Beyond Capital

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Crisis and Credit System – the rise of non-performing assets

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Costas Lapavitsas in his new book, Profiting without Producing (2013) gives an interesting theoretical account of the effects of crisis on the credit economy – the growth in NPAs, bad loans, aggravating the crisis further.

The starting point of Marx’s analysis is trade credit, which is assumed to expand in the course of a boom, creating large volumes of bills of exchange and thereby stretching production and trade. As the boom unfolds, however, banking credit enters strongly into play: banks discount bills of exchange, thus supplying loanable money capital that covers the needs of capitalists for liquid funds. At the later stages of the boom, financial speculation begins to occur on a large scale mostly by creating bills of exchange purely to be discounted by banks. Such bills are often tenuously related, or even completely unrelated to productive activity. The overextension of credit (both trade and banking) contributes to overaccumulation and overproduction, resulting in inventory accumulation and excess supply in commodity markets. Given the difficulty of sales, the expansion begins to unravel and a commercial crisis emerges.

For Marx, the appearance of commercial crisis has a decisive impact on the overextended mechanisms of credit. Inability to sell finished output implies inability to honour maturing bills of exchange on the part of borrowing capitalists. Consequently banks begin to accumulate non-performing assets. As the quality of bank assets falls and the creditworthiness of borrowers declines, banks become reluctant to lend. The restriction of banking credit occurs at a moment when liquid money capital is heavily demanded by functioning capitalists pressed by the difficulty of selling. Gradually banks become reluctant to lend even to each other, with the result that the money market becomes extremely tight and interest rates rise rapidly. That is, an absolute shortage of liquidity begins to emerge.

Faced with a liquidity shortage, capitalists no longer demand money capital to sustain or expand the circuit of productive capital. Rather, they are under pressure to obtain plain money to settle bills and other loans that fall due. Maturing loans would have been incurred during the upswing in the expectation that liquidity would be easily available at the time of settlement from banks, or elsewhere. But the destruction of confidence among banks implies that fresh funds are not forthcoming; the banks (and other participants in the money market) prefer to hoard money. In a liquidity crisis, cash becomes king and promises to pay among private capitalists are devalued. In a remarkable turn of phrase, Marx claimed that in a capitalist crisis there is ‘a sudden transformation of the credit system into monetary system’.

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Written by Pratyush Chandra

July 30, 2015 at 3:31 am

Greenpeace and Finance Capital’s change of heart

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Greenpeace finds the financial sector particularly (among the “for-profit sectors”) very sensitive to its concerns. And they pat themselves for gathering in insurance companies and banks to support their cause. In fact, it all depends on how you talk to these people – these moneywallahs. Mind your language, they will come with you:

“Greenpeace framed discussions about global climate change as a hard-headed matter of risk management rather than only as a soft-hearted matter of protecting fragile ecospheres. With this approach it succeeded in attracting the banking and insurance industry to participate in the negotiations….”

“As Paul Hohnen argues in his case study, Greenpeace was able to achieve a coup in international climate change negotiations by engaging private insurance companies and motivating them to speak out.”

“By bringing in the insurance industry, Greenpeace was able to tip the balance of power within the negotiations by exploiting intrasectoral differences between the fossil fuels industry and the insurance industry.”

For details, browse the following:

http://www.gppi.net/fileadmin/gppi/Hohnen_Greenpeace.pdf
http://www.gppi.net/fileadmin/gppi/Critical_Choices.pdf

Written by Pratyush Chandra

April 30, 2011 at 2:31 am

Financial Meltdown – A Last Resort?

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Finance Capital in general holds the whole economy and public saving to ransom, then why cannot its poor agents kidnap a child for ransom?

2 MBA students held for kidnapping teen
25 Nov 2008, 0341 hrs IST

NEW DELHI: In a shocking fallout of the financial meltdown, two part-time MBA students who had apparently lost heavily on investments in stocks and real estate decided to make good their losses by joining in a plot to kidnap a 15-year-old south Delhi boy. The operation went awry when the mastermind, a cousin of the victim, panicked and dumped him at Okhla from where a passerby brought him home.

Arjun Jhamb Verma, a Class IX student of Gyan Bharati School in Saket, was kidnapped on his way to school on the morning of November 20. By Sunday night, the south Delhi police had arrested the two MBA students along with four others, including the kingpin who is an electronics and real estate dealer. The others include an inter-state extortionist and his accomplice as well as a hair-stylist.

Both MBA students were pursuing their course through correspondence. Police said Piyush Jain (24) had enrolled in IMT Ghaziabad and also dabbled in shares. His close friend Rohit Chopra (24), who is doing an MBA from Ignou, is a property dealer in Gurgaon. He had apparently lost a lot of money due to the slump in prices of flats. Rohit had also invested in the stockmarket at Piyush’s insistence.

Rohit’s father is a general manager at a leading hotel in the capital while Piyush’s father is an established graphic designer with his own setup in Karol Bagh.

Courtesy: TOI

Written by Pratyush Chandra

November 24, 2008 at 10:49 pm

The Financial Crisis – The Crisis of Not Finding Barbarians?

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There is so much anxiety everywhere. Till recently the neoliberal world prospered by spreading insecurity and inculcating the feeling of ‘what comes next’ among the working class. This fragmented the class consciousness and competition thrived. Didn’t our good old Marx and Engels taught us the following?

“In proportion as the bourgeoisie, i.e., capital, is developed, in the same proportion is the proletariat, the modern working class, developed — a class of labourers, who live only so long as they find work, and who find work only so long as their labour increases capital. These labourers, who must sell themselves piecemeal, are a commodity, like every other article of commerce, and are consequently exposed to all the vicissitudes of competition, to all the fluctuations of the market…[T]he “organisation of the proletarians into a class, and, consequently into a political party, is continually being upset again by the competition between the workers themselves… The essential conditions for the existence and for the sway of the bourgeois class is the formation and augmentation of capital; the condition for capital is wage-labour. Wage-labour rests exclusively on competition between the labourers.”

But Marx understood that competition among workers is essentially a representation of competition among capitalists. There is a theory of displacing crisis, anxiety etc, that gives a patient reason to survive. In economic theory it is called the theory of external markets. Capital and capitalists thrive only by externalising/selling/’exporting’ commodities, crisis etc, to labour and other nations (or capitalists)… Rosa Luxemburg stressed on this aspect in her understanding of imperialism. The crisis period is that period in the political economic life of capitalism, when this export meets with obstinate hurdles.

Economists tell us that the present crisis is due to an unrestrained financialisation that the neoliberal globalisation has triggered. But then, hasn’t this radical financialisation diminished every external space? As soon as externality is posed, we find it accommodated and submitted to the larger global structure. Then in the above perspective, this is the crisis and the reason for anxiety! For the time being, there is no place to ‘export’ crisis – this is the biggest crisis!

More than a hundred years ago, a prominent Greek poet C.P. Cavafy wrote the following which clearly presents what is happening today – a crisis of not finding barbarians!

– Why should this anxiety and confusion
suddenly begin. (How serious faces have become.)
Why have the streets and squares emptied so quickly,
and why has everyone returned home so pensive?

Because night’s fallen and the barbarians have not arrived.
And some came from the border
and they say the barbarians no longer exist.

Now what will become of us without barbarians?
Those people were some kind of solution.

(‘Waiting for the barbarians’ in The Collected Poems of C.P. Cavafy, Translated by Aliki Barnstone, WW Norton & Company (2006), p 29)

Written by Pratyush Chandra

November 18, 2008 at 4:04 am

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