18 July 2008

“The current market jitters are centred on disturbances in the world’s credit markets. Worries about the viability of sub-prime mortgage lending have spread around the financial system, and the central banks have been forced to pump in billions of dollars to oil the wheels of lending.” ‘Financial crises: Lessons from history‘, Analysis By Steve Schifferes Economics reporter, BBC News[1]

Thus runs the opening para from the BBC’s missive (written in September 2007) on the ‘credit crisis’. The piece purports to explain a series of economic meltdowns going back to the 1860s, but explanations of why these periodic collapses occur there are none. One has to read very carefully between the lines to gain some inkling of what links the crises together: in a word, speculation, but the word gets mentioned only once in the entire piece, in relation to the Crash of ’29.

“After a huge speculative rise in the late 1920s, based partly on the rise of new industries such as radio broadcasting and carmaking, shares fell by 13% on Thursday, 24 October.” (ibid)

“Speculative rise” ? “Partly” ? What’s the other part? Conveniently, we are not told.

Contrast this with the huge investment in Internet companies toward the end of the 1990s, which too was caused by speculation in what investors then thought was a license to print money (note the parallel with the 1920s, one that is not made by the BBC nor it must be noted, with the latest and most severe of crises):

“During the late 1990s, stock markets became beguiled by the rise of internet companies such as Amazon and AOL, which seemed to be ushering in a new era for the economy.

“But in March 2000, the [Internet] bubble burst, and the technology-weighted Nasdaq index fell by 78% by October 2002.” (ibid)

78%, that is to say, over three-quarters of the value of hi-tech stocks was wiped out almost literally overnight. “Beguiled” ? What kind of an explanation is this? The key sentence in the BBC’s “˜explanation’ is:

“But the Federal Reserve, the US central bank, cut interest rates throughout 2001, gradually lowering rates from 6.25% to 1% to stimulate economic growth.” (ibid)

But making money cheaper by lowering the interest rate only fuels inflation. ‘Growth’ may well occur but it was achieved by increasing the credit debt and devaluing the money supply which sooner or later would bite the hand that fed it.

In fact, aside from the ’29 Crash, the piece, which uses six examples scrupulously avoids any mention of the central role not only of gambling (or speculation) but of the crucial role of government in propping up a bankrupt capitalist system. Instead, state intervention in the market is described as the “central banks” that is to say, ‘socialism’ for the capitalist class.

Speculation played an enormous role in the latest crisis but was not the underlying cause, rather it is a symptom of the system brought about by the falling rates of profit which could only be solved (in the short term) by the complete deregulation of the financial sector, a process initiated in the 1970s which enabled retail banks to operate like commercial investment companies (using ordinary depositors money rather than investors).

Deregulation opened the floodgates of speculation that started with the Savings & Loans companies which were the first to go belly-up back in the 1980s. Billions were stolen and a vast bailout by central government followed. (See ‘Bush Family Connections: Silverado Savings & Loan Scandal‘ and ‘Bush Family Connections: The Family That Preys Together‘)

Words like “jitters” “worries” , and “central banks” pepper the piece, innocuous descriptions of fundamental contradictions that underly the latest “disturbance” . Thus the BBC would have us believe that the fundamental problem is caused essentially by what the marketeers call ‘sentiment’, that is to say, individuals who fear losing money. But come on folks, is this any way to run an economy, on the subjective feelings of a bunch of parasites?

According to the BBC, the following are the ‘lessons’ to be learned from past financial crises:

• Globalisation has increased the frequency and spread of financial crises, but not necessarily their severity

• Early intervention by central banks is more effective in limiting their spread than later moves

• It is difficult to tell at the time whether a financial crisis will have broader economic consequences

• Regulators often cannot keep up with the pace of financial innovation that may trigger a crisis. (ibid)

It’s not only a brilliant piece of double-speak but it also tells us nothing about the underlying causes of periodic crises. Take the first ‘lesson’:

“Globalisation has increased the frequency and spread of financial crises, but not necessarily their severity”.

Oh really? The million-plus people who have lost their homes in the US or the food riots in over forty-seven countries and the rising unemployment are not severe enough for the BBC?

“About 8.5 million Americans actively seeking work are unemployed, an increase of about 21.4 percent over one year ago, according to the Bureau of Labor Statistics (BLS). The unemployment rate of 5.5 percent is up from 4.6 percent a year ago. More important, about 1.5 million of the 8.5 million unemployed have been unemployed at least six months, a 37 percent increase over the past year, according to the BLS. Not included in the numbers are the “1.6 million people who are ‘marginally attached’ to the workforce, who had looked for work in the previous 12 months, but not in the last month,” according to Andre Damon of Global Research. Damon also reports that the BLS data does not include about 420,000 ‘discouraged workers’, who had given up looking for work because they think that there is no work available.”  ‘US: It’s Still the Economy, Stupid‘, By Walter Brasch

‘Early intervention’?
What, like Northern Wreck or Fanny Mae and Freddy Mack in the US? The sheer irrationality of the BBC piece is revealed when it tells us that a “It is difficult to tell at the time whether a financial crisis will have broader economic consequences” . A crisis by its very definition is something that is far-reaching in its effects but obviously the BBC has a different definition of the word.

And just in case we still don’t get it, the final ‘reason’ that, “Regulators often cannot keep up with the pace of financial innovation that may trigger a crisis” is pure dissembling. After all, in theory the entire point of ‘deregulation’ was to get government off the backs of the financial sector and let the ‘market’ do its thing.

“Innovation” is BBC-speak for deregulation which led to speculation, thus avoiding the fact that the financial sector has been “˜deregulated’ for almost thirty years, during which period there have been four major financial crises each with disastrous consequences for millions of people, so to say that the regulators can’t keep pace with innovation is simply a lie of grand proportions (see Silverado above).

What emerges is the fact that the BBC’s ‘analysis’ is nothing more than a clever coverup that masks the fundamental contradiction of an economic system that operates to make a tiny handful of people disgustingly wealthy by stealing from working people. It ignores the fact that such periodic crises are intrinsic to capitalism and the result of nothing more than the pursuit of private profit regardless of the consequences.

Note

1. Also of interest is why this article, which is getting on for a year old, is listed as an important link to its piece ‘Banking rally boosts US markets‘, dated 16 July, 2008, especially so given the current reality which bears no resemblance to the “˜analysis’ (any more than it did when it was written) but then the BBC hedges its bets by telling us that “It is difficult to tell at the time whether a financial crisis will have broader economic consequences” , a finer piece of double-speak is difficult to find.

The BBC only gets away with this kind of rubbish by completely ignoring any analysis that proposes an alternative cause for the periodic crises of capital, over-production/under-consumption, falling rates of profit, competition, loss of markets and so forth.