U.S. finance capital is in the throes of a huge internal restructuring. Several facets have to be taken into account in order to get the full measure of its significance.
The first and most obvious development, which has been downplayed and lost somewhere in the financial pages, is that a run has taken place on a unit of Citicorp, the biggest bank in the U.S. The run happened in Hong Kong, and was accompanied by another run on a giant British bank, Standard Chartered.
Here is a situation where the prestige of U.S. as well as British finance capital was at stake. No amount of assurances from the governor of Hong Kong, its officialdom, or even banking executives in the United States and Britain were able to stop it for several days.
The run was at first attributed to rumors and false statements made for the purpose of hurting the banks. But to no avail. The run continued, from Aug. 7 to 9.
Another aspect of this internal restructuring that must be taken into account is that the biggest, most prestigious dealer in U.S. bonds, Salomon Brothers, was forced to make a public admission that it had on several occasions rigged the U.S. government bond market. Trading on this market can exceed $100 billion in a single day, and is said to come to $2.2 trillion annually.
Salomon Brothers has always been said to be the very epitome of honesty and integrity. Its admission of civil and criminal wrongdoing is an indubitable sign of crisis.
Following on the heels of this disclosure, the next day the two largest West Coast banks, the BankAmerica Corp. and the Security Pacific Corp., announced they would carry out the largest bank merger in U.S. history. News of this proposed merger struck world financial centers like a thunderbolt. But the enthusiasm it generated was mostly confined to Wall Street, where bank stocks rose slightly, and then only for one day.
To some, this merger was a stroke of genius which would help American finance capital avoid a hard landing. It was like Einstein discovering relativity, or Edison with his light bulb. Optimism flowed like water.
Such a giant new bank — a real megabank — will reintroduce competition among the giants on the widest possible basis, not only in the United States but on a global basis. Citicorp, the largest bank in the U.S., had better watch out. The big banks abroad, in Japan and Europe, have all been alerted to a new round of cutthroat competition among the giants.
This type of competition is just what's needed, they say. It will stimulate capitalist industry, which is in the doldrums. And so the magic of the marketplace is being revived on a new and much wider arena. All those doomsayers in the camp of the bourgeois economists had better back off.
However, no bourgeois economist has yet been willing to stick out his or her neck to sing hosannas for the great new adventure of U.S. finance capital.
Wait a minute. Isn't this merger a reversal of the Reaganite doctrine that the big giants should be broken up through deregulation? Smaller units, it was said, would be more profitable through higher efficiency and greater productivity. They would reduce the "surplusage" of personnel.
Strangely enough, this actually began when the Carter administration moved to deregulate the airline industry. Having several giants, it was said, stultified competition. Having many airlines would lead to greater efficiency, higher productivity — and thousands of layoffs.
Today we see the results. The small ones have disappeared. The giants are back, are gobbling each other up, and at least four of the biggest are in the bankruptcy courts.
In banking, too, having 15,000 banks instead of several hundred, including a dozen or so giants, was supposed to help reach the wide field of consumers.
The great big banks were looked upon as old elephants, too slow to move in a fast-changing scientific-technological revolution. As for making them bigger — why, that would create a whole new dynasty of dinosaurs! It would cripple the very source of the growth of U.S. capitalism: competition in the marketplace.
It was none other than the fair-haired young executive of Citicorp, John Reed, who was for subdividing and bringing new technology to the banks. He was the prophet of all the latest technological innovations as they were introduced, like automatic teller machines.
To make things really competitive in banking it was necessary to charter hundreds and hundreds of small new savings banks. They would be near the heart of the many small communities throughout the U.S.
Also, big banks could sell off some of their units to industrial corporations. Thus Ford Motor Company became a banker. Insurance companies took over some banks. To have only a few large banks do most of the business was a restraint on both industry and banking, it was said. An infusion of competition was necessary to stimulate capitalist industry and finance. The day of a few giant banks was supposed to be over.
The new religion had as its fundamental practitioner none other than Ronald Reagan and became known as the Reagan Doctrine. Even more proliferative than banks were industries and the oil fields of Texas, Louisiana and California.
Of course, what followed the Reagan Doctrine and its complete embrace by bankers and industrialists was the most vicious, deep anti-labor offensive ever carried out in the United States. It was all done under the signpost of reinvigorating competition.
Many a graduate student in economics wrote his or her thesis on the theory that bigger, mammoth banks and industrial giants were out. What was in were subdivisions into smaller, thriving, more efficient industrial and financial units.
The collapse of this theory has finally made itself felt. Still, lush profits for the bourgeoisie did follow from the devastating effects on the working class, especially its most oppressed sectors.
The indictments of big Wall Street swindlers like Michael Milken, Ivan Boesky and others seemed to be small byproducts, unconnected with the aggressive developments in industry and banking.
The capitalist press and bourgeois academics kept saying big wasn't always more profitable. They said size can in fact immobilize and stultify banking and industry. This talk was in effect an implied recognition of the Marxist theory that monopoly, whether in industry or in banking, stymies the growth of the productive forces. It signifies that the productive forces have far outgrown the encumbrances of private ownership, that more and more is concentrated in ever fewer hands.
But this truism, which has made itself felt everywhere in the world ever since the first worldwide capitalist recession of 1825, was not publicly recognized by the bourgeois economists. It had to be buried, even though they knew that capitalist monopoly has a retarding effect on the growth of industry, technology, science and so forth.
So all this talk about breaking up the giant behemoths was misleading. The idea really was to subdivide the ownership. Where divisions did take place, it was merely for the purpose of concentrating ownership into still fewer hands after a period of time. The purpose was to divide the industrial units as a means of breaking up unions, hindering union organization, and sending manufacturing and assembly operations abroad.
The whole theory that smaller is better had no effect on the growing concentration of greater and greater wealth in the hands of fewer people. And now the time has come for this to be publicly recognized. Any sham exhibition of fighting monopoly has to be squelched.
It is time to come out into the open and say that imperialist monopoly of a few big banks is best calculated to promote U.S. finance capital both abroad and at home. That's the real meaning of the recent huge bank mergers.
The old religion of the bourgeois economists — "bigger is better" — is now clearly in the saddle. That's what the merger of BankAmerica and Security Pacific is all about. It's back to open, blatant, naked and more aggressive monopoly. No more of those antics to delight the petty bourgeoisie, who saw in the theory of "smaller is better" room for them to expand. The collapse of the savings and loans took the wind out of their sails.
To survive, the bankers and industrialists are moving aggressively to promote larger units within the framework of the old financial oligarchy. That is one fundamental aspect of the projected merger of these two banks and the others that are sure to follow in the coming weeks and months.
But lest the publicists for naked, aggressive, anti-labor, anti-people monopoly begin to celebrate too soon, it is necessary to see what is really happening underneath. The BankAmerica merger, if it takes place, is to be on the basis of competition among the monopolist banking corporations. The megabank that will emerge will then be able to compete with the largest bank in the U.S., Citicorp.
BankAmerica will have assets of $190 billion, as against Citicorp's $217 billion. BankAmerica will be better able to compete not only in the domestic markets but also abroad, particularly in Asia. On the global field, especially, competition is likely to be sharpest, so they all say.
This giant merger, the biggest in U.S. history, is unlike all the mergers of the last 100 years. They were a response to the growth of the productive forces in a period of great industrial upsurge. Now, however, industry does not need to expand further. It needs to shed its huge indebtedness. This must be borne in mind in considering the effectiveness of the merger.
This merger and those that are forecast to come are based on active government financial assistance through the Federal Reserve's operations to rescue them from indebtedness. Indebtedness is key to the mergers. They are not a response to industrial and technological needs.
Security Pacific is regarded as a bank on the verge of failing. BankAmerica itself is not regarded as a safe bet, either, in the robber fraternity of banking. In some ways it's a marriage of debtors, not of creditors. This point must be driven home to the workers most of all.
Nothing could illustrate the banks' positions better, especially Citicorp's, than the recent financial panic in Hong Kong. The run on Citibank in Hong Kong, and the one on Standard Chartered Bank of Britain, may have looked like little ripples on a vast ocean. In reality, however, they have the deepest significance.
Citibank in Hong Kong is a unit of Citicorp, with which the new merger on the West Coast is supposed to compete. Citicorp is one of the biggest banks in the world. For many years it has stood as the Rock of Gibraltar. Citicorp has a long history in Asia, particularly Hong Kong. How could there be a run on one of its units when its financial support is among the mightiest in the world?
At first, the run on the Hong Kong unit of Citicorp was explained as the result of malicious rumors, false statements, even conspiracy. But the run on the bank continued, joined by one on Standard Chartered Bank. The panic was great. Huge lines of people sought the return of their deposits. Pandemonium reigned. No amount of assurances from the Hong Kong authorities, or from British and U.S. officials, sufficed.
If these were independent banks, not affiliated to the vast empire of Anglo-U.S. finance capital, they would have been forced to close shop within hours of the run. But because they are part of financial empires in the metropolitan centers of imperialism, they were able to survive the run.
Was the run on the banks solely the result of malicious rumors, false reports or a conspiracy of disgruntled BCCI depositors in Hong Kong who had lost their money as a result of the collapse of the Bank of Credit and Commerce?
No. Rumors of the insolvency of Citicorp and the weakness of Standard Chartered had been circulating for a long time. It was none other than U.S. Representative Charles Dingell of Michigan, speaking at the House Committee on Banking, who set the rumors off. He said that Citicorp was "technically insolvent." The speed of telecommunications made it possible for his remarks to reach Hong Kong within minutes.
Of course, what Rep. Dingell said really wasn't news. Citicorp has been regarded by financial writers and commentators in the U.S. as even more than just "technically insolvent." That has been reported many times in the capitalist press.
The bank has long been overloaded with nonperforming loans, especially in Latin America but also in other parts of the world, including Asia. But so mammoth a financial giant as Citicorp, even if technically insolvent, has been able to meet depositors' withdrawal demands at any time because it has $129 billion in assets.
There has been no financial panic in the U.S. — thus far. That is because of assurances by the Federal Reserve Bank — that is to say, the Bush administration — that it will stand behind the banks to see that there is no repetition of the kind of situation that resulted in the bank closures, the so-called "bank holiday," of the Roosevelt administration. At that time, the banks were forced to temporarily close and seek refuge through government assistance.
But these assurances, coming from the summits of U.S. finance capital and the government, are nevertheless only assurances. The U.S. is at present the world's biggest debtor. At the beginning of the Great Depression, the U.S. was a creditor nation and could afford a wholesale refinancing of the U.S. banking system and in particular its giant banks. Repeating this scenario under conditions where a loaded military budget has accumulated hundreds of billions of dollars in government deficit spending dramatically alters the very inner structure of American finance capital.
In the meantime, the euphoria resulting from the proposed BankAmerica merger may be short-lived.
What stopped the run on Citibank and Standard Chartered Bank? It wasn't just U.S. and British intervention. The Bank of China — the People's Republic of China — intervened with a surprising support statement that the rumors were "demonstrably false."
The irony is that Hong Kong is still a crown colony of Britain. Geographically and ethnically, however, it is an integral part of China and is due to revert to Chinese administration by the end of the decade. That the People's Republic, a country engaged in socialist construction, should come to the aid of U.S. and British bankers and help them rescue the situation demonstrates that China needs the stability of international finance capital in Hong Kong. The People's Republic saw it to its great advantage to bolster Citicorp and Standard Chartered Bank.
It is relevant here to consider another Third World city that has functioned as a banking center for world imperialism. It may appear to have been long forgotten in light of the struggles that have taken place in Lebanon, but Beirut is to the Middle East what Hong Kong is to Asia.
With the U.S. invasion of Iraq and the apparently complete breakup of Lebanon into warring political tendencies, it might seem that Beirut has all but vanished as an imperialist financial center for the Middle East. But that is not so.
When the U.S. barracks in Lebanon were bombed in October 1983 and more than 200 U.S. Marines were killed, it might have been expected that the U.S. would open up a veritable genocidal attack against that country. But aside from a few shots from U.S. warships, the Reagan administration and the Pentagon held their fire.
The basic reason was that the U.S. was concerned with obtaining a "peaceful settlement" in order to re-establish Beirut as a new and stronger financial center in the Middle East, free of political and social disorder, so that Beirut could function at least on a par with Hong Kong.
Hence, the U.S. is now looking forward to the re-emergence of Beirut as a financial center with none other than Syria and its current leader, Assad, playing out the role that China has assumed in Hong Kong. Iraq, Israel, Abu Dhabi and Saudi Arabia notwithstanding, what is important is to maintain the imperialist stranglehold on oil. For that, Beirut is uniquely significant as a financial and commercial center, with the U.S. Mediterranean Fleet — of course, of course — in the background.
However, nothing is less certain than the bankers' ability to manipulate and stabilize the situation, even in their own banking center, Wall Street. The latest shock wave proved this again.
The mergers and the shocking public admission of Salomon Brothers illustrate that an emerging economic crisis, not simply a recession, is on the order of the day. It will be on the scale of the 1929-39 breakdown of the capitalist system, which in turn brought about the greatest upsurge in U.S. working-class history.
This time around, the possibility that a large-scale imperialist war could divert the economic crisis is slimmer than ever. Imperialism is exhausting all its options. It is coming face to face with the inevitable reassertion of the working class, as a class, in the struggle against capitalist exploitation, national oppression, racism, sexism and lesbian/gay oppression.
Last updated: 19 February 2018