marazzi - the violence of financial capitalism (2010)

THE BECOMING OF THE CRISIS Before interpreting the crisis of financial capitalism, it may be useful to summarize some facts about themacro-economic and global financial situation thathas

©2010 by Edizioni Casagrande, Bellinzona, Switzerland. Financial Capitalism

Christian Marazzi

The Violence of

SEMIOTEXT(E) INTERVENTION SERIES

All rights reserved No part of this book may be reproduced,

stored in a retrieval system, or transmitted by any means,

elec-tronic, mechanical, photocopying, recording, or otherwise,

without prior permission of the publisher.

Published by Semiotext(e)

2007 Wilshire Blvd., Suite 427, Los Angeles, CA 90057

WWW.semiotexte.com

Thanks to Erik Morse.

The translator wishes to thank Susanna Proietti for her

invaluable help.

Translated by Kristina Lebedeva

Design: Hedi EI Kholti

ISBN: 978-1-58435-083_5

Distributed by The MIT Press, Cambridge, Mass.

and London, England

Printed in the United States of America

semiotext(e)

intervention series [] 2

Contents

It's not a question of worrying or of hoping for the best, but

of finding new weapons.

VIOLENT FINANCE

The dancing began in June 2007, when it becameknown that two hedge funds, managed by BearStearns, had invested in assets guaranteed by subprimeloans and needed to put $3.8 billion of obligations

up for sale Within one minute, literally, one of themost important investment banks on Wall Street wascompelled to sell itself to JP Morgan Chase at defeatingprices, $2 per share, when only 48 hours before itcost $30

A year later, with the bankruptcies of WashingtonMutual, Wachovia, Fannie Mae, Freddie Mac, AIG,and Lehman Brothers, and then Citigroup, Bank of

and many other financial institutions, one began tounderstand that the collapse of Lehman Brothers wasnot, in fact, an isolated episode and that the entirebanking system was in one of the greatest crises ofhistory Already in December 2007, the central banks

of five currency areas announced actions coordinated

to sustain the banks In January 2008, the CentralEuropean Bank, the Federal Reserve, and the nationalSwiss Bank effected additional operations of financing

I ~ince then there has been an impressive succession ofmterventions to rescue the banking and financial

system, until the last one (March 2009), decided on

judged as an nth degree fiasco by the winner of the

Nobel prize in economics, Paul Krugman

The abyss opened by derivative financial products

C1 1zatlonof

caPltalism

THE BECOMING OF THE CRISIS

Before interpreting the crisis of financial capitalism,

it may be useful to summarize some facts about themacro-economic and global financial situation thathas been emerging for more than a year, as a result ofthe real estate and banking bubble Let us say fromthe outset, citing an article by Martin Wolf, an intel-

Financial Times (january 7, 2009), that, although

necessary, the dramatic increase of the Americanfederal deficit and the expansion of credit from

central banks allover the world will have temporary

, effects but will not be able to restore normal and

lasting rates of development It is thus possible thatover the course of2009, and beyond, we will witnessthe succession of a false recovery, a hiccups move-ment in the stock exchange followed by repetitivedownfalls and subsequent interventions of govern-ments attempting to contain the crisis In short, weare confronted by a systemic crisis requiring "radicalchanges" that, at least for the time being, no one canreally prescribe in a convincing manner The mone-tary policy, even if it has some efficacy in improving

10 /HiP Violence Financial Capitalism

, economies during recessions, is entirely ineffective

when it enters into a depressive crisis like the one we

are living in The reason is that in a crisis like the

present one (The Economistcalled it "the biggest

bub-ble in hisrory"),Whi h iIC III some sense resembles what

Japan experienced in the 1990s, the transmission

~hannels of monetary interventions (reduction of

mteresr rate, inserrio n 0fl·IqUi Ity, mtervennonsidirv i In

the exchange rate, Illcrease III the banking reserve

funds) are beside the point That is, they cannot

transmit the ered··It Impu ses toI companies and

domestic economie. s necessary to revive the consurnp-

tion. The difference being that, in the case of Japan,

the bubble burst had d a:

in capital, which ufG P ·1

unn the 1980s represented 17%

o .ross Domesticth Pr d0 uct,W Ihile the crisis that broke

out III e United Stat h GDP r uln fr es ad direct effects on 70% of

out are likely to be f: 05t- U e

shake-ar more severe hwas subjected to" (Steph Ro t an those Japan

en ach"u

of AVOiding Japan-Style 'Lo ' SNot Certain

TImes,January 14, 2009) e, rtnancial

On the basis of a study b C

in small part due to the cost of bank tion Instead, it largely depends on the collapse oftax revenues

recapitaliza-An important difference between this crisis andthe ones in the recent past is that the present one

is aglobal crisis and not regional, like the others.Until, like in the past, the rest of the world is inthe position of being able to finance the us,we cananticipate a containment of the crisis on a regionalscale This is because to the extent that the Americangovernment can take advantage of a vast program oftax and monetary stimuli financed by the countries

in surplus of saving from the purchase of AmericanTreasury bills But who today can help the us in thelong run? The present difficulty consists in the factthat, being global, the crisis broke the very force thatallowed the global economy to grow, albeit in an

unequal way, over the last decades, i.e the flux ofdemand from the countries in the structural deficit

of production (like the US) to the countries in tural surplus (like China, Japan, Germany), Butwhen private spending collapses on a global scale,the efforts to tncrease' t e Amencanh ' demand nolonger suffice ,That IS to say, actions' to revive thedemand on a gl balo scale WI'II be required even In'

li )' e eve ope countries (so-called

epresslve effects as II N

t e estimate of the W,excluded rh I orld Bank, it cannot be

resu tsfrom internal exch ntnes, while 15%

the emerole emergmg COUntries ("Em'anges betweenthe block ofFall-" T'h ergIng Mar' ~ S

or ,1' e Economist J ""lS: tumble

case, 10order to be able to pull h 9) In anythee emerglOg COuntries must-berneroi tide World d" emand,

esr esraISin 'g Internal

wages channel their savings no longer towards theWestern countries in deficit, but towards internaldemand, which robs the global monetary andfinancial circuit of the same mechanism thatallowed the global economy to function despite,even because of profound structural imbalances It

is thus possible that, after the crisis,the emergingcountries will become the hegemonic economicforce in which the savings of the developed coun-tries will be invested, thereby inverting flows ofcapital and somewhat reducing the level of con-sumption in the developed countries, But no onecan foresee the duration of this crisis and, therefore,the political, in addition to economic, capacity tomanage the cumulative multiplication of socialand political contradictions that are already mani-festing themselves,

Thus, the least we can do is focus our attention

on the trend of demand in the advanced deficitcountries, particularly in the US, If we take intoaccount that, in the US, between the third quarter of

2007 and the third quarter of 2008, the fall ofdemand in private credit equaled 13%,it is certainthat the net saving is destined to remain positive forseveral years-and not just in the US, In otherwords, private citizens will do everything to reducetheir private debts, which can only annul the mone-tary actions for the revival of private consumption.Assuming for a moment a financial surplus (that is,

-lack of consu mpnonion l ]In t e privateh sector of 6%

of GOP and a structura Id fi e ICIt In the commercia.I

balance of 40/<o0f GOP, t e tax deficith necessary tocompensate for the re ucnond 0f Internal and exter-nal demand. would have to be, according to Wolf s,

~~umate in the cited article, equal to 10% of

• "of. e ucmg public debts of such a scaleentails enormo us e rorts,fir especially if we take intoaCCOUnt that al d d

d fi rea y to ay the federal American

e icit moves aro d 120L f

t e econd World War

As if this were nththat th b 0 enoug ,we should not forget

n , real Interrepayment c est rates are very high and debt

onsequently b

It is precisely f h ecomes very challenging

or t IS reas hbanking crises on t at a second wave of

Parigi, 2008, p 118) sOr:tirr, Michalon,According to Paul Krugman rh $

of the economic stimulus ,e 825 billion

program proposed by

Obama (then reduced by Congress and the Senate,

on February 11, to $789.5 billion) is not evenremotely sufficient to fill the "productivity gap"between the potential growth and effective growth

of GOP at the time of the crisis: "In the presence of

an adequate demand for productive capacity, in thenext two years America would be able to producegoods and services worth another thirty trillion.But with the downturn of consumption and invest-ment, an enormous chasm is opening up betweenthat which the American economy can produceand that which it can sell And Obarna's plan is notminimally adequate to fillin this productivity gap."Now, Krugman wonders, why is Obama not trying

to do more? Certainly, there are dangers tied upwith the government loan on the vast scale, "butthe consequences of inadequate action are notmuch better than sliding into a prolonged defla-tionary trap, of the Japanese kind," an inevitablespiral if the actions of intervention are not ade-quate (i.e., around $2.1 billion or trillion) Or,Krugman keeps wondering, is it the lack of spend-ing opportunities that limits his plan? "There areonly a limited number of shovel-ready projects forpublic investment, that is, of projects which can beinitiated rapidly enough to succeed in the short-term boost of economy Nonetheless, there areother forms of public spending, especially in thefield of health care, which can create assets and at

I

16

, the same" time fiOster t e economyh at the time of

need Yet again, IS t ere an element h of politicalprudence behiInd Ob ama s' decision I' e the

I e~pt to remain within the limit of a trillion ars ror the econ omic p an s final cost to ensure the I 'sUppOrt of the Re bli "

dol-b" pu icans? ( IIplano Obama nonasta, La Re'P'P bli , u tea, January 10, 2009).

u e much better, if consumption It

on the pa ht f one mdeed w

0 tax CUts t I ants to persist

e ucauon and technology on mfrastruct

uture productivity" (S I.tlg In). ets, they increase

Independently of the fact that the state stimuliresult mainly from increases in discretionary expendi-tures, like in the us,or by the more or less automaticeffects of an increase in social spending, like inEurope, the state governance of the crisis depends inthe last analysis on the capacity to borrow capitalfrom the bond market The dimension of theissuance of public bonds scheduled for 2009 issky-high: it goes from the estimated 2, maybe $2.5

billion in the us, equaling 14% of GOP, to $215

billion worth of bonds sold in England (10% of

in every country of the world, including Germany,which at first, tried to resist tax stimuli of theAnglo-Saxon kind (initially accused of "crassKeynesianism" by chancellor Merkel)

The recourse to the bond markets on the part ofthe us in order to collect capital to cover the growingdeficit should not, in principle, be a particularproblem, especially in deflationary periods, like theone we are going through, characterized by continuousreductions in interest rates (which for investors inbonds means real fixed and relatively high earnings).Nonetheless, the expectation of a recurrence ofinflation, caused by the strong increases in deficitand public debt and by massive injections of currency,and, consequently, of a loss of earning from theState's bonds, is already provoking an increase inreal interest rates on T-bills, and this is also the case

18

I , in the, economicall y wea t lest countries,I hi In fact

interb natrona' I'Illvestors in public bonds demand'

su stantiallyd high er nomina'I and real earnings in

or er to better protecr t emselves againsth the risks ofstate defaultsh ,orAcc diIllg to the analysts as much as

t erke are signals of an economic bubble on themar ets that can ex I' h ' ,

cc , , p am t e distortion of prices,

It IS nonetheless s h

mteresr rates have 'borr " risen as governments started to

ow (Chris Giles, David Oakle and Michael

, nerous issuan "F.' I

, see also Steve J h "I fl '

cies IS a crisis of trust in bonds ,ence of these

poli-finance the public debt Th ~Ith which the States

an ideal instrument to destroy the value of the mous quantity of toxic activities held by the largebanks" ("Chi paghera ilconto della crisi? ," Corrieredel Ticino, March 27, 2009),

enor-Despite the ten years of the euro, the markets areworking with precise distinctions between the riskcountries within this very eurozone+-a problem noteasily resolvable by the recourse to the creation of acurrency by the United Nations or by releasingunionbonds, which would damage the strongcountries in the eurozone This again urgently raisesthe question of a real unification of state policies,particularly the social ones, within the UN,

In this phase, with few investors disposed to chase public obligations in the face of an extremelyhigh offer to issue public bonds, the risk of crowdingout (of leaving the private bond market) is entirelyreal The competition in bond markets between

private companies and

inhibit" h governments risks further

were to stan U' esis, t e world economy

Ut, I.e., the wirhd ess mverse of crowding

conso Tu" omIng the "

un A series of negativ g Ike the snow under the

d ncura Ie optirnists a d :e curbing even the

own to levels less than th nI orcing stock to go

ovember" ("C t regtstered' h

2009) T:a, <:orriere del Tici t, nuovo incubo

· e cnsis of the fo no, Februar

European banks' S ave en indeb d ntnes,

apanese yen, Swedish cs, American d 11 e

crowns, and e 0 ars,

uro in order

to compensate for the scarcity of internal savingsand to reinforce the expansion of credit tosmall andmedium companies, the expansion of mortgagecredit to low interest rates and real estate overinvest-ments-seriously risks boomeranging against theEuropean banks The latter, particularly the Austrian,Italian, and Swedish banks, have acquired significantshareholding (up to 80%) in Hungarian, Slovenian,and Slovak banks, which means that an insolvencycrisis in the domestic East European economies-acrisis entirely similar tothose of Mexico, Argentina,

or Southeast Asia, a kind of European subprimecrisis-immediately becomes a problem of theEuropean Union, in addition to that of its banks

"The crisis started in the us, but Europe is where itmight turn into catastrophe," writes WolfgangMiinchau ("Eastern Crisis That Could Wreck theEurozone," Financial Times,February 23,2009) Inthis case, actions of intervention tosupport Easterneconomies, as, for example, an intervention of theInternational Monetary Fund, to escape a conta-gious crisis of payment balances due to a chain ofdevaluations of local currencies, seem entirely inef-ficient "If the exchange rates," wonders Miinchau,

"were to go down even more, the failures of tic economies could increase dramatically Are we,Europeans, ready to help them?" It is difficult toimagine European citizens running to help themythic Polish plumber The split at the heart of

domes-22 !

, Europe due to th II

commu-nist oviet bloc serio I·

e very future of the EU ("The Bill That CouldBreak up Euro e" Th

The scenario at the fo fi

con tin· re ront here is a massive anduous Illcrease in I

rent [rendit] h ucnon IIIincomes and

a ,IIIt e face of

nsrve tax deficit Th £'

evastatIng effects hindustry and I on t e manufacturing

dismissals cl d merce, with millions of

t at IS, beginnin fi For the moment,

g rom the cri f hproceeding to th ses0 t e Bear Stearns

feslnl o~ seem to be able to a rndonetary issuances

b vent decentralized b n ankruptcyrrnproh able quantity of toxic anks due t0 ananor er $1.5 billion" assets "It would ak

ou I1111 rom New y, k Untor nlVer "conornist Noune!.capita of banks to th Slty, to rest

It e possible to overcome the credu : only thus will

Itconstr atnt and

revive loans to the private sectors In other words,the us banking system is in fact insolvent on thewhole, just like the large part of the British bankingsystem and many banks in continental Europe" ("Lavoragine dei conti USA,"La Repubblica, February 26,

absorb the present and foreseeable losses and struct bank assets The resources for this must bepublic (whether one likes it or not) The slowness inrecognizing that it is a question, no more and noless, of an insolvency crisis of the banking system as

recon-a whole, will involve extremely high prices Thesame is true for the difficulty undoing the knot, cer-tainly complex, of the nationalization of the majorbanks (even on the day when the American Statebecomes the principal shareholder of the colossalCitigroup with 36% of capital stock)

It is entirely likely that in two years theeconomies of all countries, despite the actions of theeconomic stimulus, will still be in depression (stagdeflation), just as it is possible that each country willtry to reintroduce in their native land the quotas ofdemand by means of devaluations and protectionistactions (deglobalization) in order to try to postpone

as much as possible the rendering of accounts by payers called on to pay public deficits The margins

tax-of economic and monetary policy to effectivelymanage the crisis are extremely restricted The clas-sical Keynesian actions lack transmission channels of

24 ;

state stimuli to th Igood d e rea economy, to the demand of

orces, Subjects ad£;

that can subst ,n orms of struggle

on the financial markets that which capital could nolonger get in the real economy As Charles P.

Kindleberger, the greatest historian of finance,showed, since the 17th century financial cycles havealways consisted of a precise sequence: a phase ofimpetus, one of collective infatuation and overtrading

of stock markets, a phase of fear and disorder, then aphase of consolidation, and, finally, a phase of reorga-nization "In the phase of overtrading iemballement),

activity becomes frenetic, the aspirations of individuals

2

FINANCIAL LOGICS

26

, do not cease toI g,row t e velocirvh of transactions is

assets-th h P Ices of real or virtual financial

ne 0 t e sali h

century financi I·

pointed out b M a tzanon processes (and

meteenth centu ) ThWere thus based ry e financial crises

erween real and fi a Ictory relationship

t at today is no I nornies, a relationship

The financial onger expressed irn t e same terms.h

Itspreads across the 0 ay IS pervasive, that is,

It, so to speak fi ICeyc e, co-existing

in t e finances, to speak fi art:o mish Today it isgoes shopping at the guratlve!y, even when onewhen one pays with a :~~~~market, at the moment

to give on y one examI I It card.The car industry.accordance with cr d p e, functions completel '

easmg, etc.), so that th allisms {installmentsMotors have just as he problems of a G "

o cars as, if not above all ~th the production

~M_AC,its branch specializin 'inwlt the weakness ofindispensable for selling th ~ credit to consUmptio

s to consumers

That is, we are in a historical period in which thefinances are cosubstantial to the very production ofgoods and services

In addition to industrial profits not reinvested ininstrumental capitals and in wages, the sources fuelingtoday's financialization have multiplied: there areprofits deriving from the repatriation of dividends androyalties followed by direct investments from theoutside; flows of interest coming from the ThirdWorld's debt, to which are added flows of interest oninternational bank loans to the emerging countries;surplus-values derived from raw materials; the sumsaccumulated by individuals and wealthy families andinvested in the stock markets, retirement and invest-ment funds The multiplication and extension of thesources and agents of the "capital bearer of interest"are, without a doubt, one of the distinctive, unfore-seen, and problematic traits of the new financialcapitalism, especially if they reflect upon the possi-bility or impossibility of modifying this system, of

"re-financing" it, reestablishing a "more balanced"relation between the real and financial economies.Like its predecessors, this financialization alsobegins from a block of accumulation understood asnon-reinvestment of profits in directly productiveprocesses (constant capital, i.e., instrumental goods,and variable capital, i.e., wages) In fact, it began withthe crisis of growth of Fordist capitalism since the1960s In those years, there were all the premises of a

28/ Tr,,,

I , repetition of classical f "

omy erween real (i d ial

rrues, with thequotas 0 h l' consequent seizing of profit

o growth ofthe growth ca d b non-accumulated profit,

use ya do bl

, gener ized decre other hand th ase In wages and, on the

rate of accum I -I.e., ecrease-of the

u anon despi hprofit rate" (M" h I te t e reestablishment of

IC e Husson "Le

La Breche N b ' s enjeux de la crise,"

' overn er 2008)rate Implies th For an accumulation

of financialization B represents a sure indication

h process of banki d ' tnancialization

d CI lzation of eco latlon regardingomtnance of th An nomic growth (th

multiplication' fUfitalso involved a pr e over the

rom the deregu ation and libI nterm e lanesdi result"

economy

The transition from the Fordist mode of tion to "stock managerial capitalism," which is at thebasis of today's financial capitalism, is, in fact, explained

produc-by the drop in profits (around 50%) between the1960s and the 1970s; the drop due to the exhaustion

of the technological and economic foundations ofFordism, particularly by the saturation of markets bymass consumption goods, the rigidity of productiveprocesses, of constant capital, and of the politically

"downwardly rigid" [rigido verso it basso]working wage

At the height of its development, in a determinateorganic composition of capital (Le., the relationshipbetween constant and variable capital), Fordist capital-ism was no longer able to "suck" surplus-value fromliving working labor "Hence, since the second half

of the 1970s, the primary propulsive force of theworld economy was the endless attempt of capitalistcompanies-demanded by their owners andinvestors-to bring back by different means the profitrate to the highest levels of twenty years ago" (LucianoGallino, Eimpresa irresponsabite, Einaudi, Torino,2005) We know how it went: reduction in the cost

of labor, attacks on syndicates, automatization androbotization of entire labor processes, delocalization incountries with low wages, precarization of work, anddiversification of consumption models And preciselyfinancialization, i.e., increase in profits not as excess

of cost proceeds (that is, not in accordance withmanufacturing-Fordist logic) but as excess of value in the

30/ T'I"

Stock Exchan e "at h

Tl-wereIn (;the gathp between T'l and T2 can b. e a ewfc days.'act, e recourse t h ~

art 0 companies in dhas eall or er to reestablish profit testing

r y never had ythi

compan an mg to do with financing

y actiVItIes bvi

USe companies hav aI

self-finan' Am' e ways had wide margins of

1% of th es0 assets to supply only

err needs' the Gother words th ~' ' erman companies 2% In

, e nnanclallZaf f

recuperation of ai'the period of d capir s profitability after

ecrease in profi enhance capital' t testmg, an apparatus to

s profitability 'd.'

ocesses Itis thicompanies to internal' s very apparatus that led

lzeIn an cc ,

paradigm of shareh ld Irresponsible" way the

o er value OVer th ,e pnmacy of

ers -the latterbe' trpIClty of "interest

Ing calledstak hearners, consumers su I' e older value (wageerations) The ( d' pp lers, environment furu

gen-Income of comp' profit qUOta of th al

ecreased in the US c: In the 1960s and 1970

SInce exceeded 14 150L 0to 15-17% has

70, and fi ' ' never

struc-the modus operand' f aUIntents and

:As was shown on th b ary capitalism

comp ere analysis of aVailable data reta KriPpner's

, the qUOtao totalf

profits of American companies attributable to thefinancial, insurance, and real estate companies notonly nearly reached in the 1980s, but then exceeded inthe 1990s, the quota attributable to those in the man-ufacturing sector Even more important is the fact that,

in the 1970s and 1980s, the non-financial companieswould drastically increased their own investments infinancial products with respect to industrial plants andmachinery and became ever more dependent on thequota of income and profits derived from their ownfinancial investments with respect to the one derivedfrom their productive activity Krippner's observation

is that, within this tendency towards the tion of the non-financial economy, the manufacturingsector is not only quantitatively predominant, butdirectly driving the process, is particularly significant"(Giovanni Arrighi, Adam Smith a Pechino Genealogie del ventunesimo secolo, Feltrinelli, Milano, 2007, pp.159-160) This is enough to definitively discard thedistinction between (industrial) real and financialeconomies, distinguishing industrial profits from the

financializa-"fictitious" financial ones Aswell as to stop identifying,from either a theoretical or historical point of view,capitalism with industrial capitalism (as Arrighi writes,

a typical act of faith of orthodox Marxism that doesnot deserve the justification) If one really wants tospeak of the "irresponsible company" to describe theparadigm of shareholder value-indeed created withincompanies over the last thirty years one would do

I

32/

well to speak ofthe trans ormationfc of the production

process based on the " fi

alarlo Vercellone's apt expression ("Crisi della iegge del

v oreed··rvenire rendita dei profitri ". C·· dell'

~nart politici, ed by Andrea Pumagali and Sandro

ezzandra, OmbreTh . Con e/ Vinmoma0 de, Verona, 2009).

ere IS no doubt rh 0 th

config-uranon of financial capn0 aliIsm, where part of the

wages are reduced and 0

capotal precarIzed and investments in

I stagnate, the pr bl f h 0 0

its (th 0 em0 t erealization of

prof-at IS, selling the I

the I f surp us-value product) remains

IS USa kind of becoming-rent inaddi IVely) There

The indebtedness of dom 0 tion to profit

redistrib-ala Keynes, i.e., the creation of an additional demand

by means of private debt (with a relative displacement

of wealth towards the private domestic economies).The American mortgage indebtedness, whichreached more than 70% of GDP with a total indebted-ness of domestic economies equaling 93% of GDP,has constituted the primary source of increase inconsumption since 2000 and, since 2002, the motor

of the real estate bubble The consumption has beenfueled by so-called remongaging, the possibility ofrenegotiating mortgage loans in order to get new credit,thanks to the inflationary increase in house prices Thismechanism, called home equity extraction, has played

a fundamental role in the American economic growth.The US Bureau of Economic Analysis has estimatedthat the gains from the GDP growth due to the increase

in home equity extraction were, on average, 1.5%between 2002 and 2007 Without the positive impact

of mortgage credit and the subsequent increase inconsumption, the growth of American GDP would beequal to, or outright less than, that of the eurowne(jacques Sapir, Leconomie politique internationale de fa crise et fa question du "nouveau Bretton Woodr':oLecons pour des temps de crise, Mimeo, sapir@msh-parisJr)

The explosion of private indebtedness was tated, especially after the collapse of Nasdaq in

banking deregulation, a policy that reinforced thesecuritization of debt-based obligations: CollaterizedDebt Obligation and Collaterized Loan Obligations,

~o which are added Credit Default Swaps, derivativeinsurance obliigatrons that are swapped (in fact,

bartered) berween operators In order to protect selves against rhe ns ks0f'Investment. The total of allthese credit derienvauves amounts to something like

them-$62 trillion ,a multiu up icanonI' of 100 in ten years (for

a description of d b

Instruments 'seethebri f dine ct!onary in the Appendix)..Secufltlzation II

WI fferenti ed ksgood) and thi at fIS (from good to less

, on s basiS ceded to the ed ' Issue assets, which are then

creat ad ho fi conduits and spe'al hi c nancia] structures (called

CI ve Ides) th f

price by short-term deb at mance the purchasewith investors as h d ts FInally, bonds are placed

e ge funds retirement and in ' Investment banks,

vestment fundssomeones mortgage deb be In such a way,

chain, various specialized firms coordinate their shares

in order to fabricate, assemble, and synthesize ment products beginning from aggregates of realestate credits The actors in this chain are brokers ofreal estate loans, directly in contact with consumers,the intermediaries who buy wholesale and bringtogether credit aggregates in accordance with thespecifications of financial institutions and hedgefunds (that, in the end of the chain, provide capital),and, finally, rating agencies that determine whetherthe composition of these asset portfolios satisfies theircriteria of quality" (Martha Poon, "Aux origines etait

invest-la bulle La mecanique des fluides des subprimes,"

http://www.mouvements.info/spi p ph p?article3 79) This complex financial engineering, in its goodnature, allows for the artificial increase of the totalamount of credit (leverage effect), freeing the balances

of the institutions from credit given in this way in order

to enable them to create new loans Itis a question ofmultiplication of bread because a split between flows ofbonds qua right to a part of created profit and flows ofpurely monetary interests and dividends is inherent inthe multiplication of credit by means of securitization.There is no doubt that derivative obligations created

on subprime mortgage credits immediately becamethe scapegoat of the financial world crisis so much as

to obtain the name of "toxic" assets The securitization

of subprime loans is, in fact, situated at the center

of the transformations of the world of American

I

36 Tnt'

mongage. finance wherethe i dein ustcy of real estate loans

IS articulated by t e vastesth market of investment

products based 0n activities " (asset-backed securities)

In the latter are d d

mance: laxisr pra t'c Ices0ferediIt,rushing tosearch for

easy compensating fi

oans, the confid h

fi' ence In t e supplying of loans to

inanciallv untrusrw h

rul th , ort y people, the violation of

es,As e naivete in calculariatmg nsks, frauds, etc

Martha Poon r d

cited "th ermn s us mthe article we just

, t e system of h

not a I' exc angmg real estate credits is

nove tymthe us'

Deal B ' since Itgoes back to the New

enterprises or GSE e governments-sponsored

Fannie Mae- d' usbually called Freddie Mac and

me refer to my book E il_L~ tnnie Mae," let

Casazrande.Toriasagran e, Tortno-Bellinzo,0 an BOringh'lert/Edizioni

e financial crisis" 'pp.65-69)

inevitably unleashed the hunt c au Krugman

Prtts Some

charges were totally false, such as the thesis, popular

on the right, according to which all our problems arecaused by the Community Reinvestment Act, whichobligates the banks to give out loans to the members

of minorities who wish to buy a house and who thencannot repay the loans In reality, this law wasapproved in 1977, making it hard tounderstand how

it could be guilty of a crisis determined three decadeslater In any case, the Community ReinvestmentAct applied only to the deposit banks which had aminimal quota in the real estate bubble" (II ritorno

Garzanti, Milano, 2009, pp 182-183)

Moreover, it may be useful to recall that the tization of prime loans in the course of the 1970s and1980s has facilitated the expansion of not only theAmerican middle class "During the years of inflation,the Americans, Canadians, Japanese, and the large part

securi-of Europe underwent the fascination with owning ahouse The price on houses was going up until it had norelationship with the purchase price, and everyone wassatisfied Satisfied at least while the abundance lasted,especially since the ownership cost quite a lot The infla-tion of the value of houses was in fact a powerfulmechanism of redisttibuting wealth Whoever did nothave his own house was at a disadvantage: like everyone,

he continued topay for evermore expensive goods andservices, but, in cannast toowners, was not compensated

by gains in capital account exempt from levies" (Marco

d'Eramo, II maiale e il grattacielo Chicago: una storia

del nostro futuro, Feltrinelli, Milano, 1995, p 39)

Beginning with the 2000-2002 crisis of the new

economy, the American real estate market witnessed

a spectacular acceleration, especially if we recall that,

already in 2001, the real estate prices were

consider-ably high; so high that the analysts were considering

there would be a bubble in the sector in 2002

Instead, thanks to the securitization of subprime

loans, it was possible to postpone the inflation of the

real estate sector until the bubble burst in 2007

The expansion of subprime loans shows that, in

order. to raise and make profits, finance needs to

involve the poor, in addition to the middle class In

b ' t IS capn Ism must invest in t e

are !tfe of peopl h

hew 0cannot provide any guarantee,

w 0offer nothin fi

ali h g apart rom themselves Itis a

capi-t I~m Icapi-t dacapi-t capi-turns bare life into a direct source of

pro It. toes so on th b f

di e asis0 a probability

calcula-tion accor ing to who h h I

IC t e ackin d b

id edre manageable," i.e., negligible when

financiallo",ic und I the entire population The

0" er ytng the calcul· f

is, in fact, particularly cynical th anon ~ probability

basis of the mortgag edi e assets Issued on the

ntermediate one

would present a reduced risk, and the highest one,made up of oldest, best assets, would be consideredparticularly secure The greater lot is thus protected bythe lesser ones, in the sense that the latter will be themost exposed part of the securitized assets that will bethe first to explode The access to a good house iscreated on the basis of mathematical models of riskwhere people's life means absolutely nothing, wherethe poor are "played" against the less poor, where thesocial right to housing is artificially subordinated tothe private right to realize a profit No offence totheacademic economists who all these years have beenputting their scientific competence and their dignir;

at the disposal of financial industry (on how todaysfinancial crisis also reveals the crisis of academic

economic science, see David Colan er et a , eFinancial Crisis and the Systemic Failure of AcademicEconomics," http://economistsview.typepad.com/eco

nomistsview/2009/02/the-financial-crisis-and-the-systemic_failure_of_academic-economics.html)

Finance functions on the expectation of growingand "infinite" increases in prices of real estate (wealthHect) fl tl'onaty increase without which it woulderrect , an m a

bee Impossli ibleto co opt the potential- have-nots-the

ndulon of ensuring the continuity ofnecessary co

c . I ofits It is a question of a Ponzi scheme ornnancia pr

I e game in which those who came in last

Nasdaq, Bernard Madoff, teaches us, the hoax: that

~ana~ed to collect something like $50 billion

InvolvIng an imial pressrve number of respectable

finan-CI operators and banks

The threshold f hi I

th 0 t IS InC usrve process is given in

e contradiction b ial

sue as the hous ) d

erween the ex an f

I f P sion 0 SOCialneeds and the private

ogre 0. markets .The SOCI conflictial as well as capital's

capacity or incapac'h. Ity to overcome this crisis unfolds

on t IS threshold I

threshold'f I t IS a question of a temporal

,Ion y one thi ks f.c.

tecrure of 'cal In 0, ror example, the

the general trend of co rates, thus subjected to

policy-repres nJuncture and of monetary

such a way, the financial 10 pulSIOn/exclusion In

goods) [u n (bene)I'ene) COmune]gICthatproduces acommune (of

nzes through expelling "residen~en diVides and

priva-means of the artificial crean f of the commune" by

ty, he highlights the decidedly juridical-normativenature of the processes of enclosures: Spinoza "does notignore the land, but his campaign is not circumscribed

by the eighteenth century enclosures, fenced in byfarming and hunting, where the sheep-to speak withtheLevellers aevoured men Itis not circumscribed bythe land where men are reduced to inert sheep learningonly to serve, because it is neither peace nor citizenship,but rather solitude, desert" (Spinoza atlantico, EdizioniGhilbi, Milano, 2008, p 15).The originary or primi-tive accumulation, as was shown by Sandro Mezzandra,i.e., the salarization and proletarization of millions ofpeople through the expulsion from their own land, isthus a process that historically reemerges every timethe expansion of capital clashes with the communeproduced by social relations and cooperations freefrom the laws of capitalist exploitation (S Mezzadra,

La "cosiddetta" accumu/azione originaria, in MW,

Lessico marxiano, minifestolibri, Roma, 2008) Thecommune produced by free social relations thus pre- cedesthe capitalist appropriation of this very commune

ON THE RENT BECOMING PROFIT

profits by the proliferation of financial unmanageable because they are outside every ruleand control

instruments-The crisis-development in this mode of tion acquires a discrepancy between social needsand financial logics based on the hyper-profitabili-

produc-ty criteria: in the developed countries, it is asserted

by the anthropogenic model of "production of man

by man" where consumption is increasingly orientedtowards social, health, educational, and culturalsectors, and clashes with the privatization of manysectors previously managed by public criteria; in theemerging countries, the expansion of valorizationspaces provokes processes of hyper-exploitation andthe destruction oflocal economies and environment.The demands of profitability imposed by financialcapitalism on the entire society reinforce socialregression under the high pressure of a growthmodel that, in order to distribute wealth, voluntarilysacrifices social cohesion and the quality of life itselfWage deflation, pathologization of labor withincreases in health costs generated by work stress (up

to3% of GOP), worsening of social balances, and theirreparable deterioration of the environment are theeffects of financial logic and of shareholder delocal-izations typical of global financial capitalism.The problem is that, analyzed from a distributivepoint of view (economistic in the last instance), thecrisis-development of financial capitalism leads to a

Thed.non-parasitic ro eI 0f fimance, its capacity topro uce Incomes. by ensunng the increase in con-sumptIon, the increase t IT •

ror GDP growth hfro h ' IS, owever, not explained only

m t e dlstnbutive f'that f POInt 0 view Itis indeed trueInance nourish If

accumulat d e~itse on the profit that is not

e , not reInve t d and variabl ) d" s e rn capital (constant

thanks to fin ial exponentially multiplied

anci engIn the increase in " eenng, Just as it is true that

pronts allo f

surplus-value q ws or the distribution of

uotas to the h ldshares Under this p "I 0 ers of patrimonial

veritable· dead-end .As i hItIS t rown out the window,

r.e., the common I f ki

f pace 0 a nd that is parasitic on

inance, ItImplicit! h

Th Y reenters t rough the main door

eImpasse more th I h

· be' eoretrca t an pracrico-polirical,

elabo-rating strategies to 0vercome the crisis, the recourse

to actions of econ

aan 'alPlrehsuppose the rescue of finance (of which we

re re y ostages) b

ve ,ut, on the other hand, annul the

ry possibilItIesB of economl·c revival. I

oth the right d h

return to th al an t e left wish for an unlikely

e re economy bl "

ization" f ,verlta e

order to I y P e erably a lirtle greener) in

eave a financi I· d

us a lot of the critique f h m ng things" reminds

to t e supporters of the f YSlocrats addressed

tel ea, according to who h UStn revolution·

coun-of goods and services And indeed, it is these verycountries in commercial surplus that will greatlysuffer the effects of the global crisis with the accu-mulation of enormous overproductions The factthat the countries in surplus are the ones with thehighest rates of savings certainly does not makethings simpler: it is indeed true that a reduction ofsavings could increase the internal demand, butthis is exactly what will not happen for the simplereason that the saving will be used to confrontthe effects of the recession and the stagnation ofemployment and wages (Simon Tilford, ''AReturn to'Making Things' is No Panacea," Financial Times,

March 4, 2009)

This does not mean that the countries that have, inthe last decades, greatly developed the services sector(certainly not just the usand Great Britain) wouldnot have to redefine their own strategies of develop-ment on the basis of the crisis itself But it is notcertain that it will be possible to overcome the crisis

by returning to an ill-defined "real economy." Thecountries in commercial deficit, for example, havevery high rates of indebtedness in the public and

46 Ii,~

priv~te sectors-an indebtedness, particularly the

public one, destined to go up in this period of

crisis-but they also have insufficient infrastructures resulting

from the ye. ars0f di isinvestrnenr in the sector of public

services Moreover, in these countries there is a

defici.t of professional qualifications, 'a deficit of

ualorization of skills and diffused knowledges that

damage, instead of help, knowledge workers

The real blind Spot, both theoretical and practical,

has to do with the sten e'1 diisnncuon between

manu-facturing sector (where they "make things") and the

sector of non-m. a enterial actrvities, an opposition"

cer-tamly reinforced b h b

inancial sector but h

th " ' one t at today risks damaging, in

e name of reindu iali "

mnovanve aCnVItIes with an add d" hi h al h

eve ope m the I

like th h se asr years Itis in activities

Against Bank Nationalisation," http://www.voxeu.com/

index.php?q=node/3143)

In order to overcome this impasse, it is necessary

to analyze critically the crisis of financial capitalism,what it means to begin anew from scratch, i.e., fromthat increase in profits without accumulation at theroot of financialization Which is to say, it is neces-sary to analyze financialization as the other side of aprocess of the value production affirmed since thecrisis of the Fordist model, i.e., since the capitalistincapacity to suck surplus-value from immediateliving labor, the wage labor of the factory The thesis that is being put forth here is that financialization is not an unproductive/parasitic deviation of growing quotas of surplus-value and collective saving, but rather the form of capital accumulation symmetrical with new processes of value production. Today's financial crisis isthen interpreted more as a blockof capital accumu-lation than an implosive result of a process of lackingcapital accumulation

Apart from the role of finance in the sphere ofconsumption, what happened in these last 30years

is a veritable metamorphosis of production processes

of this very surplus-value There has been a mation of valorization processes that witnesses theextraction of value no longer circumscribed in theplaces dedicated to the production of goods andservices, but, so tospeak, extending beyond factorygates, in the sense that it enters directly into the

transfor-sphere of the circulation of capital, that is, in the

sphere of exchanges of goods and services Itis a

question of extending the processes of extracting

value from the sphere of reproduction and

distribu-tion-a phenomenon, let it be noted, for a long

time well known to women Evermore explicitly, in

the center of both theory and managerial strategies,

one speaks of the externalization of production

processes, even of "crowdsourcing," i.e., putting to

use the crowd and its forms of life (Jeff Howe,

T~ analyze financial capitalism under this

pro-ductive. profil e IS to spea k·of bio-econorny or 0f

blOcapitalism "wh C

' w ose rorm is characterized by its

;io~~ngYasexthracting i.t not only from the body

ese years is of a merely

methodological kind: here we are more interested inhighlighting the link between financialization andthe processes of value production that is at the basis

of the crisis-development of new capitalism than in

an accurate and exhaustive description of its salientcharacteristics (moreover, already accomplished by agrowing number of scholars) (The first effort in th~ssense is the work by Andrea Fumagalli, Bioeconomi«

The empirical examples of the externalization ofvalue production, of its extension into the sphere ofcirculation, are now abundant (of the most recentworks on the consumer-as-producer phenomenon,see Marie-Anne Dujarier, Le travail du consomma-

f h holder outsourcmgFrom the first phase 0 s are

subcontracts to supp iers an II

f I Ib d of the autonomous labor of

o atyplca a or an

(f I ce entrepreneurs ofthe second generation ree an ,

Is who became themselves, former emp oyee "

self-I d) al ng the same lines as the Toyota

mo e t e caprt IS

trans-sphere has been nonstop,

C • h mer into a veritable producer of

f h trategies of public and pnvatethe heart 0 t e s

50

companies. .The Iatter put to work the consumer in

vanous. phases of va ueI creation. The consumer

contnbutes to creati h

per-ormances rnanaci d

1 .'. gmg amages and hazards, sorting

itter, optimizing t eh L'.nxed assets of suppliers and

even administratioh n. Th e coproduction concerns' all

t e mass. perform ances and specifically services:

retail, bank, trans

e ra, e ucationI 'h al he t "(Durajer,op cit., p.8).

e ana YSIS,to disc h

ecorne paradigmatic Ik h

client a whole ea, avmg delegated tothe

the code f hsenes of functions (individuation of

o t e desired I

removal of h I Item, ocating the object,

s eves, loadi

externalizes the 1b mg It into the car, etc.),

bookshelf th alor of assembling the "Billy"

, at IS, kea e I·

and variable xterna rzes consistent fixed

mu tItude of people, by" r ce are Improved by a

After the 2001 p oductive consumers"

t e new strategy of th s IZlana Terranova

we or web 2 0 ' Th e web 2economy "I· ,s socra I

.0 comp ames, says

O'Reilly, all have something in common Their cess is based on their capacity to attract masses ofusers who create a world of social relations on thebasis of the platforms/environments made available

suc-by sites like Friendster, Facebook, Plickr, My Space,Second Life, and Blogger Nonetheless, underscoresO'Reilly, web 2.0 is not limited to these new plat-forms, but also involves applications like Google tothe extent that they are able to harness and valorize'browsing' by users; or other applications that onceagain allow one to extract a surplus-value fromcommon actions such as linking a site, flagging ablog post, modifying a software, and so forth [ J

Web 2.0 is a winning model for investors, since itharnesses, incorporates, and valorizes the social andtechnological labor of users The frontier of the inno-vation of the capitalist valorization process of the neweconomy is the marginalization of wage labor and thevalorization of the 'free labor' of users, i.e., of a laborthat is not paid and not supervised, but is nonethelesscontrolled" (T.Terranova, New economy,jinanzia- rizzazione e produzione sociale del web 2.0, in A.Fumagalli, S Mezzadra, op cit.The cited work ofTim O'Reilly is What Is web 2.0 Design Patterns and Business Models for the Next Generation of Software, 30/09/2005, http://www.oreillynet.com/pub/a/oreilly/

tim/news/2005/09/30/what-is-web-20.html).

The first important consequence of the newprocesses of capital valorization is the following: the

quantity of surplus-value created by new apparatuses

of extraction is enormous It is based on the

com-pre~sion of the direct and indirect wage (retirement,

social security cushions, earnings from individual

and collective savmgs0) , on t e re ucnonh d 0 of socia y0 II

necessary labor with flexible network company

systems (precarization, intermittent employment),

and on the creation of vaster pool of free labor (the

"free labor"o in the sp ereh 0fconsumption,0 circula-0

non, and reproduction, with a more intensified

cogn~tive labor), The quantity of surplus-value, i.e., of

unpaId labor is at' the root 0f the Increase In the pro Its0 0 f

notreinvested in th d 0

Increase does not, as a consequence, generate the

growth of stable employment let al

M ~ er this profile and with a reference to a

arxist debate abo h

B ' h") 0 0 ut t e cause of the crisis ("La

rec e ,It IS thus Obi

AI 0 BOh' POSSI e to partially agree with

arn Irs thesis ace do

e een m the presen f "

value" b 10k ce 0 an excess of

that the excess of surpl Irs t esis stating

US-va ue didI not just lead to

a search for new market outlets-since a significantnumber of multinational American and Europeancompanies have in fact increased their direct invest-ments abroad (in China, Brazil, and, with somedifficulties, India)-would thus have to be ampli-fied: direct investments, reflective of the typicalseat of capital profit, have not been carried out justoutside the economically developed countries, but right inside, namely, in the sphere of circulationand reproduction

The relationship between accumulation, its, and financialization is reinterpreted on thebasis of the salient characteristics of post-Fordistproduction processes The increase in profits fuelingfinancialization was possible because, in biocapiral-ism, the very concept of accumulation of capital w_astransformed Itno longer consists, as in the Fordisttime, of investment in constant and variable capital(wage), but rather of investment in apparatusesofproducing and capturing value produced outsidedirectly productive processes

prof-As Tiziana Terranova writes with regard to the

o "0· question of attracting

d di id 0 not JOustthis 'free labor, but also In

an In IVI uanng

forms of possible surplus-value

h ali n the diffused deSlfes of SOCIality,

o d lation In this model, the productionexpreSSIOn, an re

f fi b nies would take place over and

!

,

54/1h'