It is not I who is saying that Wall Street is really predicated on
greed, but Stephen Raphael. And who is Stephen Raphael? He is a former
member of the Board of Bear Stearns, the Wall Street bank that
collapsed last month. And where did Raphael say this? In an interview
with the Wall Street Journal, which is more or less the house journal
of Wall Street. And what was Raphael's point? It was to explain (or
was it to excuse?) the collapse of the firm. "This could happen to any
firm," he said.
Yes, indeed it could. And it did. Meanwhile, while this was happening,
the chairman of the firm, Jimmy Caynes, was nonchalantly playing
bridge in a tournament. Not too smart for a greedy banker. As a
result, he lost most of his personal fortune, and another greedy firm,
JPMorgan Chase, came in like a vulture and made a killing. Oh,
incidentally, some 14,000 employees of Bear Stearns are, or will soon
be, out of a job.
Is then capitalism nothing but greed? No, there are other things to
it, but greed plays a very big role. And greed, by definition, works
for some at the expense of others. So, some firms are going bankrupt
these days - on Wall Street, and elsewhere in the world - and others
are not. The United States as a country is going bankrupt, and others
are not. The United States doesn't call it that, but that is the truth
of it.
Is it always like this? No, not always. Just half the time. Let us
review how Wall Street and the United States got into this particular
disastrous corner. It all started out well - for Wall Street and for
the United States in 1945. The war was over. The war was won. And the
United States was the only industrial power whose factories were
intact, untouched by wartime damage. There were destroyed cities
elsewhere, and actual hunger in Europe and Asia.
The United States was set to do well, and it did do well, very well.
It could outproduce the world, and get the rewards. It made a deal
with the Soviet Union - we call it rhetorically Yalta - so that there
would be no nuclear wars that could really damage the United States.
And, at home, the big manufacturers made a deal with the big unions so
that there would be no destructive strikes to interfere with the
profitable production. Rosy times loomed, and the standard of living
went up dramatically. Actually, the years after the war proved to be
fairly rosy times for most of the world. It was the moment of the
greatest expansion of production, of profit, of population, and yes of
general welfare in the history of the capitalist world-economy. The
French called it the "thirty glorious years."
Must all good things come to an end? Well, cyclically, in the five
hundred years of the modern world-system, I fear this has always been
true. When everyone begins to cash in on economic expansion, the rate
of profit has to go down. Profit from production depends on relative
monopolization of the leading industries. But if too many countries
have steel factories or auto factories (the leading industries of the
time), there is too much competition. And, despite all the nonsensical
slogans, competition is not good for capitalists. It reduces the
profits.
And when profits get hit too hard, the world-system enters into one of
its periodic periods of stagnation. This happened circa 1970. And, in
case you hadn't noticed, things have not been rosy since then, despite
once again all the nonsensical slogans. What happens in a period of
worldwide economic stagnation? The factories begin to move out of the
erstwhile locales (like the United States, but also Germany, France,
Great Britain, and Japan) to other countries (like South Korea, India,
Brazil, and Taiwan) in search of lower costs of production. It seems
good for the new places of steel and auto production, but it means
layoffs in the old centers of production.
But runaway factories are not the whole story. What do big capitalists
do, if they want to make money, in times of lower profits from
production? They start to shift their money from productive
enterprises to financial enterprises. That is to say, they begin to
speculate. And, in a time of speculation, greed knows no limits. So we
have junk bonds and takeovers and subprime mortgages and hedge funds
and all those curious things with curious names. It seems that even
Robert Rubin, one of the really big people in the financial world,
admitted recently that he doesn't know what a "liquidity put" is.
The underlying story - from 1970 on - has been that of debt, greater
and greater debt. Corporations borrow, individuals borrow, states
borrow. They all live above their real incomes. And, if you're in a
position to borrow (it's called credit), you can live high on the hog,
as they say. But debts have a small downside. At some point, you're
expected to repay debts. If you don't, there is a "debt crisis" or a
"bankruptcy" or, if you're a country with a currency, a dramatic
decline in the exchange rate.
This is what we call a bubble. And if you blow up a balloon long
enough, no matter how good it feels, at some point the balloon bursts.
It is bursting now. And everyone is frightened, as well they might be.
When the bubble really bursts, it is really painful. The thing is, it
is usually more painful for some than for others, even if it is
painful for everyone.
At the moment, it might turn out to be most painful for the United
States - as a country, and for its capitalists, and above all for its
ordinary citizens. It seems the United States has been spending not
billions of dollars but trillions of dollars on some wars in the
Middle East it has been losing. And it seems that even the wealthiest
country in the world doesn't have in its coffers trillions of dollars.
So it has borrowed them. And it seems that its credit in 2008 is not
as good as it was in 1945. It seems that the creditors are today
reluctant to throw good money after bad. It seems that the United
States might be going bankrupt, like Bear Stearns.
Will the United States be bought out by China or by Qatar or by
Norway, or by a combination of all of them at $2 or even $10 a share?
What will happen to those very expensive toys that the United States
keeps buying, like military bases in a hundred countries, and those
airplanes and ships and superduper guns the United States constantly
orders to replace yesterday's toys? Who will feed the people on the
breadlines?
Come back next decade, and let me know.
by Immanuel Wallerstein
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