Default as counter-power to financial speculation
In the comments of most of the press and the statements of politicians and so-called experts, a ghost (or rather a nightmare) is haunting Europe. It is not the spectre of communism, but rather the nightmare of financial markets. Everyone is awaiting their response, modern oracle capable of conditioning and influence the lives of millions of people, bring down a government, forcing early elections or lead to the signing of documents and otherwise social pacts between signatories equally implausible, without credibility.
Biopower in financial markets has increased considerably over the financing of the economy. If the world’s gross domestic product in 2010 was 74 billion dollars, finance operations results exceed that amount by far: the global bond market is worth 95 000 billion, stock markets around the world 50 trillion dollars, and derivatives, 466 trillion. Together (excluding the activities of the stock market and credit), these markets move a lot of wealth eight times greater than that produced in real terms for industry, agriculture and services. This process, as well as shift the center of recovery and capital accumulation of material production to the heritage and the exploitation of manual labor to the cognitive, has created a new “primitive accumulation” which, like all primitive accumulations is characterized by a high degree of concentration.
Regarding the banking sector in 1984, the world’s top ten banks controlled 26% of the total activity, with 50% owned by 64 banks and 50% distributed among the 11,837 other smaller banks. The Federal Reserve data tell us that from 1980 to 2005 have been carried out about 11,500 M, an average of 440 a year, reducing the number of banks to less than 7,500. In the first quarter of 2011, five SIM (Real Estate Brokerage Company: JP Morgan, Bank of America, Citibank, Goldman Sachs, HSBC Usa) and five banks (Deutsche Bank, UBS, Credit Suisse, Merrill Lynch-Citycorp, BNP Paribas, ) have gained control of over 90% of all derivative instruments: swaps on exchange rates, CDOs (Collateral debt obligations) and CDS (Collateral Defauld swaps). Source: http://www.occ.treas.gov/topics/capital-markets/financial-markets/trading/derivatives/ dq111.pdf.
In the stock market, strategies for mergers and acquisitions have significantly reduced the number of listed companies. In 1984 the top ten companies with greater market capitalization, equal to 0.12% of the 7,800 registered companies, holds 41% of the total value, 47% of total revenues and 55% of the profits recorded. In 2011, these percentages have remained almost unchanged, except that three of them (Merrill Lynch, Lehman Brothers and Goldman Sachs) have been merged in early 2008 and have become banks (eg the acquisition of Merrill Lynch Citycorp) or, as in the case of Lehman Brothers (and Bear Starney) have been unsuccessful, thus favoring a further concentration process (Source: Federal Reserve).
In this process of concentration, the main role is held by institutional investors (the term that describes all financial operators, the SIM, banks, insurers, who manage investments for third parties: they are today that Keynes defined the 30’s as the “professional speculators”). In 1984, in relation to the U.S. market, the value of their securities, amounted to nearly 2.6 billion dollars. In late 2007, according to Federal Reserve data, institutional investors titles handled by a nominal value of 39 billion, 68.4% of the total. Importantly, this percentage has increased over the past year, especially after the spread of sovereign debt. For example, in the Italian public debt, about 87% is held by institutional investors, over 60% abroad (unlike what happens in Japan).
From these data, we can actually argue that financial markets are not something ethereal and neutral, but are an expression of a precise hierarchy: far from being competitive (belief seemingly confirmed by the high flexibility of the “prices”, flexibility that is, however, at the basis of profits), are confirmed as highly concentrated and oligopolistic: a pyramid, which shows, at the top, a few financial operators can control more than 70% of global financial flows and at the base, a myriad of small savers who have a purely passive role. This market structure allows a few companies (including ten between SIM and banks listed above) to be capable of directing and conditioning the market dynamics. Rating agencies (often in collusion with the same financial corporations) also confirm, in an instrumental way, oligarchic decisions taken over and over again.
After the subprime crisis in 2008-09, from 2010, financial speculation has put its focus on the policies of the welfare state. His character of biopower has been further accentuated by acting directly on ways of life. This is not surprising, since the moment it is precisely the production of social services and intangible assets (health and medicine, pharmaceutical, education, research, exploitation of natural resources, communication and languages, biogenetic) the main purpose of the surplus production .
What is happening in recent weeks is the most resounding confirmation. The speculative mechanism is developed according to the following steps, with variations depending on the type of financial activity, object of speculative attention.
Phase 1: In situations of extreme uncertainty and instability (therefore, in situations of financial normality), some sectors (in reference to corporate bonds) or some welfare systems (in relation to the sovereign securities) can become the object of speculative interest due to the presence of some confounding factors that can exacerbate volatility. This volatility can be upward (for example, in the case of petroleum titles during the summer-autumn 2010, or during the birth and development of a financial arrangement that gives rise to a speculative bubble) or low, as in the current situation.
Phase 2. Intervention by the rating agencies, reducing or increasing the risk assessment using dummy parameters, is to officially certify a panic or euphoria. In the case of sovereign debt (welfare), it is always emergency situations. It is difficult to identify the true cause and effect link between the downgrade of sovereign debt and the beginning of his impairment. The point, reported verbally on several occasions, but never seriously addressed in the agenda of the so-called “reformers” of financial markets (eg the Financial Stability Forum, led by the new European Central Bank Governor Mario Draghi) is the high collusion between rating agencies and large institutional investors, which often overlap their positions on the Boards of Directors and have conflicting interests. In this regard, the recent reduction of U.S. bonds may represent a decisive test. Anyway, once the emergency phase induced, begins the decline in value of the title. The first to sell are the very large institutional investors. For example, in the first six months of 2011, Deutsche Bank (one of the ten financial powers of the world) has reduced its exposure by 88% on Italian government bonds, reducing its portfolio of 8 billion in late 2010 to € 997 million at present (source: Financial Times), leading to an increase in the spread between Italian and German bonds to ten years. This policy has previously affected sales to Greece and other European countries, with reductions in exposure over Portugal, Italy, Ireland, Spain and Greece for almost 70%. It should be noted that such sales, carried out in stages, preceded the actual collapses that those same bonds have shown later. In fact, such a massive influx of sales immediately translates into falling prices of the bonds in question, and therefore in an increase of “performance” that should guarantee to refinance the national debt. It follows the expansion of the difference in interest rates with similar sovereign bonds, considered safer and less volatile (usually bonds Germans, Americans and Japanese, while having a debt / GDP ratio of over 200%placed more than 80% of its own titles in national hands.)
Step 3: Once proclaimed the emergency phase, you should run for cover. In this case, nation-states are more or less obliged to take measures to control public debt and thereby reduce the welfare state on behalf of the dictates of social thought and neo liberal, depending on the color of the governments , which result, as we know, and we have already discussed, a reduction of public intervention and the dismantling of social protection. And not only that. The European Central Bank is forced beyond the nationalist disputes between France and Germany to intervene to bring money ex-nihilo to allow payment of interest fees. In the case of Italy and Spain, both countries being “too big to fail”, the risk of default must be completely avoided, although emergency situation as possible and continue giving financial markets can continue to speculate. It is, mutatis mutandis, the same risk run by the U.S. In recent weeks, Italy and Spain, the emergency has worked for the U.S., even having averted the risk of “technical” default-emergencial speculative pressure seems to be starting now with the lowering of Standard & Poor’s rating. A further confirmation of how financial markets are much easier to maneuver than any imaginable way, and have much more power than any nation-state.
Phase 4. Once the situation has reached the right place, always the decision of the institutional investors that affect financial markets and is considered sovereign bonds have reached the appropriate discount and once you have taken policy measures in the best interest of the financial markets, the emergence ceased as if by magic.Purchases start, stock markets soar and institutional investors start buying sovereign debt thresholds. A few days gains obtained are considerable. It is estimated that after the first speculative attack in mid-July against the titles Italian, Greek and Spanish, with falls of the stock of the major financial markets of more than 7.8%, after the European plan for extraordinary intervention over € 110 billion in support of Greece, the recovery has been such for the stock indices have returned to previous values, with profits have reached record levels in a few days, even to allow Goldman Sachs to enjoy greater liquidity the very same U.S. Federal Reserve.
When speculating on the downside, the topic is time, therefore, the reversal of the indices. That time depends on many factors: first, the degree of collusion between the hegemonic and finance companies, secondly, the measures taken by the monetary authorities (ECB) and national governments more subject to speculative pressures.Recent U.S. cases and Europe are manual. The risk of default “technical” in the U.S.temporarily diverted attention from the speculative pressure on European countries to greater debt. However, none of the major speculators have never believed in the possibility of a U.S. default. This risk, however, has the expected results, imposing restrictions on the American public budget social spending and encouraging the increase of monetary liquidity to support financial markets. Not unlike the European situation. The various European governments, subject to speculative pressures, have adopted fiscal policies of “blood, sweat and tears.” Some, like Spain, have decided to call early elections to try and deter speculative pressure on the prospect of an electoral victory of conservative forces. Others, like Italy, have launched far-reaching restrictive measures, but no immediate effect but in the 2013-14 biennium (fiscal package of $ 80 billion, of which over 70% is concentrated precisely in the period 2013-14, once the current term). After the intervention in support of Greece and the ECB’s decision to buy the government securities secondary market bonds mainly Spanish and Portuguese, it is not surprising that targeting more lucrative speculative pressure than Italy, regardless of their economic situation (which anyway is not the best, especially in terms of income distribution and investment capacity). Speculative expectations are focused on a new intervention of the ECB, capable of injecting new liquidity to revive financial markets, or the redefinition of fiscal packages. And these measures have not taken too long.
The ECB, for the moment (August 8, 2011), has not yet been shown in an extraordinary intervention available for Spain and Italy, as well as on several occasions it has done for Greece, Ireland and Portugal. Has been limited only to declare the purchase of a large number of Italian titles. The Italian government, in a newfound social dialogue (perhaps even more dangerous than financial speculation) has hurried to accept the dictates of financial markets: advance of most of the annual budget package no longer balanced in 2014 budget, but in 2013’s, inclusion in the Constitution of the obligation to balance the state budget, as is attested in the art. 105 of the Maastricht Treaty at the European level the involvement of an inflation rate not exceeding 2%, dismantling and privatization of the welfare state. These measures will be followed later by a further process of liberalization and labor market insecurity, calling for more sacrifices for social partners, on behalf of national emergency.
As we have argued elsewhere (http://uninomade.org/la-farsa-dellemergenza-economica-parte-ii/), achievement of these goals is almost impossible and it was a longer period, much less in an even shorter period and with interest charges increased in the last month of about 2.8 million euros after rising interest rates higher in recent weeks (see Francesco Daveri http:/ /www.lavoce.info/articoli/pagina1002486.html).
Large institutional investors are well aware this. Achieving a balanced budget in Italy or other European countries do not care. What interests them is, first, that the room for financial speculation downward always remain open and, secondly, that the new liquidity injected continuously and constantly flowing in the circuit of financial markets, to improve the creditworthiness of the transactions. Finally, thirdly, to ensure the payment of interest fees.
Therefore, speculative activity is always in action. If not to intervene temporarily in Europe, it can always intervene on the market of values or derivatives of raw materials or on U.S. government securities (as now seems evident, given the deterioration of the U.S. debt by Standard & Poors these days) or vice versa.
It is a mechanism that has nothing parasitic, but rather the contrary. Given that no longer apply the Bretton Woods institutions, financial markets provide an independent and supranational currency value, based on the hierarchies and expectations that increasingly determine institutional speculators. The ubiquity of the financial markets about social and economic life of the inhabitants of the earth (from the rural South to the workers and dwellers of East and West, student migrants) is such that access to portions ( increasingly diminishing) of wealth is conditioned directly or indirectly by the distributional effects and distorting financial markets that they generate. Here is his bio-power and governance. Every dollar of revenue generated by virtually speculative activity has real consequences on the economy of around 30% (according to data from BRI), launching a financial multiplier that directly affects the ability of investment and income distribution is on the basis of the current accumulation process. In fact 30% is the net creation of money, regardless of any existing of state signoraggio today. The production of money through money means a new law of value and a new standard of exploitation (see http://www.ephemeraweb.org/journal/10-3/10-3index.htm) and this power makes the Financial markets recovery center today.
Against this background, work is needed to reduce the scope of financial markets: not by the illusion of reform, but through the creation of a counter-power able to erode its effectiveness. We need to break the circuit of financial speculation (especially when it is down) hitting the source of their benefits, or favoring the total devaluation of the titles that are increasingly at the center of speculative activity. This can only be achieved through an instrument, the unpaid interest (or time dilation) and the declaration of default (bankruptcy). Thus, the very instrument of speculation would be less: public debt as a result become a dead letter, junk bonds or junk bonds.Institutional investors speculate on the risk of default but are the first who did not want.Of course, speculation would move elsewhere, creating new emergencies, but at least it would have under his sights on the welfare state, especially when pursuing a strategy of controlled default or accompanied at European level and in coordination with the Federal Reserve for a common policy on crisis management with the aim not only to create an intervention fund to support countries in difficulty, but above all capable of replacing Eurobond issue sovereign debt in default fixed rates interest and control the free movement of capital.
In fact, this perspective has already been partially experimented with Greece.Precisely because of the risk of default, Greek state bonds have been turned into junk bonds losing more than 70% of its value. This situation has required a special European intervention plan to avoid negative effects on the euro. This plan, however, instead be financed by issuing new securities backed by the ECB can replace the Greeks at a rate of interest determined on the basis of the LIBOR rate or the official discount rate, has been limited to provide liquidity to the banks creditors can somehow compensate the losses suffered by the devaluation of securities. In this way, new blood has been provided to financial speculation.
The right to default is under way. This is the only appropriate policy response, so you should take note.