How Many Crises Before It All Collapses?
The Spark, #editorial, Mar 12, 2023
On Wednesday, March 8, Silicon Valley Bank (#SVB) notified its shareholders that it would issue new shares of stock to cover a loss in the value of its investments. SVB is a very specialized local bank. Its clients inhabit Silicon Valley: IT and medical technology start-ups, and the so-called venture capital firms that advance money to them.
On Thursday, the venture capital firms pulled out their deposits. By the end of the day, a run on deposits emptied the bank of all its cash. On Friday morning, the state of California declared the bank insolvent and shut it down. The FDIC, government insurer of bank deposits, took it over.
#Silicon_Valley_Bank is not a typical bank. Over 90% of its clients had more than $250,000 deposited, even though the limit of FDIC insurance is set at $250,000.
So now what? Some financial “experts” insist that government must find a way to reimburse these companies for all their losses, despite the limit. If not, they warn, the failure of SVB could end up bringing down the whole financial system.
Other “experts” declare that this is an isolated situation. A spokesperson for Fidelity Investment blames it on risky banking practices, in which, Fidelity brags, it never engages.
In fact, at this point, no one knows what’s going to happen. But one thing is sure: Silicon Valley Bank is not the only one with risky behavior.
If the collapse of SVB leads to a wider #financial_collapse, it will happen for the same reason that the whole global economy nearly collapsed in 2008: the whole capitalist system is engaged in “risky behavior.” In 2008, the bankruptcy of one Wall Street trading firm, engaging in “risky behavior,” soon threatened all the biggest banks in the country.
Since 1970, there have been crises, one after another, each one deeper and more serious than the one before: the monetary crisis and the first “oil shock” it led to; the second “oil shock,” which led to the “third world debt crisis"; the 1987 stock market crash; the collapse of the “dot.com bubble"; followed by the “sub-prime real estate” crisis. With each crisis, problems in the financial system spilled over into the productive economy, leading to unemployment and disruption—and to a worsening of the lives of laboring people around the world, including here.
Each of these crises was alleviated by a government bailout. Government printing presses threw more money into the financial system to bail it out, but governments went into more debt to do so. And each bailout created a greater overhang of money circulating in the system, leading to more #speculation, which erupted into the next crisis.
In fact, #capitalism does not use the money it already has on hand to invest in production unless it can make more profit there than elsewhere. This new money thrown into the financial system found its outlet in greater financial speculation, driving up prices in the stock markets of the world and on real estate... or on eggs and used cars!
The financial system is a great big casino, where all the chips are paid for with government debt, which absorbs more and more of the value produced in the productive economy. Government, burdened down by more and more debt, cuts back on society’s collective needs. Schools degrade, as do roads, bridges, tunnels, railroad right-of-ways, dams, levees, and so on.
Yes, there is a risk the whole financial system could suddenly collapse. That risk exists because crisis is endemic to the capitalist system, and it has been since the beginning. In 1920, in the midst of another crisis, #Leon_Trotsky, the Russian revolutionary, described the situation in this way: “So long as capitalism is not overthrown by the proletarian revolution, it will continue to live in cycles, swinging up and down. Crises and booms were inherent in capitalism at its very birth; they will accompany it to its grave.” The answer to capitalism’s crises remains, as it did in Trotsky’s day, with the working class, the only force that has the capacity to overthrow capitalism, and replace it with a society beneficial for the whole population.