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In the Towrope of the Financial Markets

"High growth has a well-known hook. Surpluses are only possible when natural resources from clear water to rare earth are available, when the energy supply is guaranteed and when the pollutant sinks have sufficient receptive capacities.. New debtors are important again. The debtors are now those states that had to become indebted to bailout the private banks."

How politics submits to the dictates of those who caused the crisis

By Elmar Altvater

[This article published in November 2010 is translated from the German on the Internet,  link to www.blaetter.de.
Elmar Altvater is an emeritus professor of political economy at the Free University of Berlin and author of many books and articles on globalization and alternative economics.]

When Lehmann Brothers collapsed in the middle of September 2008, Peer Steinbruck, the former German finance minister, on this side of the Atlantic and Alan Greenspan, the chairperson of the FED, the US central bank, beyond the Atlantic, reacted with the same words to the great4est crash in financial history. They had "looked into the abyss," the two economic titans said distraught.

Today, only two years later, bonuses are poured out as before the crisis. The upper limit for bank managers' salaries is casually loosened. Even bankrupt banks like Hypo Real Estate give 25 million Euros extra pay to management. The state represented by the government generously allows this self-service.

The afflicted banks do not only fall into the abyss of distressed finances because the states intervened with vast money from public budgets. Speculative liability capital was replaced by a hastily created special fund of the public authority. Worthless securities are decontaminated ever more expensively in "bad banks" in the vague hope that "conduit or instrumentalized banks" could profitably get rid of the securities when the economy rebounded. Securities in the trillions are made available. The central banks of the most important currency zones made enormous funds available almost free of charge to the strapped commercial banks. Governments and central banks of states, political institutions, have assumed the risk that the actors of the financial markets cannot bear any more since they speculated away the liability capital of their institutes.

Two years after the eruption of the financial crisis, the states today are intent on paying the losses and distributing the costs. In the eurozone, the European Central Bank adds up the different state assistance and guarantees, gives them the beautiful name "implicit obligations" and contributes 20.1 percent of the gross domestic product of the EU in 2009. The "explicit obligations" - the guarantees actually claimed by the banks - amount to half, namely 9.4 percent of the GDP. This is three times more for the banks than the budget deficit allowed according to the Maastricht criteria.


Where does the money come from for this assistance? In principle, the money comes from three sources. Firstly, nothing is left to the states than to become enormously indebted in the global monopoly of trillions of credits. In the eurozone, the debt state rose to almost 80 percent of the GDP on average in the years of the financial- and economic crisis although only 60 percent was allowed. Budget deficits in 2009 increased to an average 6.2 percent and tore down the bar of the Maastricht criteria set at three percent.

Public debts are reduced and new indebtedness is limited. The EU commission turns to the member countries. Higher taxes as an alternative financing of public expenditures is not discussed, at least not among the elites defined as "achievers" and for income from capital and financial assets. These elites are very mobile on liberalized global financial markets and act like timid deer, as drummed into every schoolchild. They are expected to invest their income. Their incomes are too high to be put in consumption.

When the financial institutes have their profits subsidized with cheap central bank money, the free money flows more into financial investments than into the real economy. Speculation - not growth - is accelerated through high incomes and assets - through a policy of inequality. The most recent past verifies this. Lowering the top tax rate by the Red-Green coalition from 53 to 42 percent, cutting business taxes (corporation tax plus trade tax) in half from 57.5 percent in 1997 in several stages to 29.9 percent in 2009 did not trigger an investment boom. Gross investments rose 6.6 percent from 2000 to 2008 while their share in the GDP fell from 21.8 to 19.2 percent. [1] In this theater, hoping for growth acceleration from tax cuts for "achievers" is as absurd as "waiting for Godot." Thus the redistribution is unsocial to a high degree and simply inefficient - measured by the self-defined growth goals.

Secondly, the programmed fiscal deficit can only be stopped through taxes on the incomes of the immobile factor labor and through cutting state expenditures. In the "towrope of the financial markets," the ship of state is guided from the mere liberum of the world market into the mare clausum of the nation-state sovereignty over taxes and spending. In other words, politics is now blamed for the fiscal deficit, the redistribution and the conflicts that are brewing provoked by the ever-greater inequality in the country. We can see today how financial resources are taken from social democracy as austerity packages are filled above all by the poorer population sectors and then are cosigned to banks and other well-to-do. In all European countries, social state benefits are capped or frozen to finance the bailout packages of the banks - in the towrope of the financial markets. The resources of social democracy are consumed in this "stock market game of banksters" as Marx described it, in this stupendous redistribution in favor of the rich.

Thirdly, the deficit dwindles because it can be reduced by future growth. Growth or a legally decreed "growth acceleration" becomes the basic condition of financial stability which is regarded as the prerequisite of the social state. An unshakable faith in growth has the advantage that jobs are created, incomes raised, the competitiveness of the economy improved and the state deficit can be trimmed. Thus everything becomes good again with growth.


There is nothing about an ecologically sustainable "De-Growth" economy with a "Green New Deal" on a world scale advocated by the UN Environmental Program (UNEP) and several think tanks and governments. [2] The tradition of growth, justified with the industrial-fossil revolution, is continued. "The industrial revolution," Karl Polanyi formulated in a pointedly polemical way, "was the beginning of a revolution as extreme and radical as was ever fueled by the spirit of sectarians." [3] He underscored the revolutionary character of the social transformation to industrial society. Today's energy policy shows Polanyi was right. Energy policy is extreme, radical and sectarian, relies on nuclear energy and refuses the necessity of alighting in time from the fossil-nuclear energy system in its transportation, development and infrastructure policies.

Instead, it follows the myth of growth acceleration. For the first time since the industrial-fossil revolution in the second half of the 18th century, the economy posted a noteworthy growth of 2.21 percent per capital and year on an annual average from 1820 to 1998. Previously the economy grew with the total population, that is hardly at all. Since then every generation has been twice as rich as the preceding. No wonder that the promise of classical political economy to raise the prosperity of the nations was believed so enthusiastically. As Karl Marx emphasized, the fossil-industrial revolution is a process of the "real subsumption" of labor and, we could add, of nature - under capital. Ownership of capital goods requires appropriation. Otherwise it loses its legal and its economic meaning. It must grow. But how must it grow?

Labor adds a surplus value or profit to value and enriches the owner. This happens with the help of fossil and nuclear energy, with capital, science and technology. Capital is a social relation between owners of capital and workers and isn't a mere thing whose greatness or authority can be expressed in money. However it appears as money and can become independent in this form in relation to all conditions of its production.

Pecunia non olet. Where money comes from or where it flows isn't considered.

"Owners of financial assets" may hold the illusion that their financial assets "work" for them. The surpluses of the financial sphere seem to have been "generated" and "originated" there. Aristotle knew better. "Money raises no young" was incontrovertible to him. When interests are paid, these are the product of "work diligence" of working persons. Financial assets are only worth something as long as they are earned. The financial markets are only stable as long as the river of profits from debtors to creditors has not dried up. In other words, with the new "hardware" of fossil energy and the appropriate technology of transformation into labor-energy, the spatial range of economic activities could be extended to the whole globe and at the same time with shorter times of all production and transportation processes. The new age of economic growth and globalization requires the "hardware" of fossil energy and appropriate industrial transformation systems along with the suitable "software" of global financial markets that have been a powerful "driver" of the capitalist system and its growth since their liberalization in the 1970s.

Positive real interests below the real growth rate represent an incentive for real-economic investments and therefore for indebtedness to the financial sector. Since they must pay interests, investors are interested in the most efficient economies, that is in increasing the surpluses and economic growth. To a certain degree, this is indisputable and the growth pressure is tolerable. Capitalist countries had the advantage in the system-competition with command socialism that had t6he "hardware" of growth but refused the system-conditioned "software" of developed capitalism.

High growth has a well-known hook. The real increase of surpluses is only possible when natural resources from clear water to rare earth are available, when the energy supply is guaranteed and when the pollutant sinks have sufficient receptive capacities. However the ecological reserves dwindle with time and the social conflicts increase on account of the extreme redistribution in favor of owners of financial assets and to the burden of labor. The positively interpreted "harsh budget restrictions of money" then change into financial repression with severe stress for the economy, society and nature. Therefore the surpluses of real production become less in the course of time and the growth rates of the GDP decrease along with distribution possibilities toward the owners of financial assets. The scandal or confrontation is unavoidable. The "financial instabilities" intensify into a financial crisis when securities with high profits are "originated" and the attempt at raising the real growth rates simultaneously breaks down in social and natural limits. The driver-software overstrains the efficiency of the real economic hardware. The crisis breaks out.

The heavyweight of the real economy brings the lively finances to the ground of facts. The "financial innovations" on the financial markets obviously served the goal of inflating financial assets, increasing the profits of "financial products" and driving them beyond the profit rates realized in the real economy. Thus "fictional capital" was produced, worthless toxic rubbish as Marx described.

The circle now closes. The pile of rubbish of toxic securities is decontaminated with public support. Worthless private assets are written off or replaced with public funds. Thus the state becomes the owner of formerly private banks without effectively exercising the owner functions, contrary to the neoliberal catechism. Joseph Stiglitz criticizes this by arguing that the nationalization of a bank without the state, the responsible government, applying effective control on business policy is a "recipe for disaster." [4] He is right.


If the economic cycle should run, the financial institutes must be brought into proper shape. New debtors are vital. This was always true since the liberalization of the financial markets in the 1970s. The financial crises of the threshold countries in Asia, Latin America, Southeast and Eastern Europe followed the debt crisis of the "third world" in the 1980s. The owners of financial assets who wanted to save their finances from the whirlpool of the financial crisis found new debtors in the "New Economy" of the US and following its collapse among home owners of the US and later elsewhere, for example in Spain. Thus the "subprime" bubble was pumped up which then burst in 2008. Our present is pre-formed.

New debtors are important again. They are buyers like customers buying bread from the baker and as credits are bought for interests from banks. The debtors are now those states that had to become indebted to bailout the private banks. With the debt brake anchored in the basic law, spending that should serve social existence becomes frozen and not the bailout of financial assets. Savings must be found elsewhere. Revenue must be generated somewhere without directly or indirectly burdening the financial institutes to be bailed out. Thus a grotesque instrument of redistribution is brought into play.

The actively intervening central bank is sought in the financial crisis, not only a "lender of last resort." A "borrower of last resort" is vital when "normal" borrowers cannot be found in the "real economy." In the present crisis, the states must fulfill this function. As a result, 13 of the 16 countries of the eurozone are subject to a deficit trial of the EU for over-indebtedness. The functional mechanism of the financial markets becomes a dilemma. Bailing out financial assets from bankruptcy necessitates new indebtedness that constrains the states (in Germany with the help of the "debt brake" and in Europe with a rigid deficit procedure). But the financial assets seeking investment also have to be reduced if the debts should really disappear.

How can debt reduction and assets reduction succeed? Firstly, they could succeed through expropriation. However there is no social consensus for this. Secondly, they could succeed through inflation. But this is destructive for everyone and therefore unacceptable. Thirdly, they could succeed through a taxation of mammoth assets. This could be a solution for debilitating speculation. But the political resistance of those4 who don't want to hear about more equality is great. They use the freedom of the global financial markets for speculative businesses and the echo from conservative and liberal circles of the political system is deafening and clear. Assets and wealth formation are taboo-zones that are not touched.

Thus the sovereign states that preserved the banks from bankruptcy must take expensive credits from these private commercial banks to finance system-necessary debts because they are prohibited from closing budget holes with central bank money. This could trigger inflationary impulses. Still this is an insidious argument. Whether additional money is channeled into circulation by the state or private banks doesn't matter although it does make a difference for distribution. When the states normally can only re-finance with commercial banks, they must pay market interests plus a risk charge to those dependent on rating agencies. With access to central bank money, the commercial banks can get the money with which they "work" from the European Central Bank, for example, at interest rates of one percent or less. So a nice interest difference4 occurs that helps to even more excellent profits.

Do the debts of Portugal, Italy, Greece and Spain (PIGS) have anything to do with the profits of the banks? Yes. In April 2010, the head of Deutsche Bank annou9nced a quarterly profit of 2.8 billion Euros that amounts to more than eleven billion Euros for the year. High risk goes along with high interests and high bank profits. When the risk case arises, the states hurry to help the financial institutes climb successfully into the league of "system-relevant" banks. The business model before the crisis can be continued. The next bubble will certainly come. But this time it will be triggered by the indebtedness of sovereign states, not by the bankruptcy of small homeowners in the US.


Rating agencies are helpful in continuing this cryptic and unfathomable business model. Short-sighted and blind actors make decisions on liberalized financial- and currency markets. Private rating agencies rely on non-transparent market interactions. The financial markets that steer profits in a towrope are a threat to democratic will-formation in the US and to national sovereignty everywhere in the globalized world. [5] The rating of some EU member countries by the "Trio Infernale" [6], the three massive rating agencies Standard & Poor, Moody's and Fitch, oppose the sovereign economic and social policy in the impacted countries and the social state.

When rating agencies devalued Greece's government bonds to the junk-level (which can also happen to other countries), they weakened the eurozone and strengthened the US dollar. The trends in price of the dollar and the Euro in the first half of 2010 show this. The reason for the respective downgrading is interesting. Greece was devalued on account of its debts, the refinancing problems of payable currencies and the deficit in a state budget. On the other hand, Spain lost on account of the austerity package of the Zapatero government that weakened the growth-prospects in the medium term. If more savings and cuts in social spending are demanded from Greece, the opposite is required from Spain although both countries are in the same currency zone and are subject to the same (Maastricht) criteria.

The instructions from the rating agencies recall the economic- and financial policy recommendations on how Germany should meet its reparation obligations from the First World War. Internal revenue streams of private and public consumption should be rechanneled from investments into exports to realize currency receipts that can be paid off as debt service to creditors. In a 1929 article on the "German transfer problem," John Maynard Keynes pleaded for cancelling Germany's debts to avert the worst consequences, social cuts in the debtor country and the intensified competition for goods from stronger creditor countries. [7] Everyone who attacks Greece and the Greeks and demands greater savings from them, an improved balance of payments and the reduction of public debts through deep cuts in the social state should read this text from 1929. We are in a system of communicating reeds though they don't understand that. To reduce debts, assets must also be reduced. The surpluses must be moved for deficits to disappear in the balance of payments. Otherwise the central mistake of the Bretton Woods system is repeated, demanding adjustment only from the debtor- or deficit-countries and not from the creditor- and surplus countries.

Rating agencies pursue ratings in a profit-oriented way. Providing good public transparency and stability of the financial markets is not their interest. That would be a public function, an excellent argument for public rating agencies. Attacks against European integration waged with the rating of the stability and creditworthiness of the EU states could be prevented.

Will the sequence of debtors continue in this way with the inevitable consequence of the next financial crisis? That would be fatal because the division of society into poor and rich would become greater with every "debt round." That would surely have alarmed Hannah Arendt. "The right to have rights," Hannah Arendt said, can only be effectively exercised in freedom in a democratic order. Therefore the goal of politics can be "nothing other than freedom," she says in the introduction to "On Revolution." However the liberalization tendencies of the past revolutionary neoliberal decades showed that freedom withoiui9t social balance te4nds to arbitrariness and cheating of the weak. Arendt feared that human rights could be sacrificed to the rights of the "Sansculiattes" and the "necessity" of the "anti-political" could win over the freedom of political formation. [8]

The actors on financial markets today self-confidently claim the separated financial markets are not "anti-political" because as Arendt recognized they only execute practical constraints in the kingdom of necessities. Rather they represent a "fifth branch" in modern democracy alongside the three classical branches of legislative, executive and judiciary and the "fourth branch" of the media. The former chairperson of Deutsche Bank, Rolf Breuer, was convinced "it wouldn't be so bad if politics in the 21st century were in the towrope of the financial markets." [9]


The "primacy of the economy" is invoked where politics follows orders of the financial markets. "State capture" is a widely used term because the procedure is so frequent in modern capitalist democracy. Still we also know today: the financial markets and their actors take government in a towrope but hurl them first into the abyss of the great fraud and massive bankruptcies, even in the half-world of fraud and organized criminality. Secondly, liberalized global financial markets contributed to the production of inequality in the world and in every country and not only to intensifying the crises of capitalism.

The political consequences could not be greater since the balance of freedom and equality is disturbed. Thus this conduct is not anti-political but extremely political because a certain political project with the financial crisis is anti-social but not anti-political.

The culture of the financial markets changed in the course of the deregulated financial speculation when 25 percent profits seemed to be the most normal thing in the world. Enormous risks are taken to gain high profits. "Measure and moderation" are lost. The personal relations of bank co-workers as "mediators" between savers and investors didn't play any role any more in investment banking. The greatest possible profits should be realized with the least possible commitment of their own capital. "Moral hazard" which involves a "moral temptation" characterized the conduct of nearly all actors on the financial markets.

Today all the consequences must be considered. The financial markets are not only taking politics "by the towrope." The state must hold the security towrope amid the break-neck speculative ploys for peak profits so the wildly speculating banks do not fall into the abyss. The state was kept outside regarding the payment of taxes. Financial markets could evade their obligations by steering toward islands of economic freedom offshore in the ocean of necessity and find "tax havens" there.

In nightly crisis sessions, the state was summoned to emergency relief to secure the collapsing financial jugglers with bailout helicopters. The cultural, anti-social change of the relation of politics and the economy is manifest in the bonuses that bankers and banksters (as President Roosevelt disrespectfully called them) given out of the bailout packages from the state helicopters - with all the asocial consequences.


How can the tendency of social division or polarization in the financial crisis be ended? Ancient Greece, the polis of Athens, offers an example providing perspectives not only for contemporary Greece.

In 594 B.C., the reform politician Solon carried out the "abolition of debt bondage" or "burden reduction" (seisachtheia). This was like a regulated bankruptcy procedure. The market actors could not handle this since they pursue private particular interests and do not have the whole in view. The well-to-do resist an equalization of burdens. Rules that serve the well-being of the general public can only be won by social movements that are politically balanced and legally defended by the state for the citizens.

More than 200 years after Solon's Seisachtheia, Aristotle regarded the debt cancellation of the claims of the rich as more important than the Athens constitution which Solon (and others) worked out. Social peace arose in the community with the "burden reduction." This is the foundation of every constitutional order of a good community in the Aristotelian sense.

What does this mean 2400 years later? Social balance or equalization is obviously not everything in a democracy. The actors on the financial markets and in transnational combines laugh about this. When more equality is desired, conservative and liberal politicians warn of totalitarian tendencies of "leveling" or "egalitarianism." With severity, they begin the "class struggle from above." There are many examples of this in Germany and in Europe from immigration policy to the personal enrichment of bank executives, from the Hartz IV-alms (radical reform of German social benefit combining income support and unemployment benefits and drastically reducing the duration of benefits, ruled unconstitutional by the German Constitutional Court) to gifts to the big operators of nuclear facilities, from the undignified life in many areas of the world of employment to tax gifts for the super-rich. Whoever wants to defend democracy against the pressure of the financial markets in capitalism cannot avoid the necessity of "class struggle from below." Only in this way can freedom develop further in the political formation of the social.


[1] Nach Daten des Sachverständigenrats zur Begutachtung der gesamtwirtschaftlichen Entwicklung, Jahresgutachten 2009/2010, S. 363 ff.
[2] Vgl. dazu ausführlich Elmar Altvater, Der große Krach oder die Jahrhundertkrise von Finanzen und Natur, Münster 2010.
[3] Karl Polanyi, The Great Transformation, Frankfurt a. M. 1978 [1944], S. 68.
[4] Joseph Stiglitz im Interview mit der Deutschen Welle am 6.2.2009.
[5] Vgl. auch Thilo Bode und Katja Pink, Die Finanzkrise als Demokratiekrise. Der Staat als Dienstleister des Finanzkapitals, in: „Blätter", 6/2010, S. 45-55.
[6] „Der Spiegel", 47/2009.
[7] John Maynard Keynes, The German Transfer Problem, in: „The Economic Journal", 1929, S. 1-7.
[8] Hannah Arendt, On Revolution, New York 1963.
[9] Zit. nach „Die Zeit", 18/2000.


Altvater, Elmar, "The Great Crash or the Century Crisis"
Hickel, Rudolf, "The Banks Must Serve the Real Economy"
Hummel, Heerke, "Bankers, Hear the Signals"
Konicz, Tomasz, "The Crisis Explained," December 2011
Lohoff, Ernest and Trenkle, Norbert, "The Great Devaluation"
Reuter,Norbert, "Stagnation as a Trend-Life with Satiated Markets and Stagnating Economies," 2009
Schutze, Ingo, "Capitalism Doesn't Need Democracy"
Schutze, Ingo, "Our Beautiful New Clothes"

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