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Capital’s dirty tricks
Claims for an end of the financial crisis have been thrown into sharp relief by the announcement of losses at US banking giant JP Morgan.

In early May J P Morgan, the biggest US bank in terms of assets, made the surprise announcement that it had suffered a trading loss of at least $2.3 billion.  This announcement was all the more surprising as the bank was viewed as the institution that had most successfully navigated the financial crisis and promoted as the model for how the banking sector could recover.  
The bank’s CEO Jamie Dimon said that it had made a significant loss on its “synthetic credit portfolio” – a financial vehicle that is typically made up of derivatives that track the movement of shares.   He also admitted that the total loss could be beyond the $2 billion estimated so far.  While the details of what happened are not clear it is thought that one of its top traders, known as the “London Whale” because of the size of his trading positions, made an enormous speculative bet that the creditworthiness of major corporations would get better on the back of an  improving economy.  With the release of data indicating a weakening economy the market moved in the wrong direction for JP Morgan. The movement of the market may have been marginal but because of the nature of derivatives, which are many multiples of the values of the companies and commodities they track, it translated into a huge loss.      
It is significant that this loss came in the derivatives market – the complex and high risk investment products – that were at the heart of the 2008 financial meltdown and the onset of the long period of economic recession.   The reality is that “casino capitalism”, which had come in for so much criticism from politicians and commentators, never went away.  The promises to reform the financial system never materialised.  In the US derivatives’ trading was supposed to come under greater regulation as a result of the Dodd-Frank financial reform law.  One of its main provisions was the so called “Volcker rule” which would bar banks from "proprietary trading"- i.e. acting for their own profit rather than for customers.  Though the bill was passed by Congress in 2010, large parts of the legislation, including the “Volcker rule”, haven’t yet come into effect.  The bill that was passed was a greatly watered down    version of that originally proposed and federal officials who are still finalising its provisions are under pressure from banking lobbyists to create has many loopholes as possible.
In Britain the Government commissioned the Vickers report which recommended the separation of the retail and investment arms of banks.  The idea behind this was that if high risk investments went wrong the broader economy would be shielded and state funded bailouts avoided.  However, any action on implementing the recommendations of the report was put off until the distant future.  
The justification for putting off reform of the financial sector was that any further regulation could hamper the recovery.  Given that a lack regulation is cited as a major cause of the crisis this seems perverse, but it is consistent with a political class in North America and the EU which completely identifies with the interests of financial capitalism.  This was summed up in a comment by one US   senator on the relationship between the banks and Congress that “they frankly own the place."   In the wake of the latest financial debacle President Obama rushed to the defence of the bank and its chief executive, declaring on that  JPMorgan was “one of the best managed banks there is” and Dimon was “one of the smartest bankers we got.”
It is doubtful if the various reform proposals were anything more than an empty gesture towards public discontent.  The reality is that throughout this crisis politicians have acted to shore up the financial class, to preserve the value of its assets and ensure that it does not suffer a loss. This has been the imperative underpinning measures such as nationalisation, re-capitalisation, ultra-low interest rates, quantitative easing and bailouts.    
Of course someone has to pay for this and the corollary of these measures is an assault upon the living standards of the mass of the population.   This has taken the obvious form of austerity measures such as public spending cuts and higher taxes.  But it has also taken the more insidious form of “financial repression” as inflation eats away at value of wages while savings and pension funds are      diminished through almost zero interest rates.  This has resulted in the transfer of even more wealth towards the banks and into speculative activity.   
The persistence and dominance of speculative activity and the inability of the ruling class to resolve the debt crisis points to deep seated problems within the capitalist economy.  While the financial crisis prompted calls for a rebalancing of the economy, much like financial reform, this has come to nothing.  In North America and Europe the productive sector remains relatively small.  Even in China, which is seen as the centre of manufacturing, there are signs that speculative bubbles are building up.  While many of the big corporations are cash rich they are not investing in new productive capacity but rather in unproductive sectors such as government debt.  The recent flotation of Facebook, a company whose initial share value was sixty times its annual income, is a good example of this type of unproductive investment.  
An economy in which so much financial capital rests upon such relatively little productive output (for example, it is estimated that the derivatives market at its height was ten times the size of the global economy) is inherently unstable.  The capitalist response is meant to ensure that workers will pay in blood.


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