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Bankers’ Bewitching Ballet: The Choreographed Chaos of Financial Fault Lines

In a world entangled by financial webs, the architects of our economic fate - the bankers - often weave a perilous dance of risk and reward, leaving many to question their responsibility in times of crisis.

Credit Suisse shares have plummeted 30% to an all-time low of 1.56 Swiss francs, intensifying concerns about global banking sector stability. This comes on the heels of Silicon Valley Bank’s (SVB) recent collapse in the United States. Marxist economist Michael Roberts offers valuable insights (and updated on 15/03) into the potential consequences of these events for the global banking sector and the possibility of more financial crashes ahead.

The banking sector’s recent troubles, such as SVB’s collapse and Credit Suisse’s plummeting shares, underscore the inherent contradictions and systemic risks within capitalism that contribute to ongoing financial instability. Roberts links SVB’s failure to the Federal Reserve’s aggressive interest-rate hikes, which led to a decline in low-risk asset values and left many banks with unrealised losses (or losses on investments not sold).

Regulators in the US and UK are investigating SVB’s collapse, which prompted a government takeover after a run on its deposits. UK politicians on the Treasury select committee have written to the Bank of England’s governor and the economic secretary of the Treasury, inquiring about SVB’s UK arm collapse and its implications for bank regulation since the financial crisis.

Experts like Andrew Kenningham of Capital Economics and Laurence Fink, CEO of investment giant BlackRock, are questioning whether these problems signal a global crisis or just an isolated incident. Fink has warned that this could be the beginning of a “slow rolling crisis” in the US financial system, with more bank failures possible, particularly as the Federal Reserve continues to raise interest rates.

Prominent financial figures like Larry Fink and Ray Dalio, may express concern about the potential repercussions of recent events. However, apart from Michael Roberts, none of these individuals acknowledge the core issue: capitalism’s very nature lies at the root of the problem.

Fink attributed recent bank failures to the Federal Reserve’s aggressive interest rate hikes and persisting inflation. While regulatory response has been swift and contained contagion risks, markets remain on edge. Economist Nouriel Roubini (Dr Doom) also warned of instability in the European banking sector, suggesting that Credit Suisse’s troubles could pose a more significant threat to global market stability.

Recently retired founder of Bridgewater, Ray Dalio, expressed concern that SVB’s failure was a “canary in the coalmine,” signaling possible ripple effects in the venture world and beyond. These concerns align with Roberts’ view that recent banking sector events may foreshadow more financial crashes, highlighting capitalism’s systemic risks and inherent contradictions. This recent market turbulence serves as a crucial test for the efficacy of regulations implemented after the 2008 financial crisis in managing and mitigating systemic risks.

As markets react nervously, it’s crucial to scrutinise capitalism’s flaws and question whether the banking sector has genuinely learned from past crises. The chair of the Treasury committee, Harriett Baldwin, emphasised the need to evaluate bank regulation and resolution procedures, especially for smaller banks in strategically-important industries. In light of SVB’s collapse and Credit Suisse’s share plunge, it’s essential to consider potential systemic risks and the possibility of taxpayers shouldering the burden of future financial crises. Regardless of the financial institution involved, there seems to be a pervasive tendency to deflect blame when crises arise, invariably relying on central banks, the lenders of last resort, to intervene and rectify the situation.

In the past five days, the FTSE has plummeted a staggering 7%, forging a landscape where only affluent investors and cunning hedge funds thrive amidst the tempest of market turbulence, while the masses bear witness to their retirement nest eggs cascading into the abyss.

We must liberate ourselves from the shackles of capitalist finance, asserting our right to stable pensions, recognising them as deferred earnings immune to the whims of market fluctuations and impervious banks. It’s time to embrace a pension scheme championing universal coverage, collective funding, and worker ownership, fostering social equality and financial security in retirement. By pooling resources through progressive taxation, prioritising socially responsible investments, and integrating redistributive measures, we ensure adequate benefits for all. Public administration and lifelong learning initiatives further bolster a transparent, accountable, and inclusive pension landscape.

A transformative banking system rooted in social justice is vital, dismantling the current paradigm of booms, where profits are pocketed by the few, and bursts, where taxpayers foot the bill. Although deposits may be safeguarded up to £85k in the UK (The Federal Reserve in the United States intervened to ensure full guarantee of all deposits in the failed SVB), this protection offers meager consolation for those with savings exceeding this limit or amidst the unease provoked by such turbulent events. By elevating societal needs above shareholder profits, state-controlled financial institutions can forge a more equitable terrain. In this audacious vision, credit emerges as a tool for empowerment, accessible and affordable to all, devoted to advancing the common good and extinguishing the stark wealth inequality inherent in capitalist systems.

Prominent financial figures like Larry Fink and Ray Dalio, may express concern about the potential repercussions of recent events. However, apart from Michael Roberts, none of these individuals acknowledge the core issue: capitalism’s very nature lies at the root of the problem.

One response to “Bankers’ Bewitching Ballet: The Choreographed Chaos of Financial Fault Lines”

  1. […] faced by Germany’s premier lender, Deutsche Bank, and UBS’s vital intervention to save Credit Suisse. These events highlight the inherent contradictions of the capitalist system and the failure of […]

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