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	Workers Vanguard No. 963	27 August 2010

Liberals Push Regulation Hoax

Economic Crisis and the Capitalist State

Break with the Democrats!

For a Workers Party That Fights for a Workers Government!

Part Two

Part One of this article, which we conclude below, appeared in WV No. 961 (2 July).

President Barack Obama hailed the financial regulation bill passed by Congress last month as promising “greater economic security to families” by ensuring a “safer financial system” that is “far less prone to panic and collapse.” Talk of “economic security” rings pretty hollow when some 26 million people in this country are out of work or forced to accept part-time work, and the number of long-term unemployed is at a record level. The White House has also been loudly trumpeting the “success” of the multibillion-dollar government bailouts of GM and Chrysler. These deals were certainly successful for the auto bosses: the pro-capitalist leadership of the United Auto Workers capitulated to the bailout’s condition that new workers get only half the wages made by the existing workforce. This measure massively increases the rate of exploitation of auto workers and strikes a direct blow at what was once the country’s most powerful industrial union. Meanwhile, budget-slashing state and local governments have eliminated 102,000 jobs in the last three months.

Working people are being made to pay for the economic crisis that was triggered by wanton capitalist speculation. Nearly 528,000 homes were seized by banks and other lenders in the first six months of this year, a rate that is on track to eclipse the 900,000 homes repossessed last year. A report by the Department of Agriculture last fall stated that almost 25 percent of children in the U.S. suffer from “food insecurity”—they either go hungry or eat unhealthy food because that is all their families can afford.

The banking “reform” increases the number of financial regulatory agencies and widens their jurisdiction. But neither this law nor the measures being implemented by European capitalist governments will head off future financial crises. Recurrent economic crises are a consequence of the fundamental workings of the capitalist system of production for profit, not accidental occurrences caused by insufficient regulation. What happened on Wall Street in the fall of 2008 was substantially similar in its basic dynamic to what happened in the London stock exchange in 1720 when a speculative bubble involving shares of the South Seas Company burst, touching off an enormous banking crisis.

Wall Street is hardly crying over the “reform.” The law does not even set a minimum requirement of how much capital banks must hold compared to how much they lend out—the so-called “leverage ratio.” The firms whose collapse triggered the financial crisis were in some cases leveraged up to 40-to-1—about eight times the corresponding ratio for most hedge funds, which are notorious for engaging in speculation. The new law will likely require that currency and interest-rate swaps be bought and sold on public exchanges, supposedly to introduce more market stability. But trading of more exotic and risky derivatives, like the credit-default swaps that played a major role in the economic crisis, will largely remain in the shadows.

The push to pass legislation increasing regulation of the financial industry goes back to last December, when popular anger exploded over reports that Wall Street executives had allotted themselves some $30 billion in year-end bonuses. Lashing out at “fat cat bankers,” Obama embraced the regulatory proposals of former Federal Reserve chairman Paul Volcker, who has campaigned against increased financial concentration and risk-taking by the biggest banks. While Volcker is today widely hailed by Democrats, he gained his political authority in the Republican Reagan administration in the early 1980s, when he slashed runaway inflation by tightening the money supply, deliberately provoking a sharp economic downturn.

What Obama called the “Volcker rule” would prohibit commercial banks from owning hedge funds and from engaging in “proprietary trading”—that is, trading on financial markets with the banks’ own money as opposed to seeking commissions from trades. But the law’s formal restrictions on proprietary trading will have little concrete impact given the difficulty of singling out such trades. Goldman Sachs recently reported an almost $2 billion quarterly loss by its equity trading desk. How would regulators decide if those stock market bets should be considered speculation with Goldman’s own funds or a response to customer demand?

Financiers will always find ways to circumvent limits on speculation. To get around restrictions on owning hedge funds, former investment banks such as Goldman Sachs and Morgan Stanley could simply give up their federal bank charters, which they acquired in late 2008 in order to qualify for low-interest loans from the Federal Reserve.

Violent and acute crises, often triggered by financial panics and followed by prolonged depressions, have been endemic to the capitalist system from its very beginning. In the Communist Manifesto (1848), Karl Marx and Friedrich Engels pointed to “the commercial crises that by their periodic return put the existence of the entire bourgeois society on trial, each time more threateningly.” The current crisis—the deepest since the Great Depression of the 1930s—was in good part prepared by the bursting of the bubble of investment in computer and telecommunications stocks less than a decade ago, which touched off a recession. Following that collapse, speculative investment increasingly shifted to the housing market, fueling that bubble. (For a development of the Marxist understanding of capitalist economic crises, see the 2009 Spartacist pamphlet, Karl Marx Was Right—Capitalist Anarchy and the Immiseration of the Working Class.)

The bursting of the dot-com and housing bubbles and the crises they generated were direct products of the capitalist system of production for profit. Capitalists invest in expanding productive capacity on the assumption that the additional output—autos, houses, Internet services, etc.—can be sold at the existing rate of profit, at least. However, during periods of expansion the average rate of profit tends to fall. Even if productivity rises and wages do not, increased profit per worker does not offset increased capital per worker. This situation eventually creates a crisis of overproduction, as capitalists produce more goods and services than can be sold at a satisfactory rate of profit. Marx explained in Capital (Volume III):

“There are not too many necessities of life produced, in proportion to the existing population. Quite the reverse. Too little is produced to decently and humanely satisfy the wants of the great mass….

“Too many means of labour and necessities of life are produced at times to permit of their serving as means for the exploitation of labourers at a certain rate of profit.”

Marx and Engels explained that the only way to end the boom-bust cycles inherent to capitalism is for the working class to take control of the means of production through socialist revolution and institute a planned, collectivized economy.

The Threatening Debt Crisis

Last year, the International Monetary Fund (IMF) estimated that the combined cost of bailing out the world financial system had reached almost $12 trillion, equivalent to about one-fifth of the annual economic output of the entire planet. As a result of governments around the world injecting capital into banks, soaking up bad investments and guaranteeing problem loans, there has been a massive transfer of debt from the private to the public sector. The IMF recently projected that within four years the amount of government debt in the advanced capitalist countries will reach 110 percent of their collective GDP. This has nervous investors pondering which governments may prove unable to bear the burden.

For now, the U.S. Treasury continues to find takers for government securities at historically low interest rates. But this cannot last indefinitely. Early last year, we wrote in “Obama: CEO of Bankrupt American Capitalism” (WV No. 930, 13 February 2009):

“How much more can the U.S. government borrow before its creditors conclude that Washington is so overburdened with debt that it is no longer a reliable client? Most Keynesian economists—and the Obama administration—apparently think the answer to that question is: More, much more. They point to the fact that U.S. Treasuries continue to be seen as a ‘risk-free’ investment, allowing the U.S. government to borrow at almost zero interest....

“More fundamentally, the dollar continues to be the major reserve currency throughout the capitalist world and also for China. Foreign capitalist powers and the Chinese Stalinist bureaucracy are inhibited from a major sell-off of dollars because this would lead to a rapid devaluation of their own financial reserves. Nonetheless, what was an unstable situation before the current crisis has become much more so.”

A prominent Keynesian standard-bearer is liberal economist Paul Krugman, who has campaigned for greatly increased deficit spending, arguing that any adverse consequences are necessarily far in the future. In his 5 February New York Times column, Krugman wrote: “The long-run budget outlook is problematic, but short-term deficits aren’t—and even the long-term outlook is much less frightening than the public is being led to believe.... If anything, deficits should be bigger than they are because the government should be doing more than it is to create jobs.”

Echoing Krugman’s call for government intervention to save capitalism from itself is the reformist International Socialist Organization (ISO). As Congress was preparing to pass Obama’s “stimulus” package shortly after his inauguration, the ISO’s Socialist Worker (24 February 2009) editorialized that Obama was “absolutely correct to say, as Congress considered the legislation: ‘At this particular moment, with the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back into life. It is only government that can break the vicious cycle where lost jobs lead to people spending less money, which leads to even more layoffs.’ But to have that effect, government spending will have to be much greater.”

The liberal Krugman and the social democrats of the ISO treat deficit spending as if it is a costless way to finance social programs beneficial to working people, a kind of free lunch. However, the owners of money capital do not purchase U.S. Treasury bonds out of largesse but in order to increase their wealth through a future stream of interest payments. The larger the government debt relative to total output, the larger the share of total income that goes to the propertied class in the form of interest, a kind of welfare for the rich. A study by the Congressional Budget Office (CBO) indicated:

“With such a large increase in debt, plus an expected increase in interest rates as the economic recovery strengthens, interest payments on the debt are poised to skyrocket. CBO projects that the government’s annual spending on net interest will more than triple between 2010 and 2020 in nominal terms, from $207 billion to $723 billion, and will more than double as a share of GDP, from 1.4 percent to 3.2 percent.”

—The Budget and Economic Outlook: Fiscal Years 2010 to 2020 (January 2010)

While some sections of the ruling class push deficit spending, others worry that increased government debt will cause a sharp rise in inflation and thus erode the real market value of their bond holdings as well as the interest they derive from them.

Krugman concedes that U.S. debt levels are high and rising but, citing Greece’s public debt of 113 percent of GDP, argues that “other countries have dealt with similar levels of debt without crisis” (New York Times, 9 April). Just one month after that was written, Greece’s debt woes came within a hair’s breadth of triggering a Europe-wide financial meltdown.

The instability of the capitalist financial system is such that much lower debt levels than Greece’s today have often sufficed to set off catastrophic debt crises. A recent book by former IMF economists Carmen Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (2009), shows that of the more than 30 sovereign defaults by “middle-income” countries between 1970 and 2008, more than half occurred at debt levels of less than 60 percent of GDP.

Myths of Financial Regulation

Liberal economist John Kenneth Galbraith, in his classic history of the stock market crash of 1929, bemoaned what he saw as Wall Street’s irrational refusal to rein in speculative financial booms before they went bust, going so far as to declare: “Here, at least equally with communism, lies the threat to capitalism” (The Great Crash, 1929 [1997]). Galbraith’s history shows that government regulators in the lead-up to the crash did not even try to dampen the speculative frenzy. As long as the bubble continued, it was fabulously profitable for the capitalists. And besides, who would want to take the blame for touching off a collapse?

Under the impact of the Great Depression, Congress passed a precursor of the “Volcker rule,” the 1933 Glass-Steagall Act, which prohibited commercial banks from trading in stocks and bonds. An enduring myth is that Glass-Steagall provided a backstop against financial crises and that its 1999 repeal under the Clinton administration is to blame for the current recession. Glass-Steagall’s formal prohibition on securities dealings did not prevent banks from starting in the mid 1980s to “securitize” their loans (pooling them and issuing securities based on the pool). This was a way for the banks to get the loans off their balance sheets and thus circumvent capital reserve requirements, freeing them to make new loans. Alan Greenspan, who as Fed chairman from 1987 to 2006 was Washington’s regulator-in-chief, hailed such “innovation” for supposedly reducing financial instability by spreading risk among many investors.

In the years preceding the current crisis, debt-securitization markets were the source of 60 percent of all credit in the U.S. After investors lost huge sums on pools of subprime mortgages, entire swaths of the so-called “shadow banking system” collapsed. Now the Fed is virtually the only buyer of mortgage-backed securities—the sector of the securitization market that in the U.S. dwarfs all others—with holdings totaling over $1.1 trillion.

Krugman has been a persistent champion of extending federal supervision to the “shadow banking system”—hedge funds, private equity funds and the like. Yet in the lead-up to the current crisis, federal regulators were complicit in using this very system to conceal bankers’ speculative risk-taking. As Lehman Brothers hurtled toward collapse in September 2008, regulators from both the Federal Reserve Bank of New York and the Securities and Exchange Commission turned a blind eye as executives window-dressed their accounts to hide their dangerously high level of debt. The New York Fed under Timothy Geithner, now Obama’s Treasury secretary, further helped Lehman artificially bolster its balance sheet by temporarily holding billions of dollars in “toxic” assets.

Krugman’s answer to such behavior was that Congress needed to enact “rules that would force action even by regulators who don’t especially want to do their jobs” (New York Times, 5 April). The liberal Krugman sees the government as an impartial arbiter, ultimately serving the common good (with the possible exception of some recalcitrant regulators, who need to be read the riot act). In contrast, Marxists understand that the capitalist government serves as the executive committee of the bourgeoisie as a whole, defending its class rule by employing the armed might of the state—police, army, courts and prisons—against the workers and the oppressed.

A key element in ensuring the stability of the capitalist order is the belief by the working class that the system’s most clearly destructive features such as mass unemployment can be eliminated through reforms. In the absence of a mass reformist workers party in this country, the Democratic Party is offered as the vehicle through which the capitalist state can be pressured to serve the interests of the working class and oppressed.

This false consciousness is promoted not only by the pro-capitalist labor bureaucracy but also by the reformist left. Virtually every liberal and reformist organization openly or tacitly supported Obama’s election as a harbinger of “change.” Now, after the bailout of the banks and auto companies, the escalation of the murderous occupation of Afghanistan, the stepping up of repression as part of the “war on terror,” Obama’s “leftist” cheerleaders appear to be curbing their enthusiasm. A 27 January Socialist Worker editorial lamented:

“Obama had the opportunity to change the direction of U.S. politics and society—and the popularity to accomplish it. Even those on the left, like us at Socialist Worker, who were skeptical of Obama’s promises concluded that the multiple crises facing the White House would compel the president to move away from the free-market, neoliberal policies that characterized not only Bush, but the Clinton administration before him....

“On the contrary, instead of using economic policies to counteract the worst mass unemployment since the 1930s, Obama rushed to aid the banks.”

Nothing other was to be expected from Obama and his claque of Wall Street advisers and operatives. But for the ISO, Obama turned out to be a “disappointment” because “the biggest forces in the Democratic Party’s base have completely failed to hold Obama’s feet to the fire.” In other words, the trade-union tops and other big players in the Democratic Party failed to exert sufficient pressure. The ISO sees its task, as always, as building a “grassroots” movement to pressure Washington, this time based on “the growing anger with the Obama administration among precisely those who supported it most enthusiastically.”

The shell game through which the Democrats are sold as the “friend” of labor and blacks has been central to preserving the rule of racist American capitalism. Breaking the allegiance of labor, blacks and the oppressed to the Democratic Party is key to transforming the working class from a class in itself—the object of capitalist exploitation—to a class for itself—conscious of its revolutionary purpose as the agency for the eradication of the capitalist order. This task is integral to building a workers party that will lead all the exploited and the oppressed in the fight for a workers government.

China’s Growth Amid World Recession

At home with American bourgeois liberals, the ISO denounces the Chinese bureaucratically deformed workers state (as well as those of North Korea, Cuba and Vietnam) as a “state capitalist” society. This is but a “theoretical” cover for the ISO’s treacherous support to capitalist counterrevolutionary forces parading under the banners of bourgeois “democracy” and “human rights.”

Despite the inroads of “market reforms,” the core of China’s industrial economy—steel and non-ferrous metals, heavy electrical equipment, telecommunications, oil extraction and refining—continues to be based on state-owned enterprises. Outside of the foreign-owned sector, almost all productive investment is channeled through predominantly state-owned banks.

The non-capitalist character of China’s economy has been clearly demonstrated by the striking effectiveness of the government’s almost $600 billion stimulus program—mainly investment in infrastructure and expanding bank lending—introduced in the fall of 2008 as the First World capitalist economies were plunging downward. The sudden collapse of its export markets in North America and West Europe was a heavy blow to China’s economy, whose rate of growth fell from 13 percent in 2007 to under 7 percent in the last quarter of 2008. Since then, however, economic growth has accelerated, reaching almost 12 percent in the first quarter of this year before slacking off somewhat in the second quarter.

As Part One of this article stated, we stand for the unconditional military defense of China against imperialism and internal capitalist counterrevolutionary forces. At the same time, we fight for proletarian political revolution to oust the nationalist Stalinist bureaucracy and place power in the hands of workers and peasants councils committed to the struggle for a world socialist order. If the proletariat of the capitalist world is to advance its struggles against the rapacious exploiters, it must embrace the fight to defend the remaining deformed workers states, and the social gains embodied in them, against the common class enemy.

Europe in the Global Capitalist Crisis

Like the financial crisis that was sparked by the unraveling of the U.S. subprime mortgage sector, the crisis that shook the European Union (EU) this spring originated in a relatively tiny segment of the global economy: Greece. In both cases, the effect of the financial collapse at the origin of the crisis was magnified many times over by the unbridled extension of bad loans and speculative investments.

Though Greece represents a mere 2 percent of European gross domestic product (GDP), fear that its government might default on its debt generated global shock waves because it raised the prospect of default by economically stronger EU countries, such as Spain. Some $2.6 trillion of public and private debt from Greece, Spain and Portugal is held by financial institutions outside those countries, with French and German banks particularly exposed. Accounting for two-thirds of that debt, Spain has been mired in recession, with an unemployment rate of 20 percent, one of the highest in the EU. The EU’s current travails were foreshadowed by crises that broke out in Central and East Europe last year, when Hungary, Ukraine, Latvia, Serbia, Belarus and Romania all needed bailouts from the IMF and EU to avert defaults.

Big-time investors and government officials fear that as the debt of countries along Europe’s southern tier loses value, which could happen suddenly and massively in the event of a default on government bonds, banks across Europe could be saddled with crippling losses. Such fears came to a head in early May as the value of sovereign bonds of the most vulnerable European countries plunged. As happened in the U.S. following the collapse of Lehman Brothers in 2008, short-term credit markets began to freeze up. The German government, having for months rejected pressures from France and other European countries to agree to a bailout plan, suddenly relented. On May 10, after working frantically into the early morning hours to hammer out an agreement before the financial markets opened, officials announced an almost $1 trillion loan package by the EU and IMF to help the Greek and other troubled EU governments avoid default.

At bottom, the EU rescue package is—no less than Washington’s bank bailout—a case of bourgeois governments using taxpayers’ money to line the pockets of financial capitalists. As part of the rescue plan, the European Central Bank (ECB) committed to buying Greek bonds held by European banks; to date, the ECB has moved almost $80 billion worth of shaky sovereign debt off the banks’ balance sheets and onto its own. Karl Otto Pöhl, former head of the German central bank, let the cat out of the bag when he declared that the bailout “was about protecting German banks, but especially the French banks, from debt write offs” (Spiegel online, 18 May).

With the ECB/IMF rescue plan, the European bourgeoisies are buying time, but at the expense of deepening contradictions that are inherent in the capitalist system. Across Europe, governments are seeking to head off debt crises through savage austerity measures, such as cutting the pay of public sector workers, reducing pensions and raising taxes. In Britain, Conservative prime minister David Cameron has launched an austerity drive that, if implemented, would slash some 600,000 public sector jobs.

These attacks have not gone unanswered by the working class, as we pointed out in Part One of this article. Following a spate of massive strikes that caused one-day shutdowns in a number of European countries, a “European day of action” has been called for September 29, including a one-day general strike in Spain. Nevertheless, Europe’s capitalist rulers show no signs of relenting. Yet slashing state expenditure and private consumption in countries already reeling from an economic slowdown risks provoking sharp recession. This would further undermine the ability of those countries to pay off their debts, ultimately increasing the threat of a full-blown financial crisis.

The EU and Deepening Interimperialist Rivalries

The debt crisis in Europe points up the contradiction that has existed since the 1979 creation of the European Monetary System, which required that member countries keep their currency exchange rates within a narrow band relative to other European currencies. That system included countries that were historically inflation-prone and whose currencies had persistently depreciated, such as Greece, as well as others—above all, Germany—that had strong, persistently appreciating currencies.

The establishment of the European Monetary Union (EMU) in 1999 created a single currency, the euro, for most of western and southern Europe (Britain being the main exception). In this set-up, one monetary policy was deemed applicable to all, with control of the Eurozone’s money supply in the hands of the ECB. If Greece were still using the drachma, its old national currency, it would likely try to get out from under its debt load by pursuing inflationary measures combined with currency devaluation, reducing the world market price of its exports and providing a boost to its main industry, tourism. Instead, the Greek bourgeoisie is seeking to pay off the country’s entire debt by extracting real wealth from the working class and other toilers.

The euro crisis is an expression of the fact that, beginning in the late 19th century, the productive forces of capitalism outgrew the limits of the bourgeois nation-state. This is a fundamental feature of imperialism, the most advanced stage of capitalist development, in which a handful of advanced countries compete globally for control of markets, raw materials and access to cheap labor. As Bolshevik leader V.I. Lenin explained in his classic 1916 work, Imperialism, the Highest Stage of Capitalism, imperialism is characterized by the growth of monopolies and the consolidation of giant financial institutions “having at their command almost the whole of the money capital of all the capitalists and small businessmen and also the larger part of the means of production and sources of raw materials.”

Sharp tensions among the imperialist powers emerged at the June G20 summit meeting in Toronto ostensibly over how to address the economic crisis, but at bottom reflecting deeper conflicts. German chancellor Angela Merkel roundly rebuffed Obama’s call, supported by French president Nicolas Sarkozy, that Germany come to the aid of manufacturers internationally by increasing government spending, stimulating private consumption and relying less on exports. Merkel countered that she had no intention of “artificially reducing Germany’s competitiveness,” while her finance minister took aim at (unnamed) countries that had “become addicted to borrowing.”

Obama promised in his January State of the Union address to create two million jobs in the U.S. by doubling exports over the next five years. In a world economy that is stagnant at best, a significant increase in exports can be achieved only at the expense of the American bourgeoisie’s competitors. While the U.S. ran a trade deficit of almost $375 billion last year, the German export powerhouse had a $185 billion surplus. What made the German bourgeoisie the number one capitalist exporter was its success in driving down workers’ wages. Unit labor costs in Germany fell an average of 1.4 percent per year between 2000 and 2008, twice the rate of decline in the U.S. That enormous increase in the rate of exploitation was the fruit of measures pushed through, with the active support of the trade-union bureaucracy, by the Social Democratic Party/Green coalition that governed Germany from 1998 to 2005 (see “Financial Crisis Rocks Imperialist EU,” WV No. 960, 4 June).

The European Union is in its central axis a bloc between the German and French ruling classes to pursue their economic interests vis-à-vis their powerful American imperialist rival on the one side and the smaller and weaker European states on the other. The ruling classes of the economically weaker players that joined the European Monetary Union committed to accepting the discipline laid out in the 1992 Treaty of Maastricht (e.g., limits on budget deficits) because they benefited from the cheaper loans, larger inflows of capital and freer trade within Europe that the euro brought with it. But, as the current economic crisis has revealed, while EU/EMU member states are nominally partners, they are also, like all capitalist countries, in competition with each other. Today, the rulers of countries like Greece, Spain and Portugal discover that, if they are to close their gaping balance of payments deficits, they must compete head-to-head with the German export juggernaut. Fat chance!

Paul Krugman thinks he has a solution, one that is also embraced by a number of European social democrats. According to Krugman, “to make the euro work, Europe needs to move much further toward political union, so that European nations start to function more like American states” (New York Times, 15 February). We long ago debunked the illusion that the EU could lay the basis for a capitalist United States of Europe, writing in a statement by the International Communist League:

“Since capitalism is organised on the basis of particular national states, itself the cause of repeated imperialist wars to redivide the world, it is impossible to cohere a stable pan-European bourgeois state. A European imperialist ‘superstate’ can only be achieved by the methods of Adolf Hitler, not those of Jacques Delors, the French social-democratic architect of Maastricht.”

—“For a Workers Europe—For Socialist Revolution!” WV No. 670, 13 June 1997

As Marxists, we oppose the European Union, an imperialist trade bloc and a vehicle for European capitalist classes to cooperate against the working class and oppressed minorities of each country. Our opposition is based on proletarian internationalism and is counterposed to the nationalist protectionism pushed by the reformist leaders of the working class. As our 1997 statement declared:

“In the Communist Manifesto of 1848, Marx and Engels noted that the capitalist system had created a world market, laying the basis for proletarian internationalism. Only the taking of state power by the working class, and the establishment of the dictatorship of the proletariat in at least several advanced industrial countries, can achieve a rationally planned economy, placing the productive capacity of Europe at the service of the working people of the world. Only on this basis can we speak of a Socialist United States of Europe.”

Expropriate the Expropriators!

Massive government intervention into the economy has done nothing to resolve the underlying debt crisis, which threatens to erupt anew in myriad ways. Banks have still not accounted for a lot of bad debt, including from those mortgage-backed securities that have not been taken over by the government. A number of “zombie” banks are technically insolvent but have been kept alive by government support. Now banks face a further tidal wave of losses as new categories of bad debt come to the fore—such as commercial real estate loans, to which regional banks are particularly exposed. And such losses could well be dwarfed by the chain reaction set off by a default (even if partial) by Greece or other debt-ridden countries.

Last year Krugman proposed that a way to reinforce the financial system was to “temporarily nationalize the most troubled banks” in order to give them “a large injection of capital from taxpayers” before returning them to private ownership (New York Times, 19 October 2009). The ISO also called to nationalize the banks, proclaiming, moreover, that this would be “an important step on the road to socialism.” The ISO’s Fred Moseley wrote in International Socialist Review (March-April 2009):

“When a financial crisis threatens, or begins, there seem to be only two options: bail out the financial capitalists in some way or suffer a more severe financial crisis....

“The only way to avoid this cruel dilemma is to make the economy less dependent on financial capitalists. And the only way to accomplish this greater independence from financial capitalists is for the government itself to become the main provider of credit in the economy, especially for home mortgages, and perhaps also for consumer loans, and maybe even eventually for business loans. In other words, finance should be nationalized and operated by the government in the interest of public policy objectives.”

Make the economy less dependent on financial capitalists by turning the banks over to the likes of Timothy Geithner? In Italy, the fact that the bulk of the banking system was nationalized in the 1930s and remained largely government-owned until well into the 1990s did nothing to prevent extravagant risk-taking by financial capitalists. In the early ’90s, a severe financial crisis caused by a wave of bad loans brought down dozens of Italian banks, which together accounted for fully 11 percent of the country’s lending.

The ISO’s schema closely parallels that put forward by French Socialists under François Mitterrand, who came to power in 1981 in a popular-front coalition with the Communist Party and the bourgeois Left Radicals. Promising a “great peaceful revolution,” in 1982 the Mitterrand government took over 100 percent of the capital of all the large private banks—a total of 36—as well as of a number of industrial groups, giving the government direct control over about 50 percent of the country’s industrial investment and virtually all credit. Within a year, as France struggled through the global economic downturn, the Mitterrand government launched an austerity program including a wage freeze, cuts in social programs and mass layoffs. An academic history of those years concluded: “Nationalisation enabled French industry to modernize and restructure in a blunt, indeed brutal manner. The success of the 1982 nationalisation programme was confirmed by the popularity of these firms when privatised by the 1986-88 government of Jacques Chirac,” the right-wing premier at the time (Alistair Cole, François Mitterrand: A Study in Political Leadership [1994]).

In the 1938 Transitional Program, the founding document of the Fourth International, written in the midst of the Great Depression, Bolshevik leader Leon Trotsky wrote: “Only the expropriation of the private banks and the concentration of the entire credit system in the hands of the state will provide the latter with the necessary actual, i.e., material resources—and not merely paper and bureaucratic resources—for economic planning.” Trotsky insisted that “the state-ization of the banks will produce these favorable results only if the state power itself passes completely from the hands of the exploiters into the hands of the toilers.”

Achieving that task—the conquest of state power by the proletariat—requires a social revolution. The necessary instrument to lead such a struggle to victory is a vanguard party of the proletariat modeled on the Bolshevik Party of Lenin and Trotsky. Through intervening into class and social struggle and fighting for the Marxist worldview, the International Communist League seeks to provide that instrument through the reforging of the Fourth International, world party of socialist revolution.