Saturday, May 16, 2009

Marx & The Mortgage Crisis

The current economic crisis, which is originated from the credit crisis in the US, has a strong background of Marx’s ideas. One should understand the ideas brought up in the Communist Manifesto clearly in order to discover the actual dynamics behind the crisis: fail to consider the consequences of creating risky mortgage opportunities and the gap between the supply and demand in the housing sector.

One major actor of the crisis is the credit share of the private investments banks in the Wall Street. The crisis is originated from the fact that more and more householders were created by the low mortgage interest rates. However after the safe primary mortgages had met the demand exactly, investments bankers wanted the gain more profit from the mortgage system. This brings out the sub-primary mortgages, which aimed the relatively lower class people who ended up in defaults. Not being recognized as a serious problem at the first stages, a whole series of defaults followed those. As a result of this, the capital pool of the investments banks couldn’t receive any cash inflow. “But not only has the bourgeoisie forged the weapons that bring death to itself; it has also called into existence the men who are to wield those weapons - the modern working class – the proletarians.” These financial weapons as Marx proclaimed created a class of people who all obliged to pay their monthly payments to make the rich investors and Wall Street even richer. The fatal mistake was to introduce mortgages that requires no down payment and many other attractive characteristics that attracted low-income “risky” population.“It ... has left remaining no other nexus between man and man than naked self-interest, than callous cash payment.” The mortgage system was definitely a unique way to make money out of waiting capital which also stimulated with highly-leveraged trades –that created virtual billion-dollars in the market from which we are currently suffering.

The demographic shift towards home ownership followed by the decrease in the state-owned rented housing since the year 1979 also played an important role for the crisis environment. This trend definitely contradicts with Marx’s idea of centralization of credit in the banks of the state, by means of a national bank with State capital and an exclusive monopoly.

If the mortgages are viewed as the products of the financial system, it is easy to realize that there occurred an overproduction which ended up in a gap between the supply and demand. This is the main cause of the sudden decrease in the housing prices in the US. This is simply the crisis of overproduction: “There is too much civilization, too much means of subsistence, too much industry, too much commerce.” The whole idea behind the growing trend of the investment banks via leverage is the dark consequence of this overproduction. Without having a good understanding of different classes’ relationship with the economics, this gap played a role of catalyzes. Investors created future-defaults from the people –not surprising though as Marx stated “Production not only creates an object for the subject but also a subject for the object.”
Competition in the market also contributed to the crisis. Some banks feared that the big ones would crush them my using the profits gained from lends given to works so they jumped into consumer lending. However one can find the trails of this mistake back in years 1980s, 1990s; and 2000s, especially in the deregulated financial world, provoked wild profit-driven excesses and corruption (the stock market “bubble” and then the real estate “bubble”). The natural result of competition is the accumulation of capital in a few hands, which is the most frightening type of monopoly, said Marx. This also holds for the recent situation as the capital is gathered in the hands of some which later faced with bailouts.

Written the Communist Manifesto nearly 160 years ago Marx has detected the crucial points of the relation of the society and the capitalist system, reasons of crisis and industrialization.


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