LESSONS FROM THE CRISIS
By Detlev von Larcher
[This article published on the Attac Germany website is translated from the German on the Internet. Detlev von Larcher, b. 1937, is engaged with the Attac network.]
Multinational corporations extort governments. The ruinous tax competition of countries is an eloquent testimony of this. Gerhard Schroeder's remark as German chancellor is notorious: "I cannot do politics against the economy." This remark concerned business taxation during simultaneous negotiations on the "nuclear compromise." For me, this was politics' declaration of capitulation to trade associations.
As minister of finance, Hans Eichel carried out tax exemption of profits under the motto "dissolution of Germany Inc." This generous Christmas gift for big business was unexpected. I was one of the few in the SPD delegation who protested against this nonsense. Subsequently big businesses and banks sold their shares so quickly and extensively the state had to give more tax rebates to businesses than they paid in corporate taxes. Lowering the tax rate became primary. Businesses that had kept back profits as reserves and wanted to distribute them after the 2001 tax reform could receive back the difference between the earlier and the new much lower tax rate. As luck would have it, everyone suddenly wants to dispense the reserves. The financial markets flourish thanks to this immense increase in trading capital, which is one of the causes of today's crisis.
Big banks are more powerful than industrial corporations in relation to the state. They rigorously carry out the liberalization of markets and ensure that hedge funds will be allowed in the future. Politics fulfills all these demands under the threat that otherwise the financial center Germany would lose its significance and big businesses would move elsewhere. If the banks had not stored everything in their conduits, their balance sheets would have looked worse. They shifted their guaranteed credit packages to these conduits. So the sub-prime mortgages with their risks did not appear on the balance sheets. Many of these conduits have their seat in tax havens that are nearly free from regulations. As subsidiaries of most banks worldwide, these shadow banks sit there with hedge funds and private equity funds. No taxes are levied there and completely uncontrolled firms are given a free hand.
Banks became increasingly powerful through the growth of takeovers. Not a few are "too big to fail" and can count on the state leaping in the breach because a bankruptcy would drag others into the whirlpool and usher in the total collapse of the financial markets. Socialization of losses is even one of their business conditions.
The example of Lehman Brothers demonstrates the vast damage inflicted by the collapse of a large investment bank beyond its state borders. The mistake of the US administration not to bailout this bank accelerated the financial market crisis and extended it from the US into the whole world. All important governments opened up "bailout parachutes" since a collapse of internationally linked big banks could pull the whole world economy into ruin. In Germany, the parachute is 500 billion euro, 80 billion for capital relief and the rest for securities. This inconceivably enormous amount is almost twice the German budget. Now they try to calm us: the sum of 80 billion is flowing. The rest are only accumulating securities. Taxpayers will be liable when these credits become due.
... The head of Deutsche Bank Ackermann assured us, he could manage without state help... This is a tremendous scandal and a business at the expense of taxpayers. This kind of bank bailout must be stopped immediately. In the meantime, the banks demand a bad bank of the state. This creation should take away all the toxic securities from the banks. The banks would be free; all of us must take over the costs of their greed.
Those who made massive profits with bank business, executives, brokers and shareholders, must now answer for the losses. The taxpayer may not pay for their crises...
Now it is not said any more: the state should withdraw from the economy and the markets or the deregulated market will ensure prosperity for all, a stable balance and justice. Now it is said suddenly: the market only functions with clear rules. The financial markets also need strict rules and a strong oversight. A partial nationalization of the banks was even suggested.
However this insight was short-lived. In the meantime, we should be warned of a return to Germany Inc. Politicians and trade associations warn of state influence on the banks. Relief is regarded as necessary but should only be bestowed on executives of banks that should not be influenced by the state. Mergers like Commerzbank with Dresden Bank will be financed with tax funds. Banks will become even larger, more powerful and influential. If control is not exercised by politics, banks will become absolute rulers over the economy and society with a state guarantee for taking over their losses. Shareholders, executives and brokers will make profits undisturbed while the taxpayer must pay for the losses.
WHAT DO WE LEARN FROM THE CRISIS?
Banks are indispensable for modern society but are different than productive businesses. Most people need banks to receive wages and salaries and meet their financial obligations. Thus for people and the economy, banks belong to the public realm like the public education system, transportation, the health sector and energy- and water supplies. If they only act according to the capitalist market logic, the general public will be harmed. This is now very clear. Thus banks may not surrender to the market logic since they have tasks that are not only judged according to standards of profit and profitability. Banks belong under democratic control in public hands. Legal regulations must ensure that they only do business that serves the common good.
For the banking business, we need strict, democratically controllable rules that are negotiated internationally. Banks must be brought back to supplying credits for investments of businesses and to their function as handlers of monetary transactions for trade, business and private customers. Trade with guaranteed toxic securities must be prohibited like the whole system of shadow banks. Banks may not use conduits to veil risks. Everything belongs on the balance sheets. Tax- and regulatory-havens must be dried up. The businesses of hedge funds and private equity funds must be ended..
The free exchange rate system and the complete political deregulation of the financial markets caused an immense redistribution of the wealth of societies from bottom to top and from underdeveloped to developed countries. These imbalances also partly caused the crisis. We need a new modern "Bretton Woods," a system of fixed rates of exchange including possible capital transactions controls, strict international rules and a democratically controlled international financial market monitored by the UN. The past activity of the International Monetary Fund was full of contradictions. The International Monetary Fund exposed itself through its past activity. Dismantling the tremendous imbalance between poor and rich internationally and nationally is indispensable.
FOUR VIDEOS FOR THE NEW YEAR
"The Corporation," "Manufacturing Consent," "The American Ruling Class" and "American Casino" could lead us out of the dystopia of trickle-down economics and the self-healing market.
The state has a social nature and cannot only be a power and security state.
The market is a tool helpful after political questions are answered: What kind of society do we want? How can the commons be shared? Are we citizens or only consumers?
The economy of enough could supersede the economy of generalized insecurity, non-stop minority consumerism and "financial innovations."
"The American Ruling Class"