Pratyush

From Greece to Ireland and from USA to Japan a spectre is haunting international capitalism, the spectre of public debt. If the year 2008 would go into history as the year when banks started to default; 2010 would be remembered as the year when countries started defaulting on their loans.

The recent financial crisis has led to a sharp increase of public debt on a scale unprecedented since the end of Second World War. Today the debt-to-GDP ratio (that is the cumulative total of all government borrowings less repayments that are denominated in a country’s home currency) of the G7 group of nations is at its highest level for 60 years. The debt-to-GDP ratio of a country indicates its ability to pay back its debt, the higher the debt-to-GDP ratio the less likely the country will pay back its debt back and higher the chances of its default. The recent financial crisis has further exacerbated this problem with what we are witnessing today being systematic crisis of capitalism. The debt crisis is not an isolated event but continuation of the general crisis facing neo-liberalism, since the bursting of the sub-prime market. The more the government intervenes to avert the crisis the further it shifts to other sectors.

When the subprime mortgage crisis occurred in 2007, governments in US and Europe to stop the freefall of banking and other financial institutions made the people (taxpayers) take on the burden of all the toxic waste which these institutions had been accruing since the initiation of the golden days of unbridled free market economy, that replaced Keynesian economic theory with that of Milton Friedman’s theses of giving all power to the market. As a result of massive doles, amounting to trillions of dollars these countries have accrued the biggest deficits in peacetime. So from sub-prime mortgage crisis we have the ‘sovereign debt crises’ with particularly profound impact in Europe, with Iceland and Greece being the first casualties.

According to an estimate by Moody’s, the sovereign debt has jumped from 62 percent of world GDP in 2007 to 85 percent in 2009. Over the same period, the average fiscal deficit in the G20 rose from 1 percent of GDP to 7.9 percent. These trends were much more pronounced in advanced countries due to sharper output declines, a more severe banking crisis, and highly developed social safety nets. Since 2007, debt in seven out of the nine advanced G20 countries increased by more than 10 percent of GDP. By contrast, debt-to-GDP ratios declined or are little changed in eight of the ten emerging economies in the G20.¹

As per the report of World Bank the debt-to-GDP ratio of the world’s advanced economies at the end of last year had reached an unattainable 99 percent. While that of Greece’s ratio stands at 111.5 percent; Japan’s is at whopping 219 percent; the US, 84 percent; even Germany long considered the cornerstone of Euro fiscal discipline has 79 percent and the United Kingdom, 69 percent.

In United States the federal government between 2011 and 2020 is expected to accumulate a deficit of almost $10 trillion as calculated by the Congressional Budget Office. By 2023 total government debt is expected to reach 100% of GDP.

Debt Levels, Bond Yields, and Governance Indicators

	Government Debt (% of GDP)		10-Year Government Bond Yield		Governance Indicatora
Country	2007	2009	2007 Q4	2009 Q4	Percentile Rank (0-99)
Advanced G20	78.2	98.9	–	–	–
United States	61.9	84.8	4.26	3.40	91.9
Japan	187.7	218.6	1.55	1.40	89.5
European Union	66.0	78.2	–	–	–
Germany	63.4	78.7	4.19	3.22	93.3
France	63.8	76.7	4.33	3.56	90.0
United Kingdom	44.1	68.7	4.79	3.67	92.3
Italy	103.5	115.8	4.53	4.08	62.2
Spain	36.1	52.0	4.33	3.78	85.2
Greece	95.6	111.5	4.51	4.57	73.2
Ireland	25.1	61.3	4.42	4.69	94.3
Portugal	63.6	74.9	4.45	3.83	83.7
Developing G20	37.4	38.9	–	–	–
China	20.2	20.2	7.83	5.94	45.0
Russia	7.4	7.2	6.68	9.59	19.6
Brazil	66.8	68.5	12.53	13.65	46.4
India	80.5	84.7	7.25	7.18	56.5

a Average of World Bank Governance Indicators. 0 indicates lowest score; 100 indicates highest score.

Sources: World Bank, OECD, IMF Staff Report, European Commission. Quoted from Is a Sovereign Debt Crisis Looming²

Note: The figures for countries may change due to rapidly changing countries debt-default

The European Commission has warned that rising budget deficits, retarded growth and weakening banking sector support ‘feeding into significantly higher public debt levels.’ The governments since 2008 have been doling out large amounts to defaulting financial institutions so that they keep afloat, resulting in a massive bail out amounting to $10.4 trillion.³ According to The Economist, the amount of government debt per person has risen from $16,000 in 2001 to $34,000 now, and household debt has gone up from $27,000 to $44,000. In Britain government debt per head has almost trebled, from £5,000 in 2001 to nearly £18,000 today, and household debt has jumped from just under £14,000 to £24,000.

Bringing the debt to a more manageable level is a daunting task. Ramin Toloui of PIMCO, a fund-management group, explains the dilemma as: ‘When government debt reaches extreme levels, concerns about government creditworthiness become so severe that additional government spending produces increases in long-term interest rates that exacerbate, rather than ameliorate, the economic contraction.’⁴

In March 2010 a report to the Bank for International Settlements noted that ‘our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is unsustainable. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability.’⁵

To come out of sovereign default the governments led by both the right-wing and social democratic parties have announced various austerity measures aimed at cutting a range of social welfare schemes like cut in the health sector, pension funds, rise in students fee etc. People are being made to pay for the follies of bankers and capitalists. The present crisis has come handy for those protagonists of neo-liberalism who wanted to end all sorts of meagre benefits that the working masses have been enjoying in the bourgeois regimes. Austerity measures are being touted as the only way to resolve sovereign debt default. What is being targeted to end? Throughout the European Union the governments are planning to increase the retirement age beyond 65, while millions of young people are jobless. Mass dismissal and using the bogey of lay-offs as a blackmail to reduce wages are being carried out with impunity. There have been reports of a massive rise in tax in countries facing debt problem at the behest of IMF-WB and lender nations. Women and migrant workers are being particularly targeted.

In Greece the wages of public employees has been reduced by 15-20% and the government indicates that further cuts are in the offing. The French finance minister Christine Lagarde told theFinancial Times,⁶ promising €40 billion of spending cuts and tax increases. Whereas Ireland – the second casualty of this ongoing European roulette, has announced plans to slash public spending 20 per cent over the next four years to tackle the country’s soaring budget deficit. The measure also includes a 12 per cent cut in the minimum wage, cutting nearly 25,000 public sector jobs and bringing it to 2005 levels, a massive rise in the VAT and income tax rates. Even the fees of students are to be drastically increased. While the bail-out money would be made used for restructuring of the country’s battered banking industry,⁷ the Irish government has declared that ‘Most of the funds aimed for Irish banks will become part of a “standby facility” available to replenish the banks’ cash cushions if new losses flare up’’.⁸

Furthermore the rightist forces that act as mercenaries of the capitalist class have begun to raise the bogey of chauvinism and have in many places started threatening the migrant and workers from minority community and nationality in name of protecting national interest. These forces since long have been instrument of the bourgeoisies to break working class solidarity and create animosity between the workers of various nationalities so as to dilute the growing class struggle.

According to the Economist, one out of every six U.S. workers has taken a wage cut in this recession, and amazingly, four out of every 10 African-Americans has experienced unemployment during this crisis. Looking at food stamps, an additional 37 million people went onto food stamps in the U.S. in 2009 and 40 percent of those recipients are working for a wage. They’re not unemployed – they’re simply the working poor that can’t make ends meet.

The goal of these ‘austerity drives’ is ‘to carry out another transfer of riches of great magnitude, from labour to capital, to ensure the profits of the banks and the most powerful monopolies.’⁹

Lies, damned lies, and statistics: Poverty rise in capitalist countries

Since 2009 poverty in the working age population in United States has reached its highest level in almost 5 decades with more than one-third of those being children. In 2009 those living below the poverty line reached 44 million, that is 14.3 percent of the total population, the highest level since 1994. According to the U.S. Census Bureau statistics released in September, last year one in every seven persons lives below the poverty line of $21,954 for a family of four, and almost 40 percent of single women led families living in poverty. The rise in poverty is most severe among the blacks and Latinos.

How does the government plan to counter this increasing poverty? Simply – by readjusting the statistical data. The US census bureau is planning to change the methodology how the poverty figures are calculated. According to new rule of calculation the food coupons and tax credits would be calculated as income! So with one stroke of a wand almost 8 million additional people would be removed from poverty figures. This is not the first time when the US government and its agencies have readjusted their counting style to ‘readjust’ the figures. In 1994 during time of Clinton’s tenure as president of United States, the decision was made to count only those unemployed people who have been seeking for a job for less than one year as part of workforce. With this magical readjustment the administration was able to wipe out millions of out of job workers from the official unemployment count.

A report published by Eurofound observed: ‘In Portugal, the in-work poverty risk rose from 10% in 2007 to 12% in 2008, with a two percentage point increase for both men and women. In Bulgaria, the in-work poverty risk of self-employed people reached a record level of 10% in 2008. According to the Irish contribution, the recession hit Ireland particularly hard and had a very negative impact on the working poor: those who did not lose their jobs in many cases had their pay reduced and/or saw increases in taxes and social security contributions.’¹⁰

Public debt as primitive accumulation of wealth

The character of public debt was brilliantly depicted by Marx in Capital, Vol. 1 in the following words:

The public debt becomes one of the most powerful levers of primitive accumulation. As with the stroke of an enchanter’s wand, it endows barren money with the power of breeding and thus turns it into capital, without the necessity of its exposing itself to the troubles and risks inseparable from its employment in industry or even in usury. The state creditors actually give nothing away, for the sum lent is transformed into public bonds, easily negotiable, which go on functioning in their hands just as so much hard cash would. But further, apart from the class of lazy annuitants thus created, and from the improvised wealth of the financiers, middlemen between the government and the nation – as also apart from the tax-farmers, merchants, private manufacturers, to whom a good part of every national loan renders the service of a capital fallen from heaven – the national debt has given rise to joint-stock companies, to dealings in negotiable effects of all kinds, and to agiotage, in a word to stock-exchange gambling and the modern bankocracy.¹¹

One of the features of ‘primitive accumulation’ as defined by Marx is the forceful appropriation of communally held resources like land by raiders and extraction of tribute or rent from the resources that passed to them now as personal asset. In today’s scenario the analogue has occurred, in banking and financial sector, when banks gave loans freely to corporate mercenaries to be used in buyouts or to purchase the public sector entities being privatised globally.

The financial investors today aim for total returns – that is earning plus interest, capital gains, dividends and distributions realised. The emphasis is on the capital gains in stocks, bonds and real estate. Even for the companies engaged in production there has been emphasis on financialisation to generate capital gains (or total return) for investors while neglecting the generation of industrial capital formation. The financial cycle aims at creating a perpetual cyclic motion, sustaining debt growth increasing exponentially by creating new credits to inflate the stock market and real estate sector to cover debtor’s falling interest.

This dynamics of stripping the assets, was characterised by Marx as usury capital that is opposite of industrial capital. Financial securities over period of time assume form of anti-wealth – that is claim on the means of production and income earned by engaging on productive sector. This mechanism of growth cannot remain viable for long; interest payments are sustained by stripping productive assets, diminishing the growth and creation of surplus in the productive sector.

This is what the ‘free market’ alternative to concept of ‘planned and regulated’ economy developed by Marx-Engels and enriched by Lenin and Stalin, has brought to the common masses. Yet the pro-financial ideologues of neo-liberalism depict the regulated and controlled economy as a road to serfdom, as if the alternative endorsed by Ayn Rand and Alan Greenspan have not been a road to debt peonage.

Public debt and neo-liberalism

A brief discussion about neo-liberalism that has come to dominate capitalism particularly since the 1980s is crucial to understand the root cause behind the present morass the capitalist economies find themselves in.

In the seventeenth century the British political Economist Sir William Petty formed the economic doctrine advocating a free enterprise system operating on its own without any sort of government intervention. This doctrine came to be known as Market Liberalism or laissez-faire. This concept was further systematised and examined in more detail scientifically in the eighteenth century by the famous economist Adam Smith in his treatise the Wealth of Nations. Smith a great defender of bourgeois liberalism believed that order not chaos would reign if individuals are left alone in matters of economic activity. His famous concept of the ‘invisible hand’ constantly guiding the market economy along with competition as its controlling mechanism became the cornerstone of bourgeois liberal economic thinking.

Later Jean-Baptiste Say, a follower of Smith’s economic thinking observed that supply creates its own demand and the income to purchase what is produced. What is saved will be invested; therefore there cannot be lack of purchasing power. Say’s idea was later expounded by several bourgeois political economists and providing the foundation of equilibrium theory. Marx refuted Say’s idea as ‘absurd dogma’ and pointed out in Capital that anarchy of production in a market economy leads to the crisis of overproduction and lack of consumer’s purchasing power, that is the key cause to the periodic economic crisis in capitalism.

The nineteenth century was an era of protectionism and departure from the concept of laissez-faire, as the US government of the time imposed restrictions on banking and interstate commerce and also enacted the anti-trust legislations. During the great depression in 1929, the economic thinking further shifted away from laissez- faire towards the Keynesian theory, as it was Keynes theory that was instrumental in bringing the economy out of recession. Keynes had vehemently disagreed with Say’s thinking arguing that lack of purchasing power can be due to lack of purchasing capacity due to not having full employment. According to Keynes a temporary deficit spending by the government to cure economic stagnation and mass employment can bring the economy out of recession and on path of growth

The Keynesian economic system in varying forms was followed by the entire capitalist countries and even by some newly independent countries (including India where Nehruvian Socialism was nothing but a potpourri of Keynesian and state socialist economic system). As an impact of Keynes the capitalist governments promulgated various kinds of legislations restricting banking and financial activity. For instance after the Stock Market Crash of 1929, the US government introduced the Banking Act of 1933 popularly called known as the Glass–Steagall Act primarily aimed at controlling speculation and keeping banks from doing business in Wall Street and vice versa; effectively it erected a wall between the banking and securities businesses. Commercial banking activities were tightly controlled and closely monitored. Commercial banks originated and retained consumer and commercial loans and were discouraged from giving excessively risky loans and providing liquidity to financial institutions during time of market stress.

This regulated version of capitalism worked till once more voices from various economic and political circles started once more for market reforms.

It was the time of neo-liberalism whose exponent, Milton Friedman, was a vocal proponent of laissez-faire capitalism who equated even personal freedom with free market stating, ‘Underlying most arguments against the free market is a lack of belief in freedom itself’. For him there was no other way but the unrestrained market that holds the key to people’s well being, his oft cited quote was ‘…there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.’

In the early 1970 during capitalism’s so called ‘golden age’ Friedman argued that laissez-faire capitalism can be revived by reducing public spending, deregulating the financial and banking sector, tax cuts and privatising public sector (government owned) industries. If such conditions are provided, then the free market can perfectly manage the economy on its own. Friedman and his colleagues at the Chicago University who internationally came to be known as the ‘Chicago boys’ became the driving force in popularising this thesis that became the underpinning ideology of the Structural Adjustment Programme (popularly known as Liberalisation) or neo-imperialism.

After the CIA sponsored coup in Chile which brought Pinochet to power in September 1973, the Chicago Boys went to carry out the ideology of Friedman to work to reconstruct the Chilean economy with a devastating outcome. The Chilean economy collapsed as real wages declined; unemployment rose severely, and the rich became richer at the expense of the working class. Chile became one of the most unequal societies where consumerism (for the few) flourished while the working class in the country was pauperised.

Even then neo-liberalism became the preferred economic policy of three major world leaders. Margaret Thatcher of Britain in 1979, and Ronald Reagan in the US in 1981 became the vociferous proponents of neoliberalism and unrestrained market economy. After the death of Mao and the consolidation of power by the Deng clique, neo-liberalism was gradually implemented in China in the grab of modernising the economy and development of Chinese economy to be at par with that of the advanced capitalist economies. After the implementation of the strategy in these countries the idea was prescribed as the solution to all the ills plaguing the Third world countries and the countries of the former Soviet Union including Russia.

This arrangement worked exceedingly well for capitalism till 1970s, when strong voices for financial deregulation and unleashing the financial sector’s prowess for growth started. It was also the period when the Third World debt and Savings and Loan crises had started in several countries. Voices against financial regulation started and in absence of strong Leftist opposition the free market ideology gained major victory. The elimination of the 1930s legislation segregating the commercial banking and financial markets in 1999 was the culmination of two decades of radical deregulation. The new system came to be known as the New Financial Architecture (NFA). NFA replaced all restrictions on financial market with lightly regulated capital market based globalised financial system, where speculation and generation of fictitious money became the normal business cycle. The world over the large commercial banks became integrated into giant financial conglomerates that include investment banks and mutual, hedge and private equity funds as well as bank-created SIVs (structured investment vehicle¹²).

In the words of George Soros:

Since 1980, regulations have been progressively relaxed until they have practically disappeared. The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate their risks and started relying on the risk management methods of the banks themselves.¹³

The banking and financial sector led growth, the stock market and information technology boom in the late 1990s, and the financial bubble of 2003-2007 led to a general perception that the growth was permanent and the efficiency of financial market under neo-liberalism (now called as the NFA) permeated the global financial sector. Not only the common masses but even the bourgeoisie economists and Wall Street pundits started wallowing in the glory of NFA, the government and the corporate controlled media were singing paeans to it. All discussions revolved around growth and increasing profit.

Meanwhile neo-liberalism was given a theoretical appearance in name of Structural Adjustment Programme (SAP) by the IMF and World Bank for the third world countries. At one time the SAP was the prescribed medicine by the IMF and World Bank duo and was administered to at least 70 countries in Asia and East Europe. Wherever the SAP was implemented it killed the patient instead of the disease. The condition of countries where SAP was imposed has been analysed in following words:

‘The Bank-IMF sponsored SAP has two phases. The first phase is short-term macro-economic stabilisation. It is followed by implementation of a necessary structural reforms phase. In the early 80s, most SAPs focused on a narrow range of policies aimed at reducing account deficits. As the debt crisis deepened and it became obvious that the stabilisation programmes were not working, the US Treasury Secretary, Mr. James Baker came up with a strategy to solve the debt crisis. This was called the ‘Baker Plan’. Under this plan, the WB was asked to impose more comprehensive conditions on the debtor countries. By 1990, majority of the countries that had received conditional loans from the IMF also received structural adjustment loans with harsh conditionalities from the Bank. In 1992, the bank’s lending for SAPs totalled 5847 million or 27% of its total commitments. … These [the creditor countries – Pratyush] countries were told that the structural reforms were essential for sustaining growth and economic stability. Faced with the threat of a cut off of external funds aid needed to service the mounting debts incurred from western private banks in the 1970s, these countries had no choice but to implement the painful measures demanded by the Bank. Fourteen years after the World Bank issued its first structural adjustment loan, most countries are still waiting for the market to “work its magic”. Despite global adjustment, the third world’s debt burden rose from $785 billion at the beginning of the debt crisis in 1978 to $1.3 trillion in 1992. The structural adjustment loans from the Bank have enabled the third world countries to make interest payments to western commercial banks. Having done this, the Bank went on applying adjustment policies to assure a regular supply of repayments in the medium and long term. Thus, the structural adjustment has brought neither growth nor debt relief, it has certainly intensified poverty.’ ¹⁴

Behind all the euphoria trouble was brewing, which if the bourgeois economists were not able to see was clearly discernable from a Marxist perspective. The World Bank in one of its researches identified that between late 1970s and early 2000s 117 systematic banking crises occurred. Every time they were rescued by Central Bank intervention through monetary policy and many times by massive bail outs. Thus it is not only in the present crisis that financial gains were made to private benefit but the losses in the crisis were socialised.

The US credit market debt was 168% of GDP in 1981 and over 350% in 2007. Financial assets were less than five times larger than US GDP in 1980, but over ten times as large in 2007. The notional value of all derivative contracts rose from about three times global GDP in 1999 to over 11 times global GDP in 2007. The notional value of credit default swap derivatives rose from about $6 trillion in December 2004 to $62 trillion three years later. In the US, the share of total corporate profits generated in the financial sector grew from 10% in the early 1980s to 40% in 2006.¹⁵

Since 1980, the start of the neo-liberalism, the very wealthy have flourished, while everyone else has seen low growth or stagnation.

As the crisis deepens voices for going back to Keynesianism are increasingly being heard from various quarters. The solution of simply going back to Keynesianism or some variation of it as Nobel Laureate Paul Krugman and others have been suggesting is not sufficient nor is the solution to the present chaos. The Keynesian approach fails to confront the fact that conflicting class interest are at play in different economic strategies and that some forms of state intervention could resolve the crisis within capitalism.

Keynesianism

The notion of Keynesianism and its various manifestations is the belief that the system will not self-organise. However, neither allowing the economy to deflate further from here via austerity, nor throwing more debt-marked stimulus will solve the present day problem. Keynesianism is only concerned about short-term crisis-management; while fully ignoring the capitalist cycles, at the most it mildly moderates the cycle’s amplitude and period. This approach at the most can buy space and time for bourgeois politicians to hoodwink people, while leaving the economy run through its usual spiral down effect.

The deficit spending as well as bail-outs become a major reason for capitalist countries’ sovereign debts. Lenders eventually deny further loans to the over-indebted countries, who then are forced to adopt the so-called austerity measures of raising taxes or cut on public spending to qualify for more loans. A consequence to austerity drive is a decline in the real wages and living standards. These measures only help in exacerbating the suffering of the masses further, as discussed in this article above.

Keynesian programmes being propagated or implemented to end the crisis, even if they succeed in stabilising capitalism to some extent, would surely over time initiate its own demise and then go back to laissez-faire capitalism. The approach may give some breathing ground to capitalism but can never provide a permanent solution.

Conclusion

The crisis has shown that in spite of the all recovery and protection mechanism, capitalism is inherently unstable and prone to failure. It does not only destroy financial wealth but also destroys productive economy, jobs, social security and even has a destructive impact on ecological wealth.

It produces ‘recovery’ for those who actually were responsible for the crisis and austerity for all others. The politicians and leaders are saying there is no alternative to economic austerity and raised taxes, even the social democratic and left bourgeois politicians have jumped to rescue finance capital, not realising that until industrial capital is freed from the clutch of neo-con finance capital the crisis cannot be solved. But can even rescuing the industrial capital solve the inherent crisis of capitalism? The older contradiction between labour and industrial capital over wages and working conditions would remain and it would only get accentuated as the class polarisation increases world over.

The entire mess that world capitalism finds itself has been told by Merrill Lynch banker, who said, ‘Our world is broken, and I honestly don’t know what is going to replace it.’

The basic question that emerges from this Greek tragedy and European roulette is what final act the working class of Greece, Ireland (as well as the European working class) enact. Will it end in tragedy where the people would be condemned to suffering and terminal decline or will they stand up and resist the system that has brought them nothing but austerity programmes so that the rich may live a comfortable life. Progressive forces all over the world are closely watching this play being enacted in Europe, because they know that sooner than later they would also be called to play their part.

Let us wait and see.

Endnotes:

1. Uri Dadush, Bennett Stancil, Is a Sovereign Debt Crisis Looming? at http://www.carnegieendowment.org/ publications/ index.cfm? fa=view &id=24798; accessed September 25, 2010.

2. ibid.

3. Nomi Prins and Krisztina Ugrin, It Takes a Pillage: An Epic Tale of Power, Deceit, and Untold Trillions; (New York: John Wiley & Sons Inc, 2009).

4. The Unkindest Cuts, The Economist; June 24, 2010.

5. ibid Unkindest Cuts.

6. ‘Fiscal Rules Face Obstacles, warns Lagarde’, Financial Times (14 September) accessed 25th September.

7. Online Walls Street Journal, Ailing Ireland Accepts Bailout; http://online.wsj.com/ article/SB1000142405274870 356730457562836 2883493 310.html; accessed on 22 November 2010.

8. Ibid.

9. Communiqué of the European Marxist-Leninist Parties and Organisations meeting in June in Paris. In Europe and the world, the workers, youth, people, refuse to pay for the crisis of the capitalist system at http://www.revolutionarydemocracy.org

10. Eurofound, Working poor in Europe, http://www.eurofound.europa.eu/ewco/studies/tn0910026s/tn0910026s_6.htm; accessed September 25, 2010.

11. Karl Marx, Capital Vol. 1, Chapter 31: Genesis of the Industrial Capitalist, Penguin Publisher, Pelican Classics.

12. A structured investment vehicle (SIV) is a special purpose vehicle i.e. a company that is created solely for a particular financial transaction or series of transactions. It may sometimes be something other than a company, such as a trust. The SIV’s debts may, or may not, be raised with recourse to the ‘real’ borrower. SIV buys long term bonds and other fixed income securities, funding this by issuing short or medium term debt such as commercial paper. SIVs are also called conduits because they create a channel through which the long term debt they invest in can be funded by short term debt. They have also proved to be a conduit through which banks have bought back mortgage debt that they had apparently off-loaded through securitisation – although the banks that buy may not be those that sold, the risk comes back into the banking system (definition from moneyterms.co.uk).

13. George Soros, ‘The worst market crisis in 60 years,’ Financial Times, January 23, 2008.

14. The Bank and Structural Adjustment, at http://www.ieo.org/wb-index.html; accessed on 16 November 2010.

15. James Crotty; Structural Causes of the Global Financial Crisis: A Critical Assessment of the ‘New Financial Architecture, University of Massachusetts, Amherst, 2008.