IN 2008 the world financial system stood on the very brink of the abyss with banks and industries facing the immediate prospect of crashing overnight, drowned in a sea of debt. The initial cause was the collapse of the Lehman Brothers bank, a giant US investment bank that specialised in handing out home mortgages to anyone that asked, regardless of whether they had any chance of meeting repayments on these loans.
When Lehman’s collapsed the US central bank, the Fed, stood back and let it go in the belief that one investment bank crashing was no big deal. In fact it was a very big deal indeed as these loans were counted as ‘assets’ by banks and financial systems around the world. All these billions of dollars of worthless assets were bundled together and traded by the banks and financiers as rock solid.
When Lehman’s went under all these financial institutions suddenly found them holding nothing but debt that could never be repaid, a debt that meant certain bankruptcy. With banks facing total collapse the Fed was forced to step in. Under capitalism these central banks like the Fed act as a ‘lender of last resort’, when banks hit trouble they run to the central bank for help as they did in 2008.
Trillions of dollars were effectively handed to them by central banks under the Quantitative Easing programme. In doing so they postponed a world banking crash in 2008, which the working class of the world is still paying for with its crashed living standards. However, all this free electronically created ‘money’ has created an even bigger debt monster that has been used to fuel the biggest bubble that the world’s stock markets has ever seen. It was this bubble that started to explode two weeks ago with share prices plummeting over 5 days by the biggest daily amounts in history.
What is now exercising the minds, and shattering the nerves of the more astute economic commentators is what happens next, i.e. will the Fed be able to step in and save the day for capitalism again as this huge bubble bursts. In last week’s Telegraph the economic writer Ambrose Evans-Pritchard addressed this crucial issue in an article headlined ‘The Fed can’t legally save the world financial system in another “Lehman” crisis’. The tone was set by his opening lines about the crisis – ‘Say your prayers.’
Evans-Pritchard writes: ‘What saved capitalism in 2008 was epic intervention by the Fed to shore up the commercial paper and the asset-backed securities markets, and to head off an implosion of the money market industry. It took $1.5 trillion in emergency loans to stop the vicious cycle.’
But today he points out that legislation passed in the US after Lehman’s collapse (the Dodd-Frank Act), which was designed to give the impression that the banks could be tamed, contains the clause that the Fed is prevented from acting as a lender of last resort.
He writes: ‘The tough new rules will make it much harder – and slower – for the Fed to halt fire-sale liquidation in a crisis.’ Evans-Pritchard points out there are ways around this law by appealing to the president, Donald Trump. But as he says: ‘It is not hard to imagine a scenario where Donald Trump positively relishes a bout of dollar waterboarding for Europe’s pious elites.’
Trump and the US capitalist class he represents may well relish seeing their capitalist rivals destroyed. However, the havoc will not stop there. The world capitalist crisis will destroy its supposed rulers. Trump’s mission to make American capitalism great again will be at the expense of the rest of the world and the working class in every country including the US.
For capitalism there is no other way out of its own crisis other than bankrupting the world and smashing up the lives of millions of workers and poor throughout the globe. The working class internationally is not prepared to relive a 2008-plus crisis.
As capitalism’s historic crisis emerges with renewed force, it will drive forward a revolutionary explosion of the class struggle in every country that will create the conditions for the completion of the world socialist revolution! It is the ruling classes that must say their prayers. It is their end that is fast approaching!
