Loren Goldner's left communism

oh god, here we go again reducing people to machines of production and consumption and worshiping 'the development of productive forces.' ...

words words words. militants are so boring.

I don't want to stretch the parallel too far but in America in early 60s as the New Left movement was beginning there was a wide spread hostility to Marxism and in the course of 6-8 years, these kinds of libertarian rejections of Marxism went into decline and people became more and more attracted to different kinds of Marxism.

And I believe something similar is happening today. There's a real Marxist renaissance going on in western Europe and the US and many people that I'm familiar with have started out as anarchists, and Situationists and they relatively quickly find their way to the study of Capital and the serious study of the failures of the old revolutionary movement and become left communist or close to left communist.

Anarchism, for example, is really not very interesting as a theory of contemporary capitalist society and people who are attracted to it because it rejects Soviet Marxist or Maoist models, very quickly get bored with it and that's when they begin to discover the richer Marxist alternative.

I don't think they have really developed at all to take account of the evolution of capitalism in the last 50 years, possibly more. The ICC thinks basically that nothing new ever happens. And they consider people who think that something new happens to be modernists and eclectic. For that reason I find what the ICC says about world economy to be pretty abstract and boring...

And the ICC never talks about what I just talked about. That's why they can't intelligently discuss the nature of post WWII boom or the development of capitalism in East Asia since 1970s.

I'm new here, but I've been reading LG & the ICC's website for near on 3 years and I'm still a little foggy as to the ICC's specific disagreements about decadence with LG. Have you or any other ICC-ers read his Remaking of the American Working Class? What do you think of his explanation of capitalist crisis, expanded social reproduction, etc.? When I read that work it seemed to make a lot of sense to me, but I'm not yet terribly versed in the volumes 2 & 3 of Capital, or Rosa Luxemburg's Accumulation of Capital. Anyway, I'd be interested to hear your (or someone else from the ICC's) thoughts on that piece, if you get a chance. Thanks.

I think much of the problems we are seeing know revolves around the
issue of fictitious capital or capitalisation of surplus value or
capitalisation of interest payments on debt.

The capitalists think thus roughly, again a model;

Let the average rate of profit per year, what you can get from
dividends on shares or money invested in a bank etc be 5%.

Then $100 will earn you $5 un-earned income

Then they do something `clever', they say if something provides $5 a
year, like a magic purse for instance then the magic purse is worth
$100.

Now debt or interests on a debt may `promise' to provide you with an
income of $5, so such an IOU is nominally worth something like $100.

The problem with these IOU's, bonds, or collateralised debt
obligations, CDO's, after they have been bundled and mixed up
together and resold and bought and passed through many hands is that
no one is too sure what they are. Apart from an unearned income
stream.

The concern then grows that the debt or the money loaned has been
spent and `pissed up against the wall' by ‘lazy Americans’ and the
initial interest payments have themselves been paid by borrowing
more money from elsewhere.

Interestingly they seem to have been using these CDO's as money
itself .swapping them for other stuff, just as with money, in the
buying and selling game in the banking community.

As confidence fell in the real value of these CDO's as potentially
toxic debt they became to be viewed like counterfeit money and
nobody would accept them in exchange for anything. Hence the
liquidity crisis and the requirements of the central banks to
inject `real' counterfeit money, greenback dollars, into the money
markets.

http://tech.groups.yahoo.com/group/WSM_Forum/message/33538

Just looked for and found this so let Karl do it his way;

"The formation of a fictitious capital is called capitalisation.
Every periodic income is capitalised by calculating it on the basis
of the average rate of interest, as an income which would be realised
by a capital loaned at this rate of interest. For example, if the
annual income is £100 and the rate of interest 5%, then the £100
would represent the annual interest on £2,000, and the £2,000 is
regarded as the capital-value of the legal title of ownership on the
£100 annually.

For the person who buys this title of ownership, the annual income of
£100 represents indeed the interest on his capital invested at 5%.
All connection with the actual expansion process of capital is thus
completely lost, and the conception of capital as something with
automatic self-expansion properties is thereby strengthened."

(There is yet another in MIA error in this quote, tut-tut, as they
have a £400 instead of a £100.)

And;

"The independent movement of the value of these titles of ownership,
not only of government bonds but also of stocks, adds weight to the
illusion that they constitute real capital alongside of the capital
or claim to which they may have title. For they become commodities,
whose price has its own characteristic movements and is established
in its own way. Their market-value is determined differently from
their nominal value, without any change in the value (even though the
expansion may change) of the actual capital. On the one hand, their
market-value fluctuates with the amount and reliability of the
proceeds to which they afford legal title.

If the nominal value of a share of stock, that is, the invested sum
originally represented by this share, is £100, and the enterprise
pays 10% instead of 5%, then its market-value, everything else
remaining equal, rises to £200, as long as the rate of interest is
5%, for when capitalised at 5%, it now represents a fictitious
capital of £200. Whoever buys it for £200 receives a revenue of 5% on
this investment of capital. The converse is true when the proceeds
from the enterprise diminish. The market-value of this paper is in
part speculative, since it is determined not only by the actual
income, but also by the anticipated income, which is calculated in
advance. "

http://www.marxists.org/archive/marx/works/1894-c3/ch29.htm

So in conclusion your ex share dealer is correct that there can be a
serious disconnect between the value of shares and its actual
concrete value. Also when a company goes belly up the value of the
capital can become worth so much scrap metal. Although if it falls
too far somebody else can buy it up for a lot less and make a go of
it.

On the Collaterised Debt Obligation thing and the dross the banks have
been left with after having created it and sold it to each other.

I think it works in detail something like this;

An institution will borrow $1000 million dollars on the `short term
money markets' which means that they have to pay it back soon. With
that they would lend it out to mortgage companies and then on to house-
buyers and get back 20 year obligations to pay interest. These are to
be at circa 10% when they have re-set after the teaser rate period etc
and thus will provide an income stream of say $100 million.

A load of mortgages and interest repayments bundled together.

Just for simplicity I am going to ignore how the principal, the amount
borrowed, is going to be paid off. .Anyway they could be interest only
mortgages or the persons taking out the loan could have some kind of
endowment or separate saving policy to pay it off after 20 years.

I am also going to assume that the general interest rate or acceptable
interest rate on the money markets is 5% on a AAA+ rated super secure
dead safe loan.

What the organisation will do with its 20 year $100 million a year
income stream is split it up into portions. The owner of the first
portion will get paid off first and has priority over the owners of the
lower ranked portions. The owner of the lowest rank portion will only
get paid in full if all the income stream is obtained or will only get
what is left after the others are paid.

It is just the general idea of how it works and what I think has
happened that is important, the details aren't.

The first portion of the income stream will be $10 million a year and
is kept by the organisation that sets up the CDO and will be invested
in a safe place at 5% to accumulate in 20 years to $200 million +.
(Lets say a reserve fund)

(I am not bothering to compound interest rates etc,so it will be more)

That leaves a $90 million income stream to be `sold' off or more
accurately invested in.

The first $45 million income stream or first `tranche' to be `sold' or
invested in is `bought' for $675 million, marked to value by an
investment bank like Bear Sterns that is `interested' in understanding
these kind of things.

On the agreement, for simplicity that $675 million that is invested, or
the principal, will be returned after 20 years. That is the same as
putting $675 million in a bank for 20 years on fixed interest rate of
6.7%.

But as these things act like bonds if you get fed up with it you can
sell it on later to somebody else for what ever they might be prepared
to pay for it eg $620 million.

So;

1st income stream of $45m sold for $675m for an effective interest
rate of 6.7%

2nd income stream of $20m sold for $240m for an effective interest
rate of 8.3%

3rd income stream of $10m sold for $100m for an effective interest
rate of 10%

4th income stream of $10m sold for $80m for an effective interest rate
of 12.5%

5th income stream of $5m sold for $25m for an effective interest rate
of 20%

Hence once they have `sold' or got investors for all 5 income streams
they have a grand total of $1120 million.

They can then repay back $1000 borrowed on the short term money markets
and will be left themselves with $120 million which will no doubt be
divided up as corporate dividends, bonuses and kickbacks etc.

At the end of the 20 years the principal for all 5 investors ie the
amount they initially invested, will need to be repaid this will come
out the people who took the mortgage out paying off the principal like
you do with an endowment policy. So they will provide $1000 million.
There will also be the additional $200 million from the reserve fund
that will make up $1200 million that will be more than enough to pay of
the initial amounts invested by the 5 investor groups of $1120 million.

This was basically the game that Bear Stearns and Northern Rock was
playing when they got caught out in mid stream with their pants down.

The problem has been with the 5th, 4th and to some extent 3rd income
stream but there is a knock on effect on them all.

The question is what happens if 25% of mortgages default and go into
foreclosure or just as importantly even threaten too. The annual income
stream would loose $25 million. The 5th, 4th, and 3rd traunches would
be entitled to no income on their investment and thus those investments
or CDO's would be worthless or worth a lot less than they paid for
them.

Even assuming the plainly ridiculous that the full in value of the
house or collateral is to be recovered In which case the fund would
recover $250 million. It is highly unlikely that it would have been
arranged to use it for the 5th, 4th and 3rd to receive back the value
of their investment. As this would mean the play it safe the 2nd and
1st would see the collateral base of their $915 million investment
reduced to $750 million.

(The $250 million recovered from foreclosures could I suppose be re
invested by the fund at 5% to produce $12.5 million. That would be
enough to keep the 3rd going and provide some income for the 4th but
the nominal value of that CDO would drop by, well a lot and there will
a knock on effect on fall in nominal value on all of them.)

The 5th income stream that people paid $25 million for is now worthless
and is referred to `toxic waste'.

Who bought it all is questionable. Some reputable institutions like
European banks obviously bought some as part of their exciting
investment portfolio. They have `owned' up to it and `written it down'
as a bad loss. Although apparently there is still quite a bit of
it `missing' or some organisations are not admitting that they have
lost a load of money.

The 4th income stream entitlement is probably selling at less 10 cents
to the dollar or 10% of what paid for it.

What probably happened to Northern Rock is that these kind of things
take a while to set up. So they would be in the process of borrowing
£1000 million on the short term money market for say a month and
loaning it for 20 years to little budding homeowners.

The expected income stream was then to be likewise parcelled up and
sold off. The 5th and 4th traunch became un-sellable and the total
value 3rd 2nd and 1st fell below the £1000 million Northern Rock had
borrowed themselves that was due to be repaid in a months time.

(This was probably more to do with infectious fright that had spread
from the US housing market than anything real in the UK even though we
have our own housing bubble and tend to follow the US in everything.)

As nobody likes to be owed money by a loser the prospects for Northern
Rock of rolling over the 30 day loan ie continuing to borrow it for a
bit longer was nil.

Depositors taking fright and demanding their money back that was not
really there as most of it had already been loaned out for the next 20
years or whatever didn't help. Hence they went bellyup.

I think we discussed peonage or de-facto slavery earlier.

http://tech.groups.yahoo.com/group/WSM_Forum/message/31168

There is an article on the possible impending collapse in house
price bubble in the US at;

http://www.informationclearinghouse.info/article15689.htm

If the American working class have borrowed so much money that
almost all of their labour time is spent working to pay the interest
on a loan or `advance' that was taken out to purchase a home that
becomes worth a fraction of its former value.

In other words they have `negative equity' ie they owe a load more
than they own. Then they will become the de facto property of the
mortgage companies. They really will be (peon) slaves. Particularly
as now I believe it is much more difficult to declare yourself
bankrupt in the USA.

Or as Karl put it;

Third footnote chapter 6 volume one, Capital

"……….slavery is hidden under the form of peonage. By means of
advances, repayable in labour,"

Or interests payments on mortgages.

" ……………not only the individual labourer, but his family, become, de
facto, the property of other persons and their families."

Or mortgage companies.

"Juarez abolished peonage. The so-called Emperor Maximilian re-
established it by a decree, which, in the House of Representatives
at Washington, was aptly denounced as a decree for the re-
introduction of slavery into Mexico."