``I cannot recommend strongly enough Dick Bryan and Michael Rafferty's book Capitalism with Derivatives. Not only does it show that financial derivatives mark a new period of capitalism- with associated shifts in the ownership and control relationship and some interesting things could be said about how this changes the relationship between petty bourg and prols with owners- but it is also a very nice materialist understanding of neoliberalism (contra Harvey's rather idealist one). You simply cannot dismiss derivatives due to the recent financial problems which are nothing more than scams on the periphery of a much larger issue. Derivative markets are so large and play such a massive role in how capitalism operates today that there really is no way of getting rid of them, unless we rid ourselves of the whole system...'' Brad Bauerly
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I posted a link to Elizabeth Warren's Congressional Oversight Committee Panel:
http://www.c-span.org/Watch/Media/2010/02/25/HP/A/30042/Congressional +Oversight+Panel+Hearing+on+TARP+Assistance+for+GMAC.aspx
The whole point to listening to this two hour forty minute hearing was to see in material terms the deep linkages between auto manufacturing, production, distribution, sales, and the financial systems that support this entire sector. The main players are the US Treasury who owns some 56% of the GM, GM's production systems, and GMAC the financial division. GM was allowed to fail and then re-structured. GMAC was not allowed to fail. GMAC got into trouble by investing in home loans and selling securities on the loans to larger investment banks like Lehman Bros.
A point made in this panel hearing was that CMAC was too integrated into the plant production and dealer sales system to be allowed to fail, where as the investment banks were `too big' to fail.
The underlying question (which was not asked) was why CMAC which used to depend on interest loans to dealers for new car stock and inventories, and customer sales of car loans---why in the 1990s did CMAC diversify into the mortgage market, and then derivatives based on those loans?
I think the answer is simple. GMAC could make more money on derivatives than car sales and in-house support of dealers inventories. While car loans were traditionally a very secure credit business with a very long history, it evidently was not a big profit maker. Financing dealerships was also a very old business, but it had a history of ups and downs. So GMAC got into the mortgage market. I would be interested to know physically where most of those homes mortgages were located.
So then, part of what neoliberalism amounts to in my view is the discovery by capital that more profit could be made by investing in financial `products' than investing in production of tangible goods and services. In the large picture huge sums were taken out of industrial production systems and moved to non-production systems. There were many other aspects to neoliberalism's financialization model like expansion through mergers and acquisitions rather than investment in new production systems. There are expansions by diversification in vertical or horizontal arrays. Or there is buying and selling of patent right to this or that. There is accumulation by dispossession, i.e. capturing ownership rights to previously public held land, water, air, genes, whatever. None of these privately owned systems produce anything but money through buying and selling variously invented `products'.
To my old blue collar brain all this financialization is very destructive of the economy of tangible goods and services that people actually need and use. The overall effect has been to disable a society's ability to reproduce itself. This problem of the neolibral project is horrifically modelled in Haiti. They had several key state owned businesses, a rice mill, a concrete plant, and a telephone exchange. All of these were sold off in privatization schemes managed by the US State dept, UN, WB and IMF. I think the Haitian state also owns a large reservoir, water system and electricity plant. I think none of those has been sold. So you get to see what neoliberalism means to development in very naked terms. The reason the US doesn't want Aristide back is because his political party led a strong anti-neoliberal campaign to not sell off those state holdings.
So then getting back to the US and financial meltdown. One aspect of neoliberalism is a kind of sociology, a view of society, what it is, what is supposed to be. For example neoliberalism talks about civil society, as if it were somehow a neutral `good' where socio-political problems are resolved in some kind competitive `marketplace' of ideas and so forth. This is where much of the US media resides along with the NGOs and think tanks each with their own bullshit image of the American Experience. The effect of this neoliberal conceptual space is to render it contentless, where market `forces' of competition will resolve conflict of interest. What nonsense.
It is this conceptual space of `neutrality' that I think explains a lot of Obama and the Democrats ideas of social reform. This is really a very complicated subject because it also involves the whole social reform tradition within government agencies and their bureaucratic histories. As these agencies privatized their original mandates through contracts and grants, they transferred their political concepts out into non-governmental companies.
You can follow these developments by looking at public education and the whole charter school movement. Notice the change in what I think of as sociology. The design and methods of public education originated in mostly public higher education with depts in child psychology, child development, theories of teaching, curriculum, lesson plans, and state agencies responsible for monitoring local school districts. This was liberal `vision' of public education. Now we have the neoliberal `vision' of education. R&D studies in education now rely on private specialist firms who develop their own studies, research, curriculum, textbooks, study plans and so forth. They are not backed up with professional social science done in public higher education, but often rely on a cottage industry of other highly politicized systems in `civil society' until you get the real marvels like Arnie Duncan, who assure us that our public systems have failed the grade in the competitive market place of `ideas'. Words like productive and efficiencies are thrown around with odd meanings. Since when was there anything efficient about teaching kids to share and get along, learn to read, play number games, speculate about the `cause' of events in the world, investigate bugs in the park.
These essential social experiences have nothing to do with any market model. They are built up from entirely different conventions, customs, and forms of knowledge about people. They have so little to do with neoliberal market models that these actually destroy social development and relations built on other traditions.
CG