from ruthless criticism
[Translation of a lecture by Konrad Hecker in Frankfurt, January 23, 2008]
On the question what financial markets are and what do they deal with, one can say as a simple first formulation: on this market debts are traded and these debts have the peculiarity that they yield money for those who make them. Money loaned brings in money.
This is a very obvious relationship to everybody, it is a matter where everybody probably thinks: this is not worth a fuss, because it is surely clear that if someone lends money, they get it back again sometime with maybe something extra in the bargain. Legally the issue is also simple and also ok, it is all legally prescribed to run in this way, that someone who lends money to somebody else thereupon has a right to get it back in the promised time period and to collect interest on it. The circumstance that it is legal and therefore unobjectionable, and this is also familiar to everybody, does not yet answer the question what the logical basis for it is, why it is a simple fact that simply lending money results in more money. Where does the increased money come from? Because it is mandated by law does not identify the source. One can, of course, think in the same way: well, there are always people who need money, for whatever reason, and it is good if there is somebody who lends it to them. If somebody should think such a thing, virtually deriving the credit system from the lack of cash, then here in Frankfurt I need only to remind him of the size of the bank skyscrapers in order to make it plausible that even a big sum of cash lacked by people who for whatever reasons are in a bad jam, even such a huge accumulation of need for stopgaps, could never in itself develop into a trade that in all the statistics on advanced capitalist nations ranks as the biggest, second or no later than third largest industry of the whole nation. If money is to be earned on this grand scale with debts, thus with the loaning of money, then it is very clear that the basis for it is very solid, a very essential and continuous need in this society. Everybody who would like to buy something that he cannot afford may feel this need on the market. But this kind of reverse saving, borrowing money to buy something that otherwise one cannot afford and paying for it in installments, even if one took this need which is felt by all consumers together, it would still be a very narrow, insecure and ridiculous basis to erect these gigantic bank towers on. For loaned money to become more money, something must occur between the loan and its being paid back with interest, there must be a basis for it, a source for the monetary increase that happens between a loan and its being paid back, something more substantial than that what happens between a consumer buying a car and blowing the borrowed money, in fact, on a use value. What takes place in between is, actually, also no secret to anybody. What takes place in between is the action in which one “does business” in the so-called market economy and which always starts with the spending of money. In order to make more money from money, one cannot keep it but must spend it, but for something clever, not so that one has something to live on, but so that one buys means of production – one can do something with those. You do not need to think of big factories, but the means of production can also be a small pub in which one offers services. In any case, the money that one spends must be productively spent, in the sense that one produces something, a commodity, a service or whatever, the selling of which redeems more money than one had before; the logic of business is this simple. This is how one can correctly trace the spending of money that then becomes more money, not by itself, but because something is produced in between. What is behind the sale and what brings in more money than before, is the production of a commodity or a service.
Now you would not expect that here I reveal the elementary wisdom of classical political economy and of Marx and tell you that the production of money is ultimately based on this process. I say now, almost as simply as a telegram, that it depends on hard work and creating more commodities for sale, in value, than they cost. But I will come back later to the subject of work; now we take it as a first basis, that what is produced here – and it is a matter of producing – is something that has the goal of becoming money. In between, in what one calls the production process in the market economy, money is produced; money is plugged in and out of the production process, and this is the real and substantial source for the fact that money can be earned by lending money under the name: interest.
2. Credit: How banks make money into capital
It is now time for our question “what then is the source of this business sector?” This half answers itself by being denominated as a separate industry, namely: in that production is virtually framed by money. One can also say of this productive use of money: a sum of money becomes capital, and it becomes capital from a sum of money, just by being used productively. In money capital, which frames this process to a certain extent, there is a condition, a prerequisite, a means for it to become more, that just allows such a process and, as I said, this is the first half of the answer to the question about the origin. However, the second half is still missing, namely: the money owners, the banks, just dispose over money; dealers in loan capital can get rich this way, only they do not have to pre-finance a production process in advance and afterwards help themselves to its fruits, but, this is also clear, there must be on the other side an equally substantial need for it by those who initiate such business. Not just occasionally, but almost always, they need more money for their business activities than they themselves have. Because if it was only occasional, if the companies set things in motion by themselves and everybody manages, and only from time to time somebody lacks a little bit, this would be a stupid commercial basis for a big bank. The subsoil of Frankfurt could still be solid, but no big towers would be built on it. It also requires that there be quite substantial, permanent needs on the part of the business world, and by the business world I mean those who use the money to initiate something productive, who actually transform money point by point into capital, thus who organize a production process at the end of which money has been created, money has been earned, a product has been produced which pays off in additional money. There must be the need to apply for ever more money than one has.
In order to make clear the basis of this whole system once again, one should be reminded of two needs which are relevant here: one is the need of those who, in order to carry out a business that runs continuously, have everything possible that they would like to set aside for the business and transform from money into capital; that is the service that it always does for this business. Because it is indeed understood with such stupid profit seeking that one could produce wonderful goods, and then after one is finished with them, one now thinks the work is done, but then one must sometimes wait forever to bring in the thing it fetches. A product is produced, this is the first thing and then the businessman has done, actually, his service, or buys products to resell, then the merchant acts, he puts them out on display, and then he has the problem that he must wait for them to be bought. Then the sales period comes after the production period in which the man has invested his money as capital, the whole turnover period is a duration that is not at all foreseeable during production. One can make a plan for when one is ready to produce, but when one sells the thing is an open question. In order to continue the business, one must have at one’s disposal what one has put into the first sector of goods production virtually now anew, so that one can further pursue one’s business, and one has not at all earned the money that one has produced, actually, already in the form of these goods at all. This is the problem of the turnover, turnover speed, how fast the pace of selling is, and is based on the continuity of the process of earning money. The fact that one is not finished with the thing for which one invested money and one has not yet sold the thing and still has not received the money back with which one can continue the business.
This is the problem of capital turnover, and here already before the banks, the merchants who pursue this business come upon this bright idea; if we do it in an easier way: someone who has produced goods and has delivered them to a dealer already gets a voucher that he has delivered them. He gets a certificate from the merchant who writes on it that in 3 weeks he will have sold the thing, however long the time he gives himself, he promises to pay in three weeks. This voucher – payment in 3 weeks – is given to the one who has delivered the products – and this now is crucial – he can take this voucher to his own trader from whom he buys his means of production, so in case of a barkeeper he can go to his brewing company with this ticket and say: the next round is ordered, here you have my voucher, because the person who bought this from me pays in three weeks, and you can count on it just as well as me, so give me your beer, I’ll give you my voucher, and business continues. These vouchers are called bills of exchange because they are based on changing hands in this erratic way, going from one owner to the next, and there is a huge amount of legal regulations about this, and the problem of capital turnover is overcome with this type of commercial credit.
Of course, this commercial credit has a certain hook, because someone who gets this slip of paper never knows for sure whether the person who originally signed it is an honest person or a charlatan, and even if he is an honest charlatan it is not entirely clear yet whether he can really pay it, let alone in three weeks. That’s why the acceptance of such bills of exchange is vested by the state, because even with all the strictest possible regulations, the strictest rule is of no use if there is nothing to get. So anyone who receives such a bill of exchange has something in hand, and can also try on his part to pass along this bill of exchange, the only question remains: will this really be paid in three weeks. In this emergency situation, and this is a permanent thing, one notices this with every business, as soon as a turnover is initiated with capital, as soon as a sum of money should change into more money, this problem of capital turnover originates from the fact that the hard slog of producing and selling is always gone through. All the time the institution of the bill of exchange, thus early payment with a promise to pay, is taken up, and always creates anew the problem: what is my bill of exchange actually worth, can I use it really as freely as I would like, as a means of payment?
The use of a promise to pay as a means of payment is the first entry-level drug for bank capital, because the banks happily explain that they are willing to accept these bills of exchange, in the end, and to put down money for those who deliver them, thus to conclude the business for them, so they finally have real money in their hands. Of course, the bank does not do this out of friendliness, but because it promises to benefit from it. It draws off something extra for itself. “Drawing off” sounds better in Frankish Latin and is called a “discount.” This is not a discount store such as Aldi, but is the discounting of bills of exchange, retaining something from the promised sum, and not an arbitrary amount but – because banks are fair – a set percentage. This is the so-called discount rate, which the banks calculate for acceptance of the bills of exchange. The bank thereby makes itself the creditor of the bill of exchange debtor and releases whoever has taken the bill of exchange from it. This is one source, and indeed a source that never dries up, of the bank lending business, a kind of business whose concept would be: there is an already produced value, a finished product, which is already worth its money, thus also contains the sum of money for which money was extended as capital and so that the capital would grow, one calls this profit quite simple, it becomes a product that already in itself contains this profit and only still has to be sold, virtually anticipating its sale, i.e. its transformation into real money. Here crediting, the money lending of the banks, transforms an already existing additional value into money sooner than the market would otherwise do, for interest, because money is needed.
The other equally weighty, and to that extent just as large, branch of the bank's business takes up another problem of profiteering, namely: anyone who plans a business must first have the money to get on with it. Most do not have money, so one sometimes hears of someone who has some quite ingenious idea for the production of a website, but he has no money to market it to people, to explain to them what he has and they should order it from him please, he needs money that he does not have. That is the simplest form of profit seeking, by which money can earn more money, someone has a business idea, but lacks the quantity. However, this is considered only a subordinate problem at one bank, whether it should really give something to such an oddball, this also exists just as much at the top of the ladder and there the difficulty becomes much larger: namely, if a company like General Motors says it no longer actually stacks up as much as they originally intended in their plans, then one thing is clear even for the largest company: it suffers from competition. Its competitors offer goods in better versions, with more advertising, perhaps even cheaper than it does. Even if business is good in the competition against one’s peers, and from smallest up to the biggest company there is this incessant problem that it is not good enough. Or if it was good enough, then one wants to ensure in the future that it will continue as a good means of competition, that one must always hustle, beguile the public, make the goods cheaper, add new attributes in order to increase market value. What one needs it for is always one and the same thing, namely: more capital than one has already earned. Of course, big companies often get by with investing only from what they have already earned, sometimes they also have a damn lot left over and do not know what to do with it, because it might no longer be worthwhile to invest in their business. Only, sometimes the principle is envisaged: capitalist companies compete among themselves, so they always have the problem that they need something to win the competition, to grow. The stupid saying about this is “to stand still is a step backwards,” and anyone who is not growing has pretty much lost the competition. So where do the funds for growth come from? Again the bank is of service here and one has a commercial basis for the banking business, a basis in the small but noteworthy paradox: the means for capital to grow is size. Now I do not want to say much about this tragic complication, this is the suffering of all dwarfs who need something to grow that they do not yet have. But there is an aid for it: the money that the bank lends makes the amount already available today to the profit-seeker, which under assignment of this amount he will reach only in the future. This is the second long term solid basis for the banking business, which is why debt or granting credit, if seen from the other side, does not ensure the bank that the money it gives away will yield more money simply as a result of the bank giving it away for a certain period of time. The banking business is based on the fact that it frames an elementary need of normal profit making virtually in front and in back, that it activates business or only generally enables or promotes it, and rakes something off from the fruits of the promoted or increased business.
One can now, of course, ask how the banks finagle something like this, on the basis of what they actually do. I want to make only a brief comment on this, that it manages all the payment transactions that go through the hands of an enlightened modern society, that it administers virtually all the payment flows in society itself. Right down to the welfare recipient, everyone needs a bank account into which the employment office or the social agency or whatever transfers the check. Beggars still get cash, but otherwise everything takes place through the recording of entries and checking accounts. This is the end point of what started centuries ago on a simpler level, the banks handle for the business world and for the whole public of the business world, for the whole big community of consumers, the due payments. They take the money of the society, in fact at its source, to a certain extent in trust. They collect the money and cover the payments between everybody who has to pay each other. Then somebody who has delivered money to them has to be no further concerned than that the bank follows his instruction about whom it should pay and that his account is somehow covered. But this is the first and initial basis, virtually back in the age of dinosaurs, for the ability of the banks to do this kind of lending business that I have described: they dispose over the money of the society.
The banks have from the outset not been content to be the trustees of strangers’ money. But if someone has entrusted money to the bank for the payments he makes, then of course, the bank says “ok, done,” but the money the bank has received is of course much too pitiful to sit someplace cold. The bank knows what to do with it so that it can proliferate; namely: loan it out. So it takes the freedom of the money entrusted to it and uses it to organize loan transactions. Now one thinks, of course, what if now the account owner wants to pay for something, where does the bank get the money if it has already lent it? You can ask your bank where it has put the money that you have deposited in your account and it should then show you an attestation for 100 euros. They will show you any 100 euro notes, you are only sure: the money that you have deposited there or that your employer has transferred to the account, this is for the bank the material with which it manages its lending business. The bank takes the point of view towards the payments or money orders that are then entered: this is basically no problem because first: what is paid off from one angle flows back again with the money it gets in an account. The whole problem that it must take responsibility for payments, when it has already applied the underlying money actually in a completely different way, this is for the bank more or less a problem as it juggles the outflow and inflow of payments. It is true, of course, that if all the money is lent and then suddenly payments arise all at once on them, thus on the money so easily doubled, this does not make the best bank. But the trick it applies here is just what is called the art of settling outstanding balances, liquidity management, the hustling around of accounting digits within a bank. When the settlement takes place, only one book entry at the same bank really has to occur from one account to another and nobody even notices that this money does not actually flow at all, but was lent long ago.
This art of making use of deposited money as the material for a lending business changes the status of the bank in a crucial respect. From then on, it is no longer simply a trustee of the entrusted money, but the trustee relation (you give me money and I cover your payments and a tiny small fee for me) becomes a debt relation, which the bank enters towards their money depositors. It is no longer simply the promise “I will keep your money,” but the money that is entrusted to the bank becomes, from the point of view of the bank, a debt that it has with the money depositors. Thus, the banks become in some way, with their money collecting, universal debtors of their clientele, but this concerns only the status it has towards those who until now were called their money depositors. Now this gets the character of a claim which the money depositors have towards the bank and the bank itself owes on the basis of this legal relation; it is a debtor of its money depositors, it must promise repayment to them at any minute, it must operate with a promise to pay; this is how the bank gains the freedom to use the deposited money as loan capital in the sense just described. There are a lot of legal regulations about this at the moment, there is, for example, the golden rule: if somebody simply deposits his money at the bank, then the bank may not use all of it as loan capital, thus making use of it for their credit business, but it must keep some percentage which the government statistics office has determined as a cash reserve. It must set aside a certain amount in reserve funds from every deposit, a reserve fund it may not lend from and is still good if real payments have to be transacted that are not settled by account transfers, then they can fall back on money, on a percentage of their deposits which they have kept for themselves. There is the extra rule that not only the bank itself must maintain a cash reserve, but also must hold something like a minimum reserve with the central bank so that one can always collect from a reserve supply to a certain extent in money. This is also a very necessary rule because one thing is clear: the bank suffers from every euro they have deposited with them, for which they are virtually a debtor and which they cannot distribute, because then business escapes them; that is why it tries to hold this cash reserve as low as possible, which of course has its risks if they then must pay nevertheless.
Anyway, I want to get to something else, namely what the banking world actually has done. The technical aspect of this achievement consists in the money that the simple account owner thinks is his asset with the bank, that this is his claim and he can use it to pay for the checks he writes, the transfers that he signs for, with which he can take a credit card and give it to any credulous cashier who puts the card in the machine and already he can take the commodity home and is no longer a shoplifter. Everything that is booked there, the customer thinks is a sign of the money he has, a money sign. This is not true, because this is a sign – an accounting term is also to a certain extent a sign – the accounting process, the designation of a money transaction, is nothing but signs of transactions. With a check one still has a piece of paper in hand, but one knows in the Internet era that a flicker on a screen is also a sign for something, these all are signs, but now really strictly speaking, not for the money which one entrusts to the bank. These are signs for the money that one has entrusted to the bank and which the bank has in addition loaned; it is, strictly speaking, a sign for the credit that the bank has awarded, on the one hand, and for which it takes responsibility, on the other hand, towards its depositors, because it has promised to pay them. What was originally just a sign of money, and also still looks like a money sign, in the end one can even collect a voucher, a money voucher with it, this is actually a sign of the money continuously lent out by the bank, a credit sign.
But this is only the relatively boring, technical side for a larger economic advance or transition that the banking world manages with this type of credit lending, meaning: with their business activities the banks not only here and there transform a certain amount of money into capital by lending it. They transform it by their type of money management, and the banking business itself is based on this, they transform in principle all the money that is earned in this society, thus every sum that is realized in the value of a commodity or a service, all abstract wealth (abstract means that the value of a commodity or service is only expressed in money and is traded and paid somewhere into an account or in the end as a sum of cash notes). Every sum of money in the society that comes into existence and somewhere falls under the custody of the bank is capital. This is the performance of the bank. One not only needs to first use the money to initiate something grandiose, to not only open up a business with the money, produce something, exploit people with hard work, perpetually exploit people, then at the end there is a commodity, one must still sell it, one must hit customers over the head, and finally, one has transformed the money into capital because afterwards more money comes out. Money generally no longer needs to take this hard slog because every sum of money guaranteed by the bank is already thereby capital. The bank already possesses the wherewithal, it lends it, it collects interest, the whole hard slog in between in which the money is increased, in which more value than before is created and transformed into money, is smoothly cut out.
Through this service, the bank takes every sum of money that exists in the society and gives it a new use value. When one wonders what the use value of money is, one usually thinks at first simply that it can buy something. It is already absurd enough that one gets the power over the goods of society through a thing that one has in hand. Here Marx has a lot to say and every word is gold because he beautifully explains that it is, actually, a relation of the social division of labor and a way the society maintains itself when goods are produced and sold in the market. But the absurdity is that this relation of the division of labor is fixed in the ownership of an object; and this is money. And this money, which is no certification for a successful division of labor, is but a piece of power, a piece of access power to the goods, to the value, that money represents. The state in fact stands behind it: you must have three marks to give to the kebab shop to come out with the meat. This is, one thinks, the original use value of money, it is for accessing goods. Here Marx says: this is absurd, it is reminiscent of primitive people in the bush who believe in a fetish, who think if they worship a wooden pole they will soon win a war. But if one thinks this absurdity is at home only in the deepest bush, one has made a poor differentiation because, in the advanced bourgeois market-economy society, it is even much worse, because here one believes not only that the thing, the thing that one has in hand in the form of money, is ultimately merely an electronic accounting deed, but this thing gives power over the goods of this society on which work has been performed (and one is up to one’s neck in things), it is the means of command over social wealth and its producers, one can even buy labor power with it. But this kind of fetish is, to a certain extent, only the lowest and most rudimentary type of use value of money. If a whole functioning market economy and a banking industry has opened, then money gets still another use value, then every sum of money has a further use value, and one can buy this use value as a businessman. The businessman buys himself a sum of money, he buys it for what is then an absurd amount of money, one thinks at first he merely puts down the amount of money that he has. No, the use value of money is that it makes more money from this sum of money, that’s why the price of a sum of money also consists of the interest on this use value, which is that it increases, leaves something else, a sum called interest. And then one gets the sum of money, which is to increase, puts it to use, uses its use value, makes it increase, and then one returns this sum because it has done its service, one has earned more money with it and pays for the use value of the money.
The social performance of banking capital consists in the creation of a new use value of money. This point can be made simple, moreover, if you think of ads in the subway station for a savings bank that promise: while you wait there for the next train, more or less in vain, your money works with us. What is meant by this metaphor that money works? Exactly what I have said, as soon as one entrusts his money to a bank or to a thrift institution or to whichever loan capitalist, it takes this in fact to be the appointment of a guarantee that this sum of money functions as capital, that it spits out an additional amount. The bank even promises this to somebody who only puts money into a savings account: I will also make more money than before from your savings. It promises and makes true that the entrusted sum of money becomes capital, money capital, and that of course is based on every sum they get their hands on functioning as money capital, namely: it produces an increase in the form of interest.
That is the one thing I wanted to say on the general performance of this first department of the banking business, but I still want to point out two related social relations connected with it. One is: in this way, something like social capital becomes a reality. One can try as a government statistics office to add up the capital, thus all the sums of money that are employed in these capitalistic areas, and then one eventually has a gigantic sum and says: this is the social capital. But then this is only a sum that is added together from competing companies. If, however, the banks collect all the money from everyone who has leftover money, even from everyone who has outstanding payments, also from all the capitalists, be it the payments covered and their accounts maintained with the main bank, be it even more so that something is left over and the bank lays it out and collects interest on it, the bank collects all the capital of this society that is left over, that is not engaged in the production process. That is their great accomplishment. Everything that is outside the production process as money value somehow in motion, the bank world collects and makes in principle accessible with their loan business to each need. That is the sort of socialism that is true to capitalism. This is the socialization of capital that is thus collected and made available for the perpetual big money needs of capitalist business entities. And one immediately notices that this kind of collectivization of private property has the character of a pool of sharks, because the competition between those who borrow money does not end there by any means, and the relation of the banks to those granted the money for the continuity of their capitalist production process is also far from a friendly act between brothers, but is ruled by competition at every point.
Two important footnotes should be made about this competition. One is: someone who goes to the bank and wants to have money is not automatically embraced by the bank according to the motto “at last, I have money I can lend, I already sit on so much, at last, somebody gets it,” but he who gets the money, unless he is very canny, must prove that his business is worthwhile. Then he must do what capitalists otherwise are terribly reluctant to do, namely open his books, give information about his business conduct, tell them what he wants to sell to whom and at what price and all his good prospects. Everything that they keep strictly secret and might not even inform the tax authorities they must disclose because of the bank examination, and the examination compares those to whom they give credit, how much, at what interest rate. The bank differentiates according to the extremely unfair motto, “who has the worst business must pay the highest interest rate.” There is no pity, “oh God your business is so bad, I’ll give you the money a little bit cheaper.” This would be among friends, among capitalists one says exactly the reverse: money loaned is always a risk and the bank enters the risk, even gladly, but they can defray it, then the interest is all the higher, the credit is all the more expensive the worse the business is. If one goes as a customer who wants money from the bank, and now I speak only of the commercial customers who request it for something capitalistic, one must compete for credit from the bank, one must conduct a fight for an advance; they reciprocally blackmail each other. Because it is really only a show of strength between these two parties that decides how much credit and on what terms one gets it. In this respect, this is the solidarity of the capitalists, their private property is thrown together so something is left in money form and it is lent to those who can and want to make more from it. This is the solidarity of the capitalists, but it happens as a new sort of competition, namely between lending capitalists and those who borrow. This is one footnote to the case of competition; this is how capitalists make common cause.
The other footnote is: whoever borrows money to continuously transact his business, to thereby transact it better, to have more money at his disposal than previously or to absolutely increase it, does this for reasons of competition, thus in the interest of standing better off as a competitor. This means, of course: the credit given away, precisely because it results from the needs of competition, has the effect that it heats up the competition between those who borrow money. And indeed it is not only because of this that a bigger wheel turns and throws more goods on a market that is already overcrowded and throws them mutually off the market. The second thing to be said about this intensified competition: the bank that lends money also sets on success in the competition. They anticipate the success of those they lend money to; they should already earn success in the competition beforehand. The future amount is anticipated; today’s funds anticipate that the capital will reach this future amount. Therefore the bank is also dictatorial about this success occurring. As if it was not enough that these crooks compete with each other like the devil, it becomes, through the patronage of the bank that lends them money for the competition, almost an objective constraint that they achieve competitive success. Here you have again a nice basic formula of capitalism, that for the capitalists the advancement of their business in their own interest becomes a constraint. From their interest in borrowing money and using it to help their business get ahead, the bank becomes as a result the promoter of a flat necessity, a practical constraint to achieve this competitive success, even up to the level that in failing the businessman can write off his interest along with the business and still look like he sold his jewelry and his house in order to at least get the bank its money back after his business is finished. So this is the humanizing, socializing effect of bank credit.
The second concerns the hot question: what does all this actually have to do with the people who do the work, those who in the production process are so wonderfully framed by finance capital, who are responsible for setting the production process and retail trade into motion so as to produce the commodities by which the surplus value is then made into money, thus increasing the money? In what relation stands the employees of the department stores, which have to bring these goods to people, so that money is released from the profit-expectant commodities, in what relation do they stand, ultimately, to finance? I have previously used the formula: if the entire circulation of money is in the hands of the banks, and they make credit from all the money, a credit sign in an accounting book from every payment, then its use value is to function in the increase of money capital as capital, virtually independently of whether a production process really takes place in between, in the nature of money capital this is abstracted from. A kind of abstraction exists when money lending is so properly developed, consisting in the fact that every Dick and Harry also gets lent money, something I just now ruled out as a real basis for money capital. But if one only wants it to sometimes get a commodity that he cannot afford at the moment, one can also get credit, and then must vouch with one’s income, with a teacher's salary or something, for the fact that the money that is borrowed will really become more money for the bank, thus become capital. The bank is so brazen and so free that money is also loaned out even if the production process that produces more money does not take place. Then instead of changing money into capital it compensates itself with the normal incomes of its customers. Earlier this used to be called usury; today interest rates of 15% on credit cards are, I believe, difficult to justify.
What the bank carries out, I remind again of the equation that money has the use value of increasing, and this is objectified in this whole enormous financial sector, it is in all seriousness the basis for the appearance that it is really a quality of money, that money possesses the power to grow from itself. A banker who is asked how he actually earns his money will never ever say: this is what I set aside for myself from the profit which the proles have created for the companies. He would never ever say it because he does not know it at all, because it is not his point of view. He is firmly of the point of view: his skillful handling of money that he lends to this and this and this and not to this other – and I have not talked about securities at all – his talent with lending capital and the correct bill discounting and always being solvent just at the right place and having kept the reserve fund small, this is the source of his profit and he has earned his money from it. Marx explained this well. On the one hand, the brutality of capitalist relations is so obvious here, the rule of property over work nowhere is so brutally striking as in interest-bearing capital, because here the equation becomes true that property is only a legal title to an appropriation from products produced by the labor of society. This fetishism of property, money as a means of access, and money not only as the access title to goods, but to more money, thus money as the progenitor of more money, the reason for property – Marx immediately says in addition – is to appropriate the work that others perform, not by purchase, but by access to the proceeds from the sale of their products, thus to be a means of enrichment. Pure property as a means of enrichment from the work that others perform is the brutal side of interest capital. In this brutal side is a certain truth about what's going on in capitalism, namely that property means access power, and in fact also to the work of those who are exploited in the production processes, which is in essence realized.
The other side means: the normal capitalist who creates jobs surely no longer wants to know that loan capital, interest-bearing capital, accesses labor as its source. The bank capitalist, or whoever shares his point of view, knows nothing more about it. Thus both score together, in interest-bearing bank capital the truth about capitalist relations of production – all power lies with property, all productive power, property is the means of disposal over all work – is realized on the one hand in essence, and, on the other hand, this basis, this source of the whole story, absolutely disappears in loan capital as such, in interest-bearing bank capital. This is this fetish from earlier, and this also is incidentally my explanation for how a given sum of money becomes a bigger one. This process is inherent in interest-bearing capital, and as I said, interest-bearing capital has the quality that every sum of money is on the one hand realized and on the other extinguished.
This has a few funny consequences, also rather unfunny ones, concerning the opinion this market-economy society has about itself. These are the points Marx developed in the trinity formula. To explain it in detail: there was a kind of theory in political economy about this market-economy circus, as many people asked the question: where does the wealth of the society actually come from? How does it happen that there are new products from year to year and also there is the tendency to always become wealthier. They asked the question, which includes the possibilities they allow, is it, for example, the state or the luxury spending of society that shoots out such uncanny wealth year after year anew. Then they came to the production process and broke apart its proceeds into components. There was the power of interest-bearing capital, money that is loaned to the productive capitalist that produces earned interest. This played quite a big role for the theory. Well, as you can see: a part of the social wealth that reproduces itself this way goes back to the fact that money is behind it, property, thus a part of the social product, the value of the product, arises from the fact that capital is in motion, which belongs to them, one sees this in interest-bearing capital. Another part belongs to the workers, one sees this in the fact that they get by on what they are paid; what they get is also their contribution to the whole. Then there are still those who bear the hardship of employing capital and labor, the productive capitalists, they also perform work to a certain extent. Their work, their entrepreneurial work, is somehow even a source of social wealth, one can say it is wage labor in that to a certain extent the capitalist is his own office worker, or nowadays these would be the managers, and if management wages were a little bit higher in those times, this was not disturbing at all. In any case, they were part of the side that does work and their salary was the value of their work. And if the work of management was worth a thousand times a wage, this was right. And as a third source, they had the landowners on which ground rent is paid. Keep in mind, with mortgage banks, rent to this day is a giant source of income.
However, all this does not matter, the essence of it is that this equation - money per se is capital - dominates social consciousness from the viewpoint that in our society anything might happen, except not exploitation. Exploitation might possibly exist when a john cheats a whore of her wage, then perhaps she has been exploited. Or, according to the conceptions of the left: if a worker gets less than a “living wage,” perhaps there is exploitation. But in the normal run of business, exploitation is nowhere to be seen, because when the capital that he owns is contributed, it is pure capital that he contributes, one sees that in the fact that it earns interest. This is even the point of view of the capitalist who employs it, he smoothly posts in the books “what this costs me.” Here Marx cannot calm down about the fact that a part of the profit is registered by the capitalist as an advance, because if he is loaned 1000 euros, and he must pay 50 euros a year for it in interest, then not only 1000 euros are shot for the capitalist for his business, but 1050. You can multiply this now a million times, and then you have the calculations of modern capitalists.
Also, this insane equation, this fetishism of money, that it is already capital, quite essentially belongs to the self-consciousness of the free market society. Nowadays, hardly anybody is interested in the actual reason, because the need to justify this economy has disappeared. Hardly anybody asks: how can it be justified that there are so many working poor, so many who are even poorer, and so few who are rich in this society. With the metaphor that these are scissors that somehow separate further, the thing is already checked off as a rule. I know hardly any public effort to justify the results of modern exploitation through a theory, much less an economic theory. Nowadays this is acquiesced to as self-evident, under the motto “everybody wants to complain that they are badly off, but they should be happy that nevertheless they actually have a job, and if they don’t, they know what a job is worth.” Nowadays, this passes for a justification, incidentally also in intellectual circles; if one tries to learn what economic research institutes have to say about the wage question, one notices also from beginning to end no justification is needed to argue that workers must, of course, become cheaper. And in this respect, any interest in explaining loan capital and to place it in relation to work is nowadays quite extinct. I do not know whether it is a joke to some researchers that I say one must investigate this economy, that this commits an injustice, but I contribute no great enlightenment here if I call this insanity, the ideological consequences this apparent autonomy of loan capital has, just because nowadays the need for such justification has become extinct. Then most workers’ representatives find nothing to fault in the exploitation activity of their firm, because it at least creates jobs, or it is even admirable that it creates jobs, while between their own firm and the bank, the banking world, which has put money in this firm, a competitive situation exists. A competitive situation that can sometimes even lead to the failure of the business, to the bank switching off the juice to the firm, to giving them no more credit and the business grinding to a halt. Then, of course, the jobs also go away, then the exploitation stops, and with exploitation, of course, also the wages that people get in return for doing their service for the company.
If critical thinkers still perceive and accept a clash of interests in this society, then it is often enough not between the staff and the firm, but between the firm, including its staff with their wonderful jobs, and a bank which has only given a lot of credit and then maybe no longer gives it any more because business is bad. This is the swamp from which arises the idea that all the hardships of capitalist society are because of conflicts between money capital, which carries out its propagation without the production process, and the production process, which is responsible for such propagation. When all the hardships of the society lead back to this conflict, it is plain overlooked that it is nothing other than a conflict of interest between hostile brothers of the same class, and that it is precisely the wage laborers who are ripped off in the production process, who have generated more money than they cost, and then in the end it is also them who must answer for the payment of interest. Therefore, I have talked about banking capital, about loan capital, as a form of socialization of private property, just so that nobody makes a mistake, ever, about where the lines run in this society. With all the conflicts in this socialization of money, with all the conflicts of interest between bank and loan capital, on the one hand, and credit-taking global companies on the other, it is all a conflict of interest between capitalists, and it is on this basis that the type of money of the society is made available to everyone who wants to use it capitalistically. This is the basis of solidarity, if you will, for all the hostility, all the antagonisms between honest firms, middle class ones too, also with our hard cost-calculating, supervised by the SPD middle class, and the bad major banks. They all belong to one and the same class.
3. Securities: How banks make debts into capital
Following all these explanations about what drives finance capital, I will now identify what the banks organize with their lending and discounting businesses. They do this, of course, as capitalist enterprises, with the aim of enriching themselves. The banks pursue the same goal as every capitalist enterprise: to make more money from an initial sum of money by capitalistic use. Of course, the banks do not do this merely with each individual fund, but they pursue this as a concern of their entire corporation. Their enterprise wants to grow, and it not only wants to grow, but it also must grow because the banks are also in competition with each other. What I left aside earlier about competition now becomes interesting. The ideal of every bank is to become a monopolist of the social payments, to earn everything for itself that is to be earned through the discounting and lending of money, to capture others’ cash transactions. Therefore, a crucial new point is to be added to what has been said up to now about the business practices of the banking world, which also leads to a new level of the bank business. The banks do not simply wait around like the hairdresser on the corner for somebody to come along and let them lend them money, and they also simply do not wait for somebody to come along and entrust his money to them. They deal with this problem of wanting clientele for both sides, not simply by advertising, by big posters. They make themselves into activists, into active subjects of the lending business in which they earn money.
How does this go then? I have just broadly explained that the banking business is based on a perpetual need of productive capital: normal profit making. Yes, it is also based on this, but in being based on this, not everything is said. The banks are business ventures that make something out of this basis. On both sides, getting money deposits and granting credit, they know how to help themselves to something over and above their basis in the commercial business of other capitalists. The thing they invented for this purpose - the technical banking term for it doesn’t matter – has the label “securities.” What is this then, if we take first of all a bank that issues a security in the simple form of a bond? Bonds and shares are the two most important forms of securities with which the banking world goes on the offensive. What does it do when it creates a security? This consists first of all in nothing other than the promise of the bank to pay interest to somebody who hoards money. And this is not simply a promise which it writes on a poster and then waits for somebody to go past, but it writes this promise literally or ideally on a sheet of paper and explains that this paper, which contains nothing but its promise to pay interest - here stands a million with 5 per cent interest on it, due every year, to be repaid in 5 years – it has done nothing else, preserved no money, in printing such papers. And it does not call these papers only ideal securities, but it also vouches for them with all its power, which it has as an authority with the ability to dispose over the money of the society, to give them something like the character of a commodity, thus to be worth what it has written on it, this million, simply because it promises the payment of interest. It promises this on the basis of its business running, this is the basis for it. But from this, its business running, it derives the audacity to promise virtually a participation, a small, slight 5 percent participation in its business, to everybody who puts in money for the continuation and extension of this business, and the appointment of this promise to a really-existing property value exists before the sum is there. The bank acquires this sum by selling these things.
One can say, of course, this is ultimately no different than a loan business, someone buys this swindle, lends the bank money and gets interest for it; this is its trivial basis. But from the point of view of the bank that turns the activity to a certain extent, making itself the subject of the creation of a property asset by its promise to pay interest, when does this property value become genuine? When does it become real for the bank? Basically, it happens by the same act by which really produced honest commodities become money, namely at the moment when the thing is sold. The sale of a security is to a certain extent its own confirmation that the bank’s promise to pay interest is worth as much as it then gets for it. It creates a property value for sale and takes the overhead for itself. And this is better than maintaining checking accounts, than opening current accounts. Because that way, and this is crucial, the bank grabs itself the available money of the society and directs it into its balance sheets rather than letting it hang around in others’ current accounts. If it gets it from its own current account owners, it has at least obtained the crucial improvement that it not only uses the sum of money that the person has entrusted to it with leveraged credit, it also does not make the transition from trustee to debtor of the value, which moreover they incessantly do, always further. But if it requests in addition of their account holders, “buy my securities from me,” then it takes possession of this money for this period of time at a fixed interest rate and can proceed with it as if it is their own property. This is no longer others’ money that it has to somehow guard virtually in trust, but this is their maneuverable mass, for thus and so many years fixed with it, and anyone who tries such a thing as to prematurely cancel even only a savings book with a 3 year cancellation period is confronted by the bank with the information that he has to then kindly refund his interest. Also in accord with this point, the banks go on the offensive with the acquirers of money deposits through the creation of securities, open a business with securities as their products. As said, their promise to pay interest becomes a commodity for sale, namely a property value, available for purchase, marketable on this ominous thing called the financial market, for which they create the material with securities.
It gets even better with the second variant of the security, the share. What is this thing? Whoever buys a share stands on the fact that this is somehow the share capital of a firm, and that somehow what has been put down initially for the share has also flowed to a company and the company has economized with it. As with loan capital, a company needs money, borrows it, and gives in return a certificate of indebtedness. The IOU is in this case called a share. It simply has for the company the charm that it never again needs to pay this back, the share is already a kind of credit, but a credit without a date of repayment, actually without a date of payment perspective, the share is only given away money and a claim that one gets interest in the profits of the company, an interest over which ultimately this company decides. It is to a certain extent nothing other than a company’s promise to pay interest. All this is the other variant of stock, not only from the banks but ultimately also from the banks, these are the promises to pay interest of the joint stock company, and now not at a fixed interest rate, but share certificates. So what does this share certificate do? It is tradable, one can buy and sell it in the financial market as a true title to property, and with this relation - a sum of money becoming more money – it separates itself from the whole production process which takes place in between, on the one hand, and on the other, it incessantly becomes that portion of a property’s mirror image or a caricature of what happens in the company. The company knows it can economize all together with its financial means, its advance, its capital, that it gives nothing else than promises to pay interest, stock certificates that promise “who gives me money can participate in my success,” it puts nothing other than this out in the world and acquires money for it. And that someone who puts money down for it has not simply got rid of his money, but now just has a security, which, because the company’s promise to increase it stands on the fact that it can be traded, he can resell it if he needs the money, with which he might want to buy something new if he has a little left over. Whereupon here steps the famous beauty that the value of these securities is not simply calculated from the fixed interest rate, as with a bond – there an interest rate of 5% is put down and then that is the payment of interest on a million and if the interest rates fluctuate during these 5 years, then the paper is worth sometimes a little more and sometimes a little less – with a share it is clear from the outset what this paper as property asset is really worth, what it brings to whoever possesses it, thus how it realizes the transformation of money into money capital, in what proportions. This is daily ascertained according to the supply and demand of such papers on the stock exchange, someone can even suffer ruin if he has bought it too expensively and then wants to sell it and it is no longer as valuable, or even just half as much. Here the security, disconnected from the company that it stands for, works through its own value movement.
These are stocks and bonds, the stuff that the banks, and even joint stock companies, which in this respect act virtually like finance capitalists, set into the world. A company that issues a bond itself acts at this point like a finance capitalist who says, “I give a promise of interest payment, believe me and give me your money, I will pay it back to you with interest.” Thus a bond, even from Siemens or else another company, is a finance capitalist, virtually a bank capitalist, activity of such a company. The issuance of a share, the formation of a share company by the emission of new shares, is also a finance capitalist maneuver by the respective company, it provides itself, and indeed actively on its own, credit. A company that issues shares, which sends no well-dressed proxy and says “begging for credit,” the members of the small companies do this anyway and also, but a corporation that appears as a publicly traded company goes aggressively to the financial market, thus to all those who have money, and offers them a security which they themselves set into the world through their promise: you have a share in our profits. Here one already notices that in loan capital money becomes capital, the banks turn this, or the financial sector turns this slickly. It turns it upside down and says first is my promise, I spit out here an addition to a lent sum of money, and because my paper promises not just my payment, but my promise of repayment with interest, it is an asset value that should be bought from me. This is one side of the financial market, namely of the commodities that are traded there.
Who then are the buyers? Yes, Dick and Harry, we want to say at first. There are actually people who get together, maybe even honest workers who have otherwise nothing to do, who team up and buy shares. This attracted attention when they speculated and lost in the IT disaster and were driven into shit. Oh well, everyone can participate in this financial business and the banks and savings banks also go to all the hassle of doing something like re-attracting the simple saver with stock or equity funds. But, as we have noted, this is a sub-sub-division of what one calls the financial markets. The main actors on the financial market are none other than the banks themselves, the financial sector itself, which disposes over financial means, over financial funds, makes them available, so that everything they have collected in money is not bottled up somewhere, because they are eager to make more from it, and they are also not even content to just seek out productive capitalists who scheme something promising with it. With the creation of securities they go on the offense to the society, and they want more purchasing power, in any case, in excess of what is always deposited with them. And for the funds that they attract, they do not wait for people from outside the banking sector to come along and say, “We would like to lend something,” for securities are also not well suited at all for lending in this sense. The banking world finds in the securities it creates investment possibilities in their own right.
Now one can ask what is this insanity - to pay interest for securities, on the one hand, and to collect interest on the purchased securities, on the other. Yes, how do the banks add up in each case in their calculation, one may ask this quietly, but the phenomenon is simply that the banks, simply by performing this business, increase the extension of credit. With every security they create, they strengthen their power to grant credit to whoever it may be. With every security they buy, they elevate their asset base on which they can assign credit again. With both operations they leverage their credit power upwards. Then this still has subsections, which are known as intricate cross-sections or something like that. Companies' finance departments, or the banks themselves, mutually buy their shares, so that one company participates in the profit outlook of the other, thus buys its securities, simply to still participate in it. Clearly, a bank that creates securities and then buys the same itself would be a business swindle, where one should then ask would this swindle also be a good cause. But the crucial point is that they mutually buy their own products, and mutually strengthen themselves with it, to a certain extent they mutually corroborate themselves: yes - one could express it idealistically - we believe in it, we confirm you by the purchase of your security that your promised interest payment is in order. We make something real from the offer of these property title commodities, we realize its value when we buy it, and this helps the bank which it gets bought from, not simply by the fact that it has the sum of money, but that it is confirmed by it: by this the bank’s promise of interest payment is serious. In reverse, a bank that buys such a serious promise to pay interest has something in their property assets, a claim with which it is well off. This is a claim that it then considers bomb proof because a solid serious bank stands behind it. This is how the banks, through trading self-created promises of interest payments, pursue something not like a zero sum game, because they mutually pay interest to themselves, even if in individual cases it should sometimes be discontinued, the substance of the business is that in mutually generating their creditworthiness, also their power to lend capital and finance other firms, they mutually confirm their power and through the confirmation also enhance this power; they certify it in practice as respectable.
This means, of course, on the other side: the financial market, where banks are at the same time sellers and buyers, one sees nobody else on the stock exchange, yes there are the good representatives of small investors, which are all incorporated, there are the representatives of money collection centers of all sorts, from life insurance companies which want to invest the money which they collect from their customers so that it pays good interest, because they have promised to them when you are 80 you will have more than what you paid up, if all goes well. Yes, one also hears, now especially, that there are not only life insurance companies, but there are even credit insurers that insure banks against the depreciation of their investments. Something like this must also first be organized and is an honorable enterprise of finance capital. The financial market consists of figures that all belong in principle to this finance sphere and appear with the security product in all its facets, as sellers as well as buyers, and attain through trade one trinket, namely mutual certification as honorable creators of loan capital. They mutually believe in their wealth, which exists in nothing but debts, because again: nothing stands behind the security but the promise of the issuer to pay interest, and if it is bought from him, he has, actually, nothing else than debts with whoever has bought the security from him. This continues, no real wealth has been created, but only a debt instrument has been sold, only through the sale this debt instrument becomes to a certain extent a quite honorable property asset component, so approximately like one locomotive can pull railroad cars around the country, so such things can also balance.
The banks thus enrich themselves on the financial markets, only the stuff of enrichment consists strictly speaking in nothing other than the debts that they mutually make. Because if the bank appears sometimes as a buyer and sometimes as a seller of securities, the security itself is nothing more than a promise of interest, thus a debt which it has issued. But they thoroughly serve the stabilization, the augmentation of the credit power of the enterprise, they enable it to grant new credit, to get rich on other customers, or to participate in the profits of the bank from which they have bought a security, be it through stocks, through bonds, through whatever else. It also includes within it, of course: this financial market is a business that emancipates itself from what one in case of doubt calls the real economy, thus the process by which money is really produced, where commodities are produced that contain a surplus value portion, thus a profit portion that is then realized by sales; it emancipates itself from this process of profit production precisely because it deals in debts through which the banks mutually authenticate themselves and mutually participate in their profits. The profits themselves can by all means also be promises to pay interest in the future. The interest payments that are then disbursed do not have to exist at all in the money proceeds of this bank, in what it has skimmed from its other clientele. The normal basic form of the redemption of a bank’s promise to pay interest consists in presenting a new security. Here enrichment takes place in the form that the growing wealth actually consists of a growing sum of certificates of indebtedness. Promissory notes, which have however the power of authority, the credit power of the banks, have the character of tradable securities. You do not need to believe me, but you just have to consider what the financial businessmen really spend their day with. Not with the production of goods for sale, only this property which represents nothing else than the conversion of debts into tradable property titles. I have a practical proof for this kind of separation of finance capital from its basis and the production of property titles that actually have nothing other than debts for their content and that increase the credit power of the banks, and this just happens to be: the financial crisis.
4. Financial crisis
Before I examine the financial crisis, I return once again to something quite elementary. If the banks exercise their credit power in the way that I have just described, and pursue trade with such debt papers, and now and then something happens like, of course, somebody wants to get paid a little, and if it is a pension fund that sometimes must pay their customers a pension, they grind their teeth because they have to pay, the state stands behind it, the law ensures that this is paid. Also so many property titles are accumulated there that represent nothing but debts, they also absolutely have to be paid sometime. The bank must have obtained what I previously called the “original trust basis,” the deposits which the bank itself rests on, the earned money that represents what it has long ago lent, but in the end must also sometimes disburse. With the credit it assigns from the deposits, it must make sure that it has reserve funds to cope with the balancing of accounts. Reserve funds must be maintained by a bank not only for the normal, small-caliber credit business of the bank, but now these reserve funds become practically burdened with the task of being up to all the disbursement needs which can develop in connection with the accumulation and trade of securities. For the normal security trade every bank assumes that such an event never actually happens to any significant extent, but that if something happens, such as somebody wants to see the interest payment for the deposited capital now, then the interest payment takes place in the form of new securities, and both sides are satisfied when they get not simply cash, but if this earned money immediately again re-circulates in bonds, if it also remains money capital. Because this is the use value that all are keen on and this function of money capital in the form of securities fulfills debts wonderfully.
Even in the case of a genuine payment need, the reserve fund that a bank must set aside from its deposits would then, of course, barely stand up straight, and it is clear from the start this is absurd. If for all that finance capital accumulates in titles, even with grace periods and interest charging deadlines, something must be paid when it wants to hold all money ready, they would no longer come to dinner out of bitchiness, because then they would have to leave an enormous amount of money practically fallow, which would then be lost for every normal banking business. Also, the reserve funds which the banks must maintain for economic reasons and to still be legally secured are never enough and never for payments in the financial market. Only if sometimes disbursements become necessary in the financial market, then there must or would have to be sufficient reserve funds flat out, something it never has from the outset and is also usually not necessary. However, last summer it became necessary.
These are securities whose construction I do not want to make the subject now, which are, however, bank products in the long run. Such securities now become due, they should be paid back. The banks assumed their vehicles, with which they transacted business, could easily be repaid, because as soon as they were paid back, they threw new securities of the same size on the market, which were bought from them again and from which they obtained the ability to repay the old securities. A bombproof business: one has a bunch of securities, outstanding debts to pay interest on, promises to pay interest to a certain extent, confirmed by law, so totally ok with human dignity, this is then in the portfolio of these creatures that circulate securities, and every time when a portion of securities expires and the redemption is due, the redemption will be paid for by issuing new securities, and when it is the same customer it is so much the better, then one only needs to write a new date on the securities. This updating of falling due securities, and these were highfalutin products of this financial market, this caved in last summer in some corners. The cause for it was that the promises to pay interest, i.e. the securities scattered around in the portfolios of such issuers, became an actually diminishing fraction to the point it was doubtful whether they were still worth what they say, whether the interest shrinks from whose revenue stream these institutions’ own promises to pay interest in the form of securities – calling them “securities” is the ironic thing – were set into the world. So doubts arose that everything is still so tidy, that those liable can pay at all or jiggle out what they owe so that these vehicles’ promises to pay interest are still credible and these securities can be bought without closer inspection.
It is even the irony of the story that although these securities were not issued for some capitalistic venture, it has not yet become a doubt about the capitalist trend of business. These securities were attached to a quite poor clientele who should take responsibility for them with their wage income. So it is indeed no wonder that doubts arise when this financial market, this highfalutin affair, looks down into the abyss of poverty and says, yes humankind is our whole edifice, which is based of the extortion of impoverished people, and up till now they might have struggled bravely, but whether we should take this further is more than in question. And the banks, which originally lent the money, they of course set upon the fact that these real estate properties on which have been built these ramshackle wooden huts, that they will be worth even more after the umpteenth tornado than they are today. Only, whether this still goes well in the long term, with the poor people and the tornados and generally the trend of business, they no longer believe this so confidently. It is also irrelevant who first had this doubt; these were anyway financial managers who discontinued the passing on of these security issues. What happened? Now the reserve funds of the issuing banks were not yet drawn down, or were not drawn down insofar as these vehicles, those who issued these securities, had a bank guarantee on their side. Some had none and immediately ran into trouble, they had to get themselves credit to be able to take back the old securities and thereupon refurbish, ok this lasts a week or two, but then here we go again. They perceived the unsaleability of their securities as a stopgap problem and procured credit from the banks for it, or wanted to procure credit. Then these vehicles separated into those which already had a bank guarantee and those that have accessed the credit of the bank and have pissed off their bank because it has given them a credit guarantee - we are responsible for your securities - but of course with the obvious understanding that this liability is never taken up. Now, nevertheless, the eventuality has happened, and other such vehicles that had no bank guarantee have gone to them wanting to procure it for themselves, and then have been met by benevolent bankers who said: well, maybe, but this costs. Such a bad vehicle endowed with credit cannot at all capture so much interest that they can pay us ours. So far so good, the business has broken off, and for three months this demolition of the business has been treated by all those responsible as a temporary liquidity problem, as a liquidity jam. Which taken by itself is also not half bad, because in what is then called the liquidity jam, the correct amount of money must be earmarked for the payment of the creditors of these securities and all at once the reserve funds of the banks, the cash reserve of their depositors which they have lent beyond residuals, are for this reason strained. The fact that this has been overextended was also immediately clear as well. The first authorities to which this was clear were the issuing banks, which quickly brought to an end: ok, we'll loan you everything that you need.
The central banks to a certain extent function as the universal inexhaustible reserve fund of their banking sector, of those that have already strained their own reserve funds. This was in the news when the central banks were flooding the financial markets with liquidity; I have talked about what formed the basis for this. The reserve funds of the banks have been increased to a certain extent from the point of view that it bridges over a temporary squeeze before these papers are re-marketed. Now this squeeze continues, the bridge becomes longer and longer, the business has not jump started again. Why? Because those who pursued it before and have now discontinued it generally see no good reason to continue with it again. And the longer such a squeeze lasts, the more the point of view solidifies in the banking sector: this is not a good arrangement to reel in, one has no property title in hand that strengthens our credit power, if one reels these papers in nowadays, then one possibly posts a loss. If one then wants to have the redemption of the vehicle in three months, then it feeds one from the next paper or it reveals to one that they have nothing more. So the duration of this squeeze simply changes its character, then it is no longer simply the exhausted reserve funds which have led to the problems, and which have been overcome with stopgap measures, but the credit power of the banks themselves has been attacked, now they must not ignore that everything can be handled in such a temporizing way – ok, next week we will see what happens - but they must deal with write-offs, admitting that much of what they have credited to themselves in assets, these Asset Backed Securities, are worth nothing more, or only as half much. Or they can write off all their Asset Backed Securities and withdraw their claims and see what these claims are still really worth, how much they can still squeeze out of their mortgagers in the end. That this is not as much as the securities with which their vehicles have gone into debt was clear from the outset.
After the phase, which lasted two to three months when the whole thing was still being treated as a temporary liquidity squeeze, there was also the phase of the write-offs in the hope that if they wrote off the worst papers, then the subject is through, then at least the others will be solid. What is this in a financial market? Yes, the hope that if the bad apples are sorted out the healthy ones will stay healthy, and this has been the frame of mind up to the present. For example, the Frankfurter Allgemeine, the virus experts, commented on the matter. Their comment on the financial crisis lives off nothing other than a nurse's metaphor: “they are mutually infecting each other.” One takes hard cash for what they have marked down there today on their security paper, after that the diagnosis is finished, a propos a nurse, this whole financial industry is an open psychiatric ward. They give each other trust, on nothing, then they take it away from each other, also on nothing, and instead of noticing that their mistrust makes everything go kaput and again developing a little trust, they do not know what they do, according to today’s editorial. This is not in fact the truth of the matter, but if they themselves have such an opinion about their circus they should pack it in, but they do not. The truth of the matter is not that they have only become a little bit more suspicious, but it is always said now that if the banks no longer put out credit they could better overcome their liquidity problems, or they could then conceal their acknowledged losses in their balance books again, then if the bank cancels a property title it merely has less assets and then is just poorer and when it becomes liable to pay must in some way compensate through new credit.
Now it is always said that the banks mistrust each other, they no longer shake out their liquidity. This interpretation plays down the position of constraint into which the banks are gradually skidding, they simply do not have this stuff any more; their reserve funds, which are the rational expression for liquidity here, are exhausted. Indeed, they can borrow what they can from their central banks, but the interest must be paid, and then the interest grabs what in return they can borrow as a reserve fund for the balance of debts, this then takes away their business. Thus a settlement of arrears takes place instead of a credit power that they gain and increase through their trade with such securities. Every write-off they carry out puts no end to the misery, but alleviates the misery of the banks over these shares, every share of liquidity which they must borrow from the central bank only to plug a hole tears a hole in their commercial success because they must pay interest on it without having earned interest with this money, they must only balance a debt with it, they have to pay something, they have to make pay offs that were never intended with the production of such financial papers. And with every write off they make, their demand for unproductive credit grows, thus for money with which they just offset this squeeze instead initiating new lending business, and their power to dispose over property titles shrinks.
So this was the interim phase until Christmas, and what is now happening the last few days is nothing other than the stock market, the authorities which trade with the shares of such credit institutions, rendering accounts with themselves and with each other over the dwindled credit power of the banking sector. The fact that they no longer stand so firmly in the world with their credit power as before translates into a revaluation of the shares of these companies for the organizers of this trade. The fact that their credit power has shrunk is illustrated by the stock market in the form of falling share prices for these institutions. One can see this embodied when you look at the people blowing steam who perform it all, but they are the character masks of their absurd business. There you have the sequence, which has properly transpired so classically: a crisis starts within the finance sector as a liquidity crisis, necessitates write-offs, and when write-offs are in progress and at the same time the verdict is established that this is not finished at all yet, this depreciation, it flows into a lesser valuation of the financial power of the banks engaged there. And in their competition between themselves the banks also still need to reciprocally screw each other because they are involved in their reciprocal appraisal on the stock market.
Now one could think: Well, good then, they are just cut down a little bit once again, it is not so bad if the credit power of the banks sometimes shrinks a little. Only the joke is: the power of the credit industry over the whole social reproduction process. I said something earlier about this socialization of private property and the form of competition. That is the power of this sector over all production and consumption in this society, which just lies on their books, and not just on their books, but also through their credit conduct, by their discounting and money capital lending, and now they have reduced this money capital lending to a subdivision of their securities business and in this securities business something breaks down and this reduces their credit power. Yes, the power of these credit institutions over the rest of the capitalist world does not diminish at all. And the rest of the capitalist world has after all nothing less as its substance than the annual extended reproduction of this society, thus value production, buying and selling, making jobs, exploiting people, paying pensions and so on and so forth, in the end we have the national budget. That is the standpoint for the fears that are arranged under the caption: could the crisis in the financial markets overlap into the real economy? I think a more rational version of this concern exists in the finding: the credit power of the banking sector is depleted, its power over the social reproduction process in this country and elsewhere is not reduced at all, merely their power for bringing credit back into progress. Not only their mood and inclinations, but their power to do so is depleted. And now I come back to my opening statement: I do not make predictions about how this will unfold, these are only a few occasional remarks by which once could rationally explain this insanity of the current financial crisis.
5. The state and the crisis
Now one can say something about the state, how it reacts to it. Of course, it does not leave the whole circus to itself. And this is also quite interesting, this is like a confirmation of what was previously said about what the state undertakes. It first simply provided huge reserve funds for the banks that were in a liquidity fix. Thus always when something like this falls due on the payment deadline, the banks must then really buy it up and then on that date they have absolutely used so and so many billions. Then the central banks for this day and for the next night, and also sometimes for a week, put back properly fat amounts of liquidity and the banks borrow and it prevents liquidity bottlenecks, payment difficulties. But they have not at all prevented the depreciation of this substance, this pseudo-substance, these securities holdings of the banks. So what do the central banks do then? They have even occasionally realized these worthless securities, these unsellable things, accepted these Asset Backed Securities themselves short term, thus having to act as asset strippers or temporary money lenders on the basis of these papers. All still under the point of view: bridge over, bridge over until this business takes off again. At the same time, every day in the business newspapers: “the bankers are optimistic that this business will soon take off again.” Of course, it is not taking off again. Now they gradually make the transition to: obviously it is not accomplished by liquidity injections, actually one must help out the credit power of the banks.
How then does a central bank do this? It has precisely the means for it, namely the credit that the banks need, it can then make it cheaper, it can to a certain extent make deposits accessible instead of the securities which are all done away with. It can permit them to borrow money from it at relatively cheap prices, then the banks have debts to the central bank, but they have something in their hands for it, namely the money of the central bank that authorizes them to again assign credit. They can do this, as can the central banks. This has only one small hook: not only the power of the banks to give away credit has shrunk, but the other side, the power to create investment material has also gone on its ass. They would again have to set into the world new promises to pay interest as securities so that the cheap money of the central bank can again be cleverly invested with them, because it is not that now as substitutes for all these broken down finance capital investment opportunities suddenly noisy shoe makers and hairdressers stand on the carpet and say “Give us the money, give us the money,” and everything that can no longer be invested in such financial products is invested now in shoes and hairstyles and cars. Just as it is not that the banks could now earn in the real economy instead of in their financial market, so also the alleviation, this price reduction of access to means of credit, is very much a half measure, something a state central bank can come up with here because, as said, they can help out the banks with the business of granting credit again, but the necessary other side - the banks create investment possibilities - is not yet in order.
Then somebody has the same idea as the American president. He donates money to his society which, otherwise, the state would have collected, and then maybe this gets demand going, generates so much productive business that then the banks again have an address to which they could get rid of their credit and a new phase of growth takes off in America, which has cleansed itself. Only, the announcement of such an economic stimulus program by itself creates no demand, never mind a solvent one. And so as the financial markets are cobbled together, they also respond differently to it, inferring from the announcement of an economic stimulus program not that it will soon take off again, but that even the American President finds the situation very serious. And then they say, “Yes, this is what we have suspected for a long time,” and if the American president says this, even without being known as a financial genius, he is nonetheless the leader of the largest economic power in the world and he can spread the greatest stupidities, which are always announcements about what happens in his country, when he virtually says: the ruler over the largest economic power on earth expects that without government assistance it will go south, then the critical financial experts hear only “south, south,” and then distrust this wonderful financial assistance, which is anyway only on paper or in the planning. So much then for the state’s contribution to the financial crisis.