For a country whose most famous son M.K. Gandhi once said, “The world has enough for everyone’s need, but not enough for everyone’s greed,” India’s contemporary banking sector crisis provides the perfect muse to deep dive into Eric Toussaint’s riveting teardown of the world of big banks. And the pieces that emerge coalesce to reflect a dystopian image of the world of finance capital. A world where banks, in collusion with institutions and governments of the most industrialised countries, have helped enrich those at the top of the food chain while slowly but surely aiding in the dismantling of the social and economic rights of the masses lower down on the economic pyramid.
Toussaint’s Bankocracy is a necessary primer for anyone wanting to wrap one’s head around the problems plaguing banks in our country today because it lucidly helps establish the genesis of the global financial crisis of 2007-2008 and shares the lessons one ought to learn if history is to be prevented from repeating itself. A historian and political scientist who is a founding member and a spokesman of the Committee for the Cancellation of Third World Debt (CADTM), Toussaint’s signal achievement is in unravelling the complex web of linkages between the lenders, big corporations—the main borrowers—and governments, and how these structures have been put to use.
Transfer of wealth
In Toussaint’s words: “The public debt system as it functions in capitalism is a permanent mechanism for the transfer of wealth produced by the people to the capitalist class. The crisis which began in 2007-2008 reinforced this mechanism because the losses and debts of major banks were transformed into public debt. On a very large scale, governments socialised bank losses so that banks could continue to make profits, which are then redistributed to their capitalist owners.”
Using Europe as an example, the book shows how this played out. While public debt in the Eurozone had started to decline between 2000 and 2007, the borrowings by banks, households and non-financial companies had continued to grow. And suddenly after 2007, public debt surged across the countries using the euro as the global financial crisis triggered by the bursting sub-prime bubble in the U.S. sparked bank bailouts worldwide. By 2011, gross public debt in the Eurozone had climbed to 82% of its gross domestic product (GDP) from 66% in 2007, while banks’ debts had soared to an astronomical 333% of GDP.
Toussaint establishes how, starting in the late 1970s, the political class across the developed western world systematically watered down and rolled back regulatory oversight of the financial sector. From the whittled down framework of the Roosevelt-era Glass-Steagall Act, which had ensured a strict separation between commercial lenders and investment banks in order to protect depositors, the neoliberal push for deregulation in the 1980s gave rise to conditions that allowed banks to abandon their ‘originate-to-hold’ business model and instead ‘securitise’ and sell their loans. The mad scramble to securitise across asset classes and trade these securities was accompanied lock-step by the ‘animal’ urge to speculate as the pursuit of profit became an end in itself.
The memorable line from the 1987 Hollywood classic Wall Street where Gordon Gekko (the fictional financial trader played by Michael Douglas) nonchalantly asserts “greed is good” captures the credo of the era, a time when any regulation of the capitalist system was seen as too restrictive.
The upshot was the extreme concentration of capital. Drawing from data from the Bank for International Settlements, the International Monetary Fund and the European Union’s Liikanen Report, Toussaint shows that in 2013 the total international assets of banks exceeded a staggering $100 trillion—to put that figure into perspective, the combined nominal GDP of the world’s three largest economies in 2016, namely the U.S. ($18.6 trillion), the EU ($16.4 trillion) and China ($11.2 trillion) amounted to less than half that figure at $46.2 trillion according to data from the IMF. And the size of India’s nominal GDP in 2016 was a fraction at $2.2 trillion.
Hunt for higher returns
If one were to add the assets under ‘shadow banking’—special purpose vehicles created by banks themselves to carry out ‘high-risk, high-reward’ speculative financial transactions outside the purview of national or international regulatory oversight—that figure from 2013 swells to at least $140 trillion. Speculation has spread its tentacles across markets and asset classes sparing nothing in its wake—from stocks, bonds and currencies to foodgrains and oil—all fair game in the ever-widening hunt for higher and higher returns.
In chapter after chapter, Toussaint painstakingly lays out the rapacious onslaught the capitalist project has unleashed upon labour and the majority of the world’s populace. And as he academically chronicles, with extensive footnotes and cross-references, the ‘too-big-to-fail’ banks have repeatedly not shied away either from testing the boundaries of the law: be it money-laundering for drug cartels, using banking secrecy laws to justify their complicity in tax evasion, or tampering with interest rates.
But this book with its polemical title on the undue power banks have today to determine policy is not just an empty Marxist diatribe against capitalism. Instead, Toussaint maps out an alternative path. A path that should be particularly germane to policymakers in India today given the magnitude of the bad loans and stressed assets problem banks are saddled with. And the solutions don’t involve public bad banks and asset reconstruction companies and insolvency and bankruptcy codes.
After all, complicated problems require radical approaches and Toussaint’s prescriptions could surely fit that bill. If Gandhi’s credo can be reinvoked, there is after all enough for everyone’s need.
Bankocracy ; Eric Toussaint, Aakar Books, ₹595.
