Friday, January 2, 2009


Peter Gowan's essay in the latest New Left Review -- Crisis in the Heartland: consequences of the New Wall Street System -- is an interesting read not least for the clear way in which he lays out some of the more complex elements in those credit market operations that have been at the heart of the GFC (Global Financial Crisis).
I found the following passage (below), especially the argument proferred in the second paragraph, nailed the false binary opposition between regulation and deregulation. Neo-liberalism, however, is not just an ideology --here used in the sense of an imaginary or false set of ideas that mystify and cause people to act against our own better interests -- but can also be seen as rationalities and techniques for conducting conduct: governmentality. Where Gowan writes:

The problem with this explanation is that, while the New Wall Street System was legitimated by free-market, laissez-faire or neo-liberal outlooks, these do not seem to have been operative ideologies for its practitioners, whether in Wall
Street or in Washington.

Wendy Brown argues, instead, that this contradiction between practice and belief/ rhetoric is consistent with Neoliberalism as governmentality:

Neoliberalism can become the dominant governmentality without being dominant as ideology -- the former refers to governing practices and the latter to a popular order of belief that may or may not be fully in line with the former, and that may even be a site of resistance to it. ("Neoliberalism and the End of Liberal
Democracy" Edgework: 49)


Prevailing theories

Much of the mainstream debate on the causes of the crisis takes the form of an ‘accidents’ theory, explaining the deb√Ęcle as the result of contingent actions by, say, Greenspan’s Federal Reserve, the banks, the regulators or the rating agencies. We have argued against this, proposing rather that a relatively coherent structure which we have called the New Wall Street System should be understood as having generated the crisis. But in addition to the argument above, we should note another striking feature of the last twenty years: the extraordinary harmony between Wall Street operators and Washington regulators. Typically in American history there have been phases of great tension, not only between Wall Street and Congress but also between Wall Street and the executive branch. This was true, for example, in much of the 1970s and early 1980s. Yet there has been a clear convergence over the last quarter of a century, the sign of a rather well-integrated project. [30]

An alternative explanation, much favoured in social-democratic circles, argues that both Wall Street and Washington were gripped by a false ‘neo-liberal’ or ‘free-market’ ideology, which led them astray. An ingenious right-wing twist on this suggests that the problematic ideology was ‘laissez-faire’—that is, no regulation—while what is needed is ‘free-market thinking’, which implies some regulation. The consequence of either version is usually a rather rudderless discussion of ‘how much’ and ‘what kind’ of regulation would set matters straight. [31] The problem with this explanation is that, while the New Wall Street System was legitimated by free-market, laissez-faire or neo-liberal outlooks, these do not seem to have been operative ideologies for its practitioners, whether in Wall Street or in Washington. Philip Augar’s detailed study of the Wall Street investment banks, The Greed Merchants, cited above, argues that they have actually operated in large part as a conscious cartel—the opposite of a free market. It is evident that neither Greenspan nor the bank chiefs believed in the serious version of this creed: neo-classical financial economics. Greenspan has not argued that financial markets are efficient or transparent; he has fully accepted that they can tend towards bubbles and blow-outs. He and his colleagues have been well aware of the risk of serious financial crisis, in which the American state would have to throw huge amounts of tax-payers’ money into saving the system. They also grasped that all the various risk models used by the Wall Street banks were flawed, and were bound to be, since they presupposed a general context of financial market stability, within which one bank, in one market sector, might face a sudden threat; their solutions were in essence about diversification of risk across markets. The models therefore assumed away the systemic threat that Greenspan and others were well aware of: namely, a sudden negative turn across all markets. [32]

Greenspan’s two main claims were rather different. The first was that, between blow-outs, the best way for the financial sector to make large amounts of money is to sweep away restrictions on what private actors get up to; a heavily regulated sector will make far less. This claim is surely true. His second claim has been that, when bubbles burst and blow-outs occur, the banks, strongly aided by the actions of the state authorities, can cope with the consequences. As William White of the bis has pointed out, this was also an article of faith for Bernanke. [33]

iii. systemic options
The real debate over the organization of financial systems in capitalist economies is not about methods and modes of regulation. It is a debate between systemic options, at two levels.

A public-utility credit and banking system, geared to capital accumulation in the productive sector versus a capitalist credit and banking system, subordinating all other economic activities to its own profit drives.
An international financial and monetary system under national-multilateral co-operative control versus a system of imperial character, dominated by the Atlantic banks and states working in tandem.

No comments: