business with its financial means, its advance, its capital; that it gives nothing other than promises to pay interest, stock certificates that promise “whoever gives me money can participate in my success”; that it puts nothing but this out in the world and acquires money for it; and that someone who puts money down for it has not simply got rid of his money, but now just has a security, which, because of the company’s promise to grow, stands for the fact that it can be traded, that it can be resold if the money is needed. Here steps the well-known marvel that the value of these securities is not simply calculated at a fixed interest rate, as with a bond – where an interest rate of 5% is put down and then that is the payment of interest on a million and, if the interest rates fluctuate during these 5 years, the paper is then worth sometimes a little more and sometimes a little less. With a share, it is clear from the outset what this paper is really worth as a property asset, what it will bring to whoever possesses it, thus how it realizes the transformation of money into money capital, and in what proportions. This is daily ascertained according to the supply and demand of such papers on the stock exchange. Someone can even be ruined if he has bought one too expensively and then wants to sell it and it is no longer as valuable, or even just half as much. Here the security, disconnected from the company that it represents, acquires its own value movement.
These are stocks and bonds, the stuff created by banks and joint stock companies, which in this way act just like finance capitalists. A company issuing a bond is no different than a finance capitalist who says, “I will give you a promise of interest payment, believe me and give me your money, I'll pay you back with interest.” Thus a bond, from Siemens or any other company, is finance capital, virtually bank capital. The issuance of a share, the formation of a share company by the issuing of new shares, is a finance capitalist maneuver by the respective company, by which it provides itself credit, and indeed actively by itself. A company that issues shares – not one that sends a well-dressed proxy who says “I'm begging for credit” like small companies, but a corporation that appears as a publicly traded company – goes aggressively to the financial markets, thus to everyone who has money, and offers them a security which it creates by itself, through its promise that they will share in its profits. Here it is already noticeable that in loan capital money becomes capital, the banks turn this, or the financial sector turns this, cunningly. It turns it upside down and says: first is my promise, I spit out here an addition to a lent sum of money, and because my paper promises not just my payment, but my promise of repayment with interest, it is an asset value that should be bought from me. This is one side of the financial market, that is, of the commodities that are traded there.
Who then are the buyers? Yes, Dick and Harry, we want to say at first; people, maybe even honest workers who otherwise have nothing, who team up and buy shares. This attracted attention when they speculated and lost in the IT disaster, and many of them were ruined. Everyone can participate in this financial business, and the savings banks also go through all the hassle of doing things to re-attract simple savers with stock or equity funds. But, as we have noted, this is a sub-sub-division of what one calls the financial markets. The main actors on the financial markets are none other than the banks themselves. The financial sector itself disposes over financial funds and makes them available so that everything they have collected in money is not bottled up somewhere, because they are eager to make more from it, and they are also not content just to seek out productive capitalists who scheme something promising with it. With the creation of securities, they go on the offensive towards the society, and they want more purchasing power than whatever has been deposited with them. And for the funds they attract, they do not wait for people from outside the banking sector to come along and say, “We would like to lend something,” for securities are not well suited at all for lending in this sense. In the securities it creates, the banking world finds investment possibilities in their own right.
Now, one can ask, what kind of an insanity is this – on the one hand, paying interest on securities, and on the other hand, collecting interest on purchased securities. One might wonder how the banks' calculations add up in each case, but the phenomenon is quite simple: simply by performing this business, the banks increase the extension of credit. With every security they create, they strengthen their power to grant credit to whoever it may be. With every security they buy, they elevate the asset base on which they can assign credit again. With both operations, they leverage their credit power upwards. Companies' finance departments, or the banks themselves, buy each others' shares, so that one company participates in the profit outlook of the other, thus buys its securities just to participate in it. Clearly, a bank that creates securities and then buys them itself would be a business swindle, about which one should ask whether it would be a good venture. But the crucial point is that they mutually buy their own products, and mutually strengthen themselves by it; to a certain extent, they mutually corroborate themselves. One could express it idealistically: “yes, we believe in it, we confirm you by the purchase of your security that your promised interest payment is in good order. We make something real from the offer of these property title commodities, we realize their value when we buy them.” And this helps the bank which sells it, not simply by the fact that it has the sum of money, but in that it is confirmed by it: with this, the bank’s promise to pay interest is serious. Vice versa, a bank that buys such a serious promise to pay interest has something in their property assets, a claim with which it is well off. This is a claim that it then considers failsafe because it is backed by a solid, serious bank. This is how the banks, by trading self-created promises of interest payment, pursue something not unlike a zero sum game, because they mutually pay interest to each other. Even if this business should sometimes be discontinued in individual cases, the substance of it is that, in mutually generating their creditworthiness and hence also their power to lend capital and finance other firms, they mutually confirm their power. And through this confirmation, they also enhance this power. That's how they certify it as respectable in practice.
This means, of course, on the other side: the financial markets, where banks are at the same time sellers and buyers – nobody else is seen on the stock exchange, there are the good representatives of small investors, which are all incorporated, there are the representatives of money collection centers of all sorts, from life insurance companies which want to invest the money they collect from their customers so that it pays good interest because they have promised them that, if all goes well, when they are 80 they will have more than what they paid. Yes, one also hears, now especially, that there are not only life insurance companies, but there are even credit insurers that insure banks against the depreciation of their investments. Something like this must also first be organized and is an honorable business of finance capital. The financial market consists of characters who all belong in principle to this financial sphere and appear with the security product in all its facets, as sellers as well as buyers, and attain through trade a single trinket, namely their mutual certification as honorable creators of loan capital. They mutually believe in their wealth, which consists in nothing but debts, because nothing stands behind the security but the promise of the issuer to pay interest, and if it is bought from him, he has, actually, nothing other than debts with whoever has bought the security from him. This continues without any material wealth having been created, but only a debt instrument having been sold; it is only through being sold that this debt instrument becomes, to a certain extent, a quite honorable property asset. So just like one locomotive can pull the other railroad cars around, so such things can also balance.
The banks thus enrich themselves on the financial markets, only the stuff of their enrichment consists, strictly speaking, in nothing other than the debts that they make with each other. Because if the bank appears sometimes as a buyer and sometimes as a seller of securities, the security itself is nothing more than a promise of interest, thus a debt which it has issued. But they thoroughly serve the stabilization, the augmentation of the credit power of the enterprise, they enable it to grant new credit, to get rich on other customers, or to participate in the profits of the bank from which they have bought a security, be it through stocks, bonds, or whatever else.
This also means, of course, that the financial market is a business that emancipates itself from what is called the “real economy,” thus the process by which money is really produced, ie the production of commodities that contain surplus value, thus profit that is then realized by sale; it emancipates itself from this process of profit production precisely because it deals in debts through which the banks mutually vouch for each other and mutually participate in their profits. The profits themselves can, by all means, also be promises to pay interest in the future. The interest payments that are then disbursed do not have to exist at all in the monetary proceeds of this bank, in what it has skimmed from its other customers. The normal basic form of the redemption of a bank’s promise to pay interest consists in presenting a new security. Here enrichment takes place in the form of the growing wealth actually consisting of a growing sum of certificates of indebtedness. Promissory notes, which have the power of authority and the credit power of the banks, have the character of tradable securities. If anybody does not believe this, just consider what financial businessmen really spend their day doing: not producing goods for sale, but only this property which represents nothing other than the conversion of debts into tradable property titles. A practical proof for this separation of finance capital from its basis and the production of property titles that actually have nothing other than debts for their content and increase the credit power of the banks just happens to be: the financial crisis.
4. Financial crisis
Before analyzing the financial crisis, let's return once again to something quite elementary. If banks exercise their credit power in the way just described, and pursue their trade with these debt papers, what happens when something happens like somebody inevitably wants to be paid once in a while? If it is a pension fund that sometimes must pay their customers a pension, they grind their teeth because they have to pay, the state stands behind it, and the law mandates it. So many property titles are accumulated that represent nothing but debts that sometimes they absolutely have to pay. The bank must have obtained what we previously called the “original trust basis,” the deposits on which the bank itself rests, the earned money that represents what it has long ago lent out, but in the end must also occassionally disburse; with the credit it assigns from deposits, it must make sure that it has enough reserve funds to balance accounts. Reserve funds not only have to be maintained by a bank for its normal, small-caliber credit business, but are charged with the task of being up to all the disbursement needs which develop in connection with the accumulation and trade in securities. In the normal securities business, every bank assumes that such an event will never really happen to any significant extent, but if something does happen, such as somebody wanting to see the interest payment on deposited capital, then the interest payment takes place in the form of new securities. Both sides are satisfied not simply with getting cash, but when this earned money immediately re-circulates in securities, by it remaining money capital. Because this is the use value that they are all so keen on, and this function of money capital in the form of securities is perfect for fulfilling debts.
In the case of a genuine need for payment, the reserve fund that a bank must set aside from its deposits would, of course, barely suffice, and it is clear from the start that this is absurd. If finance capital would have to pay for everything it has accumulated in titles, even with grace periods, it would no longer play the game, because it would have to leave an enormous amount of money fallow which would then not be available for its normal banking business. The reserve funds which the banks must maintain for economic reasons and legal security are never enough, and certainly not enough for payments in the financial markets. Only when disbursements sometimes become necessary in the financial market, then there must, or would have to be, sufficient reserve funds, something it never has from the outset and is usually not necessary. However, last summer (2008) this suddenly became necessary.
The elaborate construction of these securities is not the subject here, but these were ultimately bank products. These securities then became due; they were supposed to be paid back. The banks assumed that these could easily be repaid, because as soon as they were paid back, they threw new securities of the same size on the market, which were bought from them again, and they thereby obtained the ability to repay the old securities. It was a failsafe business: one has a bunch of securities, outstanding debts to pay interest, confirmed by law, so totally in line with human dignity; these are then in the portfolios of these characters who circulate securities, and every time a portion of the securities would expire and the redemption become due, it would be paid by issuing new securities; and when it was the same customer, so much the better: then they only needed to write new dates on the securities. This updating of securities when they fell due – these grandiose products of the financial market – caved in last summer. The reason is that the promises to pay interest, i.e. the securities scattered around in the portfolios of the issuers, became such an actually diminishing fraction to the point that it was doubtful whether they were still worth what they said they were, whether the interest was shrinking, the revenue stream on which these institutions’ own promises to pay interest in the form of securities – calling them “securities” is ironic – were created. So doubts arose that it was all so clean-cut, that those who were liable could pay what they owe, that these vehicles’ promises to pay interest were still credible, and that these securities could be bought without closer inspection. It is a historic irony that these securities were not even issued on the basis of any capitalist business, but doubts about the capitalistic course of business were never even heard. These securities were bundled from quite poor customers who were supposed to take responsibility for them with their wages. So it is indeed no wonder that doubts arose when the financial markets, this highfalutin business, looked down into the abyss of poverty and said: “yes, humankind is the whole edifice of our business, which is based of the extortion of impoverished people, and until now they might have struggled valiantly, but whether we should continue this any further is more than questionable.” And the banks originally lent the money on the bet that the real estate market, on which ramshackle huts were built, would be worth even more after the umpteenth tornado than they are today. Only, they no longer so confidently believe that this will keep on going so well in the long term, with the poor people and the tornados and the general trend of business. It is also irrelevant who first had this doubt; in any event, it was the financial managers who discontinued the passing on of these securities. What happened? The reserve funds of the issuing banks were not yet drawn down, or were not drawn down insofar as these vehicles, and those who issued these securities, had a bank guarantee on their side. Some had none and immediately ran into trouble, so they had to get credit to be able to take back the old securities and thereupon replenish them; this lasted a week or two, but then it started all over again. They saw their inability to sell their securitues as a stopgap problem and procured credit from the banks in order to re-sell them, or wanted to procure credit to do so. Then these vehicles separated into those which already had a bank guarantee and those that had had to access bank credit, pissing off their bank because it had given them a credit guarantee – “we are responsible for your securities” – but of course with the obvious understanding that this liability would never be taken up. Now, nevertheless, the eventuality has happened, and other such vehicles without bank guarantees have gone to the banks in hopes of procuring one for themselves, and have been met by benevolent bankers who said: “well, maybe, but this will cost you. Such a bad vehicle endowed with a loan can't capture enough interest that you can pay us ours.” So the business has broken down, and for three months the demolition of this business has been treated by everyone responsible for it as a temporary liquidity problem. They took this as not half bad, because in what is called a liquidity jam, the correct amount of money must be earmarked for the payment of the creditors of these securities and all at once the reserve funds of the banks, the cash reserve of their depositors which they have lent beyond residuals, are strained for this reason. It was also immediately clear that this had been overextended as well. This first became clear to the issuing banks, which quickly quit loaning everything that was needed.
The central bank functions as the universal, inexhaustible reserve fund of its banking sector, of those that have strained their own reserve funds. This was in the news when the central banks began flooding the financial markets with liquidity. The reserve funds of the banks were increased to bridge over a temporary squeeze before these papers were re-marketed. Now this squeeze continues, the bridge is becoming longer and longer, and this business has not jump started again. Why? Because those who pursued it before and have now discontinued it see no good reason to continue it. And the longer this squeeze lasts, the more the banking sector becomes unified in the view that this is not a good instrument to acquire: one does not have a property title on hand that strengthens one's credit power; on the contrary, if one buys one of these securities, one might post a loss. If then one wants to redeem the vehicle in three months, it then feeds off the next security or reveals that they have nothing left. So the duration of this squeeze simply changes its character; then it is no longer simply a problem of exhausted reserve funds that can be overcome by stopgap measures, but that the credit power of the banks has been attacked. Now they can no longer ignore the fact that they can't handle this in such a temporizing way – “ok, next week we will see what happens” – but they have to deal with write-offs, admitting that much of what they have credited to themselves in assets, these Asset Backed Securities, are worthless, or worth only as half much. Or they have to write off all their Asset Backed Securities and withdraw their claims and see what these claims are still really worth, how much they can still squeeze out of their mortgagers in the end. It was clear from the outset that this is not as much as the securities with which their vehicles went into debt.
After the first phase, which lasted two to three months, when the whole thing was still being treated as a temporary liquidity squeeze, there was the phase of write-offs in the hope that wringing out the worst papers would close the subject, and then at least the others would still be solid. In the financial market, this is the hope that sorting out the bad apples will keep the others healthy, and this has been the approach until now. For example, the Frankfurter Allgemeine [the leading business newspaper in Germany – trans.], the virus experts, used nothing better than a nurse metaphor to describe the financial crisis: “they are mutually infecting one another.” That is, the banks are taking hard cash for what is marked down today on their security papers; the diagnosis ends there, portraying this whole financial industry as a psychiatric ward in which trust is given for no reason and then taken away again for no reason; they don't notice that their mistrust makes everything break down and again develop a little more trust; they just don't know what they are doing – according to today’s editorial. This is not the truth of the matter; if they themselves really have such an opinion about their circus, they should just pack it in. But they don't. The truth is not that the banks only mistrust each other, and can therefore no longer jiggle their liquidity. This interpretation downplays the constraints into which the banks are gradually skidding: they have simply exhausted their reserve funds, meaning: their liquidity. Indeed, they can borrow whatever they can from their central banks, but they have to pay interest on it, and then the interest grabs what in turn they can borrow as a reserve fund for balancing their debts; and this then detracts from their business. Hence they settle arrears instead of increasing their credit power by trading securities. Every write-off does not put an end to the distress, but reduces the distress of the banks about these securities; every bit of liquidity they have to borrow from the central bank just to plug a hole tears another hole in their commercial success because they must pay interest on it without having earned interest with this money. They only balance a debt with it, and have to make payments that were never intended when they produced these financial papers. And with every write off, their need for unproductive credit grows, for money to offset this squeeze instead initiating new lending business, and their power to dispose over honorable property titles shrinks.
This was the interim phase before Christmas, and what happened next is that the stock market, the authorities which trade the shares of such credit institutions, rendered accounts with themselves and with each other over the dwindled credit power of the banking sector. The fact that they no longer stand as strongly in the world with their credit power as they previously did translates for the organizers of this trade into a revaluation of the shares of these companies. The fact that their credit power has shrunk is illustrated by the stock market in the form of falling share prices for these institutions. One can see this embodied in the people who perform it all blowing off steam, but they are just the character masks for their absurd business. The sequence has transpired in classic fashion: a crisis starts within the financial sector as a liquidity crisis, necessitates write-offs, and when write-offs go on and the verdict is established that this depreciation process is nowhere near finished, it leads to a lower valuation of the financial power of the banks engaged in it. And in their competition between themselves, the banks also still need to screw each other over, because they are involved in appraising each other on the stock market.
One might think: well, good then, the banks are just cut down to size again, its not a bad thing if their credit power occassionally shrinks a bit. Only the joke is that the credit industry has power over the whole social reproduction process. We said something before about this socialization of private property and the form of competition. This is the power of this sector over the entire production and consumption in society which exists on their books, and not just on their books, but also through their credit conduct, through their discounting and money capital lending; and now they have reduced this lending of money capital to a subdivision of their securities business, and something in this securities business breaks down and this reduces their credit power. So the power of these credit institutions over the rest of the capitalist world does not diminish at all. And the rest of the capitalist world has, after all, nothing less as its substance than the annual extended reproduction of this society, thus value production, buying and selling, creating jobs, exploiting people, paying pensions and so on and so forth; in the end, the national budget. That is the basis for the fear that the crisis in the financial markets could overlap into the real economy. A more rational version of this concern is the finding that the credit power of the banking sector is depleted, but its power over the social reproduction process is not reduced at all, only its power to bring credit back into motion. It is not only their mood and inclinations that are diminished, but their power to do so.
5. The state and the crisis
Now we can say something about the state and its reaction. Of course, it does not leave the whole circus to itself. And this confirms what we previously said about the state's task. First, it simply provided huge reserve funds for the banks that were in a liquidity jam. So whenever these securities fall due on a payment deadline, the banks must really pay up and then on that date they have absolutely spent so and so many billions. Then the central banks for a day, and sometimes for a week, inject appropriately huge amounts of liquidity; the banks borrow, and this prevents liquidity bottlenecks, payment difficulties. But the central banks have not at all prevented the depreciation of this substance, this pseudo-substance, these securities holdings of the banks. So what do the central banks do then? They have even occasionally bought these worthless securities, these unsellable things, accepted these Asset Backed Securities themselves short term, thus acting as asset strippers or temporary money lenders of these papers. They still do all this from the point of view: let's bridge this over until this business takes off again. At the same time, every day the business newspapers say: “the bankers are optimistic that this business will soon take off again.” Of course, it is not taking off again. Now they see this is obviously not being accomplished by liquidity injections, so they actually must help the credit power of the banks. How does a central bank do this? It has precisely the means to do it: by making the credit that the banks need cheaper, it can to a certain extent make deposits accessible instead of the securities which are no longer any good. It can permit them to borrow money at relatively cheap prices, so that even if the banks then have debts to the central bank, they have something in their hands for it, namely: the money of the central bank that authorizes them to issue credit again. They can do this, as can the central banks. This has only one small catch: not only has the power of the banks to grant credit shrunk, but the other side, the power to create investment material, has also collapsed. They would have to create new promises to pay interest as securities so that the cheap money of the central bank can again be wisely invested by them, because it is not as if now suddenly substitutes for all these broken down financial capital investment opportunities appear with a lot of shoe makers and hairdressers saying, “give us the money,” and everything that can no longer be invested in such financial products is invested in shoes and hairstyles. Just as it is not the case that the banks could now earn money in the real economy instead of in their financial market, the remedy, this price reduction of access to credit, is still very much a half-measure, something a state central bank can do here because, as we said, they can help out the banks with the business of granting credit again, but the necessary other side – the investment possibilities created by the banks – is not yet in order.
Then somebody has the same idea as the American president. He donates money to his society which, otherwise, the state would have collected, and then maybe this gets demand going, generates so much productive business that the banks again have an address to which they can grant credit and a new phase of growth takes off in America, which has purged itself. Only, the announcement of such an economic stimulus program does not create demand by itself, never mind a solvent one. And so as the financial markets are cobbled together, they also respond differently, inferring from the announcement of an economic stimulus program not that the economy will soon take off again, but that even the American president finds the situation very serious. And then they say, “Yes, this is what we have long suspected,” and if the American president says so, even though he is not known for being a financial genius, he is nonetheless the leader of the largest economic power in the world, and when he virtually says: the ruler over the largest economic power on earth expects that without government assistance it will all go south, then the critical financial experts hear only “south, south,” and then distrust this wonderful financial assistance, which is anyway only on paper or in the planning. So much then for the state’s contribution to the financial crisis.