En lisant (1)

Nouriel Roubini and Stephen Mihm (2010), Crisis Economics, New York: Penguin Press.

tl;dr: The reasons given by Roubini and Mihm for the 2007-2010 crisis, culminating in their advice to create incentives for financial market actors to behave less recklessly, are insufficient. I argue that the heart of capitalism itself is identical to the mechanism leading to the crisis, and that, consequently, capitalism itself should be questioned as a result of the crisis.


The specific forms of economic crises known as asset bubbles, as Roubini and Mihm emphasize, have been born at the same time and in the same place as capitalism itself: the Netherlands in the seventeenth century (20). They are “white swans” (19), frequently occurring and structurally alike, though based on different assets, with different triggers and different outcomes. The damage they inflict on economies, people and countries is similar every time (15) – where it is not, or not as widespread, the damage is simply deferred to a later time (31, 156) Finally, their long-term consequences are frequently more disastrous than even the crisis itself (15, 305).

It is, no doubt, tempting – as well as partially true – to put blame where it seems to belong: towards “Wall Street’s unbridled lust for money [which] had wrecked the entire financial system” (31). This strategy is morally understandable and may conceivably be politically feasible – after all, it was the American Occupy Wall Street-movement that was able to trigger, at least for a short amount of time, a globally orchestrated protest against financial actors that seem to be structurally invincible because they are too big to fail (229). (The German version of Occupy Wall Street – the tents of which, at the time of writing this, still stand in front of the ECB building in Frankfurt am Main – drew conclusions from this which are, in my opinion, unfortunately much more dangerous a cure than the sickness could ever be – e.g., a return to the gold standard.)

Roubini and Mihm are right, however, in pointing out the fallacy of such moral blame: “what made a difference [in the 2007 crisis as compared to earlier ones, S.E.] was not the magnitude of greed” (32). Rather, they outline three interconnected, but analytically distinct reasons for the magnitude and impact of the 2007-2009 crisis:

a) “new structures of incentives and compensation” (32), viz., the bonus system, separating payments to investment banking managers from the impact of their actions (187), as well as further moral hazard made possible by Federal Reserve policies (136);

b) a “particularly opaque and impenetrable” (32) financial system filled with assets unknown to even the actors themselves, leading to both panicked short-term selling activities crushing stock market values (19) and the following lack of liquidity based on banks’ fears of lending money to actors they
cannot be sure about (19, 97);

c) the world-wide simultaneous growth of unhealthy economic bubbles (overpriced financial assets) in more economies than just the United States’ (127), particularly sustained by central banks’ issuance of cheap money (e.g., by low interest rates following the 2001 events in the United States) between the so-called dotcom-bubble of 2000, and the housing crisis of 2007/2008 (268).

On a continuum of possible explanations – and hence policy recommendations – for an economic crisis, these fall almost completely on the side of structural reasons, inciting, but not determining the behavior of market actors. Thus, a moral question remains. The first reason, for example, namely structures of incentives, while politically attributable to a lack of oversight (in turn magnified by governmental structures [215] as well as financial actors’ influence in regulatory bodies [216]), creates an environment in which financial actors are encouraged or even forced to take excessive short-term risks – but there is still an option to remain on a more prudent course. (In Europe, the policies of banks like Santander or Germany’s Sparkassen may serve as cases in point.) One could thus be led to think that a moral problem like this can be solved by a different type of education, or other means of making actors more sensible to their environment.

Furthermore, one could thus be led to think – as Roubini and Mihm confidently assert at the very end of their policy recommendations (310) – that structural problems can be alleviated, if not contained completely. Thus, if incentive structures, oversight, and transparency issues could be sorted out, subsequent crises might, at least conceivably, be or lesser magnitude, and might have less disastrous consequences. Managing crises becomes, then, a question of global governance (261 sqq.), a question of negotiation and synchronization between political actors regulating financial actors.

It seems to me, however, that the decisive question – or challenge – such endeavours of global governance face, is more fundamental, and neither structural nor actor-based in the senses outlined above. Rather, it concerns an acceleration of the very movement which lies at the heart of capital itself, as it further approaches its perfected form in light-speed finance capital (120; cf. Castells 2010: XX). In other words, it seems to me that one must emphasize the co-originarity of capitalism and crisis more than Roubini and Mihm do.

According to Marx’ analysis, at the core of capitalism lies a movement which plays itself out and actualizes itself in structures and actors, but is itself independent of these concrete forms it takes. This movement is the operation of capital: value, as it constantly engenders surplus value, the concrete form of which is irrelevant, because its only function is to engender more subsequent surplus value (Marx 1857/1993: 313). Since the creation of finite amounts of value is an irrelevant by-product of the movement of capital, capital constantly tries to approach the creation of infinite surplus value, and is constrained only by its concrete environments and their structural rigidities (ibid.: 334). These rigidities, in turn, are merely barriers to capital, to be overcome as soon as possible (ibid).

Accordingly, finance capital is the most perfected form of capital – its fastest and least friction-laden way of realizing surplus-value. Its movement is constantly accelerated, as more and more goods become intangible (or, in Marx’ diction, ideal), and can thus be turned over at faster speed. The innovative force of finance capital, which Roubini and Mihm emphasize (66), consists in its ability to create more and more intangible goods, based solely on each other (an almost awe-inspiring example of this is certainly the series culminating in the CDO³ [67]) and thus completely removed from tangible (in Marx’ diction, material) economic realities.

This movement of capital towards its perfected form, in turn, is only completed when the material assets on which all other financial assets are based – in the case of the 2007 crisis, houses – themselves become ideal entities.2 First, houses, bought with credit forwarded by banks, become collaterals to borrowing more credit from these very banks (18). They are, in a sense, reinjected into the financial system that, through the original credit, made their purchase possible in the first place. Second, however, and much more importantly, the operation creating “mortgage-backed securities” (63), in essence, reduces houses (or whatever material asset is at the heart of a crisis) to simulacra of themselves in a Baudrillardian sense: as mortgages are pooled to create new bonds off them, the liquidity of an asset (that is, the ability of a homeowner to pay off their credit) is transformed into an ideal commodity – trust on the part of the buyer of the mortgage-backed security – almost completely unrelated to the original homeowner, and the original credit transaction. It is this trust, in turn – and not its material basis – which spawns the admirable yet toxic edifice of securitization (193). The secret to the financialization of capital, then, is the erasure of the incommensurability between material and ideal, tangible and intangible goods; in short, between use-value and exchange-value.

Asset crises can thus be interpreted as instances in which the attempt of capital to create infinite amounts of surplus-value is disrupted by a failure of its basic mechanism: the operation which cuts off the material basis of securitization, and transforms finance capital into a completely independent, ideal flow. As the fundamental commodity exchanged in finance markets – trust in the convertibility of ideal assets into material assets, or revenue derived from material assets – crumbles, the economy at large is scaled back to its material operations.

The obvious remedy for assets crises, then, would be to simply strip capital (or banks, or homeowners, or…) of its ability to cut off the ideal flow from its material basis.

Unfortunately, it seems to me that this would mean attempting something politically impossible: for this operation of idealization lies at the core of the capitalist economy. What is money – or, indeed, any reified form of value – but an idealization based on the very same fundamental operation outlined above: the erasure of the difference between use-value and exchange-value, and the recreation of the former as the necessary outside of the latter (Baudrillard 1981: 130)? In other words, what is it but the actualization of trust in the convertibility of exchange-value into use-value? In yet other words: every time money is exchanged for tangible goods – more generally, every time an ideal commodity is actualized by purchasing a material commodity – the capitalist operation collapses. In this sense, the mechanism of an asset crisis is precisely the same mechanism actualized by a simple transaction of money for material goods: the end of capitalism, in both senses of the word.

Any attempt to solve the problem of crisis economics, to prevent crises from happening again, would therefore have to take into account that the global economic system currently in place is identical to its crises. This would imply that the form of governance required to “solve” this problem would have to be sharply different from any of those currently attempted.

Works cited:
Roubini and Mihm, see above, page numbers in brackets.
Baudrillard, Jean (1981): For a Critique of the Political Economy of the Sign. New York: Telos Press.
Castells, Manuel (2010): The Rise of the Network Society. Malden, MA: Blackwell Publishing.
Marx, Karl (1857, 1993): Grundrisse. London: Penguin Books.
Weber, Max (1927): General Economic History. London: George Allen & Unwin Ltd.

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