If A contemporary Rip Van Winkle, awakening from three years’ sleep, took a walk down Wall Street last week, he might imagine that nothing had changed.
Goldman Sachs, the most hated US investment bank, announced it had made a near-record $3.2 billion profit in the third quarter of 2009.
The day before, JP Morgan Chase reported a $3.6 billion profit. These profits are almost at the level of those in 2007, before the boom turned to bust. Bonuses are back as well. Goldman Sachs has set aside $16.7 billion for “compensation and benefits”—around $700,000 per employee.
And global stock markets are once again soaring upwards, creating what many commentators think is a new bubble.
So was the financial crash just a dream? Absolutely not. Capitalism is a relentless system of competition. Even in the greatest slump, there are winners as well as losers.
Goldman Sachs and JP Morgan were among the big winners of the crash of 2008. Some of the losers-Lehman Brothers, Bear Stearns, Washington Mutual-no longer exist. Others, like Citigroup and Bank of America, which both announced losses last week, as well as Lloyds and RBS here in Britain, lumber along, propped up by the state.
As the Financial Times commented last Saturday, “Companies make more money if they have fewer competitors.
“Judged with cold rationality, it appears the survivors from last year’s crisis are doing what they are paid to do-trying to exploit their
new-found monopolistic power.”
The New York Times pointed to another strand in the picture-the role of the state. “A year after the crisis struck, many of the industry’s behemoths-those institutions deemed too big to fail—are, in fact, getting bigger, not smaller.
“Now, the industry has new tools at its disposal, courtesy of the government.
“With interest rates so low, banks can borrow money cheaply and put those funds to work in lucrative ways, whether using the money to make loans to companies at higher rates, or to speculate in the markets.
“Goldman Sachs and its perennial rival Morgan Stanley were allowed to transform themselves into old-fashioned bank holding companies. That switch gave them access to cheap funding from the Federal Reserve.”
So the state is supporting the winners as well as the losers. Reacting to this situation, the right wing historian Niall Ferguson has written a remarkable pamphlet for the Tory Centre for Policy Studies entitled “Too Big to Live: Why we must stamp out state monopoly capitalism”.
Ferguson argues that we are seeing “a belated vindication” of the Austrian Marxist Rudolf Hilferding “whose 1910 book Finance Capital predicted that increasing concentration of financial capital would lead ultimately to crisis, followed by the socialisation of the banking system”.
Hilferding’s analysis was developed further by the Russian Bolshevik leaders Lenin and Nikolai Bukharin, who argued that the process would culminate in what is sometimes called “state monopoly capitalism”.
Ferguson adopts this phrase to describe the current situation, writing, “One of the lessons of the recent-and in my view continuing-financial crisis is that not everything the Marxists said was wrong.”
Ferguson favours a return to free market capitalism. As a step in this direction, he wants governments to give up the idea that some firms-above all, the banks-are “too big to fail”.
But George Bush’s administration tried the policy he recommends when it let Lehman Brothers go bust in September 2008 and the result was the worst economic slump since the 1930s.
The leading capitalist states are trapped. They are terrified that, if they withdraw their support, the slump will return.
But their rescue of the financial system has created an artificial playground for the banks to prosper while everyone else stagnates.
Maybe the Marxists were right about a lot.