One of the more politically frustrating aspects of the last decade in the West is the unwillingness of the powers-that-be to address the radical dysfunction that underlies Western political economy. As fact, microcosm and metaphor, the ‘scandal’ of Wells Fargo bank creating millions of fake accounts, charging its customers for the privilege and then telling so-called regulators to kiss its ass, is loaded. In 2011, when the bank is said to have begun the practice, Wells Fargo was still being actively bailed out, ‘extraordinary’ measures were being taken to revive the fortunes of the rich and connected and it hadn’t yet become entirely clear that ‘change you can believe in’ meant full revival of the system that created the recurring crises of recent decades.
The relentless propaganda of economic recovery isolated ‘the economy’ from the broader system of political and economic control and posed the heavily engineered up-cycle as a permanent new state of affairs. It also pitted the facts as lived by hundreds of millions of people against the insistence by the governments and central banks of the U.S., the E.U. and Britain that recreation of the circumstances that produced the prior three crises would somehow produce widely-shared and benevolent outcomes this time around. What the Wells Fargo ‘scandal’ renders evident is that what was recovered is the system of predatory finance that exists as institutionalized capitalist taking in the service of a tiny but powerful plutocracy.
Graph: the capitalist coup that began in the 1970s was a response to a real crisis alternatively framed as a falling rate of profit and / or declining plutocratic control over Western political economy. Financialization shifted the balance of power back toward capital through the money system. Banks create money against separable liabilities. A rough analogy is the ability to take a loan against your neighbor’s house— you (connected capitalists) get the money and your neighbor’s house gets taken when you don’t repay the loan. The eventual result is that claims on economic production become increasingly concentrated as the economic system becomes unstable and destabilizing. Source: St. Louis Federal Reserve.
The class war visible in the current political season was launched from ‘above’ in the 1970s by connected capitalists— inherited wealth with support from a committed managerial class, with the goal of regaining power and control over Western political economy. The promise, made against the actual outcomes of several centuries of Western imperial history, was of broadly shared prosperity gotten through the constrained self-realization of capitalist democracy. The actual outcome is broadly declining economic circumstance for most people, a tenuous prosperity for supporting bourgeois managers and a new Gilded-Age for the self-enriching class of corporate executives, inherited wealth and financial predators.
Here Wells Fargo again serves as microcosm— a financial sweatshop for low-level workers run by self-enriching executives (and ‘shareholders’) whose business model is using asymmetrical social power to rob anyone it can. Initially, only Wells Fargo would have known that the scam of opening fraudulent accounts to charge illicit fees was systemic. Without this knowledge individual customers could plausibly be told that the fees and fraudulently opened accounts were mistakes; in isolation the amounts taken were too small to justify hiring layers for purposes of recovery and by 2011, when the fraud is reported to have begun, Wall Street had already been granted the ‘right’ by the (Barack) Obama administration to create fake documents and charge illicit fees to fraudulently foreclose on millions of mortgage borrowers.
Graph: while the promise of shared prosperity was held-by-degree by capitalists, corporate executives and their ‘useful idiots’ in academia when the capitalist coup was launched in the 1970s, by 2008 the evidence had accumulated to the point of being irrefutable— capitalism, economic imperialism posed as ‘free choice,’ is a catastrophe-generating mode of social organization that benefits a tiny minority at the expense of most citizens of the planet. Under the terms put forward by academic explainers of capitalism (economists), the existing system is only plausible during the brief periods of respite between recurring crises. The broad trend of economic decline suggests that social turmoil will mount until resolution is found. Source: St. Louis Federal Reserve.
The current political season represents two wings of a global griftocracy vying for share of the spoils. Hillary Clinton and Donald Trump are erstwhile managers of ‘the rabble,’ a/k/a the electorate, for the benefit of existing wealth and power. Wells Fargo was empowered to defraud its customers first by the Clintons under deregulation and later by Barack Obama through consequence-free bailouts and phony foreclosure-relief programs. John Stumpf, Chairman of Wells, ‘manages’ the bank much as Donald Trump has managed his businesses, through the use of asymmetrical economic power under the guise of ‘market’ relations. Posing as hard-nosed capitalists, both feed at the public trough through bailouts, special privileges, tax abatements, bankruptcy court and most pointedly, through the system of ‘free’ enterprise where defrauding workers and customers is ordinary business practice.
This last point was made loudly and repeatedly throughout the early days of the Obama administration when the architects of economic catastrophe— Timothy Geithner, Larry Summers, Ben Bernanke and various and sundry apparatchiks of finance capitalism, were being appointed to bury the bodies and engineer an economic ‘recovery’ that miraculously bypassed those in need to recover the system of predatory finance that put them there. That it was this system that was recovered renders the particular actors largely superfluous. The most notable differences between Hillary Clinton and Donald Trump will play out through foreign policies. This is why Mrs. Clinton’s history as sociopath-for-empire is so troubling. Both embody the ethos of the self-enriching grafter class from whence banker scams like Wells Fargo’s emerge.
Graph: the capitalist coup that began in the 1970s used finance as the mechanism for concentrating claims on economic production in a few hands. The declining rate of economic production in the developed West (middle graph) is coincident with crises of increasing magnitude tied to financial gamesmanship. Housing, like art and other tangible ‘assets,’ has been financialized and commodified to facilitate its newly concentrated ownership. Asset fungibility is a function of ‘liquidity,’ the aspect by which claims on economic production are socially realized. This gives political content to Federal Reserve policies claimed to be politically neutral by academic economists. Method: Ln(h) + Ln(s) = Ln(h*s) = Sum of Bubbles. Source: St. Louis Federal Reserve.
As became clear after the last crisis, the political economy that was recovered functions through the use of social power to squeeze workers and defraud customers. Add in colonialism and neo-colonialism and we get the Western imperialism of the last several centuries. Neither of the major Party candidates will meaningfully address global warming, reduce nuclear arms or move to rebuild the power of labor. They will promote the interests of connected erstwhile capitalists under the guise of serving the public interest. The Wells Fargo ‘scandal’ is good for a round or two of insipid political posturing with the guaranteed outcome being continued support for the system that produced it. That Marx and Lenin well identified these dysfunctions of capitalism over a century ago suggests the power of the analytical frames that are available to be applied when relevant.
Finally, and relevant to any economists who may have made it this far, financial bubbles have distributional consequences (top graph above) as well as being economically destabilizing. The ‘loanable funds’ model that relates bank lending to deposits through interest rates lost descriptive power in relation to the financialization of the economy from the 1970s onward. (It was never mechanically accurate). The paradox created by low interest rates in the current era is that they motivate increasing financial leverage that magnifies economic instability. Keynesian demand management could be implemented through fiscal policies without the need for perpetually low interest rates. As the proverbial tip-of-the-iceberg Wells Fargo scam suggests, the existing system of finance capitalism needs to be taken down to the ground for social reconciliation to be possible.