Subprime Mortgages, The Crisis of Capital, and Social Justice

The causes of the mortgage fiasco beginning in 2007 which led to the financial meltdown are admittedly complex. Predatory lending played a significant part, but what was more troubling was the ability of financial institutions to inflate the value of debt that was never really meant to be paid back through various financial tools. Surely, the predatory lenders were acting in their own short-term self-interests. For creating a mortgage you get a commission. As far as the individual lenders can see there was only motivation to increase home sales and mortgages. What is interesting to wonder, though, is whether the “higher level” institution — those buying, repackaging, and reselling the debt in order to make a profit — were able to foresee the effects of what they were doing.

Marx predicted that as capitalism advanced people would begin to see the economic relations that they personally entered into as being for the purposes of making money rather than for being for the purposes of making a good. Money is supposed to be, in capitalism, the symbolic form of use-value. It is the symbolic dimension wherein the strength of both an economy and an individual to produce useful things is expressed. Banking is an industry which profits by mediating exchanges – it itself is much like money in this regard, its purpose is to mediate exchanges. What is the same with regard to a package of debt (interest bearing capital) and money is that neither is actually useful in the same sense a shovel or a coat is useful. That is, a shovel and a coat have a practical use, money does not have a practical use except to be exchanged for things that do have a practical use.

Marx also predicted that interest bearing capital would be treated as something which had an objective power to create value for the owner of that capital, which it does, but that value is purely symbolic, it is monetary but does not reflect a use-value. It, like money, doesn’t reflect any particular content. A symbolic value which does not reflect a real value might be thought of as, in modern terms, a “bubble.”

The 2007 financial meltdown reflects Marx’s prediction on every level, from the predatory lenders looking to make a quick profitto the highest levels, wherein the qualified economic experts managed to fool themselves into believing that they were actually creating value by repackaging debt into complex derivatives.

The point of bailing out the institutions was always acknowledged as being for purposes of maintaining belief: belief in the capitalist economies ability to sustain itself. “It’s not based on any particular data point. We just wanted to choose a really large number,” said one treasury spokeswoman to Forbes magazine regarding the Emergency Economic Stabilization Act of 2008, which pledged up to 700 billion dollars to help buy off mortgage backed securities. Regarding the bailouts, critical theorist Slavoj Zizek says:

Although we always recognized the urgency of the problems, when we were fighting AIDS, hunger, water shortages, global warming, and so on, there always seemed to be time to reflect, to postpone decisions (recall how the main conclusion of the last meeting of world leaders in Bali, hailed as a success, was that they would meet again in two years to continue their talks). But with the financial meltdown, the urgency to act was unconditional; sums of an unimaginable magnitude had to be found immediately. Saving endangered species, saving the starving children…all this can wait a little bit. The call to “save the banks!” by contrast, is an unconditional imperative which must be met with immediate action.

The panic was so absolute that a transnational and non-partisan unity was immediately established, all grudges between world leaders being momentarily forgotten in order to avert the catastrophe. But what the much praised “bi-partisan” and “multi-lateral” approach effectively meant was that even democratic procedures were de facto suspended: there was no time to engage in proper debate. As Alain Badiou succinctly put it:

The ordinary citizen must “understand” that it is impossible to make up the shortfall in social security, but that it is imperative to stuff untold billions into the banks’ financial hole? We must somberly accept that no one imagines any longer that it’s possible to nationalize a factory hounded by competition, a factory employing thousands of workers, but that it is obvious to do so for a bank made penniless by speculation?

It is regarded as “okay” to question the necessity of people starving in a world where we feasibly have the resources to feed everyone, but in the context of modern society what is unacceptable is to question the system itself which makes it beneficial to have poverty. Brazilian Archbishop Dom Helder Camara’s statement, “When I give food to the poor, they call me a saint. When I ask why the poor have no food, they call me a communist,” comes to mind. Poverty serves as a supply of cheap labor for the wealthy, and furthermore institutions such as credit card companies and predatory lenders, by using means such as penalties and higher interest rates for the poor make much of their profit by people NOT being able to afford paying their debt. Of course, poverty only benefits the already wealthy.

One is tempted to draw a parallel between the subprime mortgage crisis and the early industrial-capitalist technique of paying miners in scrip, forcing them to buy the necessary goods to sustain a human existence from the company which they worked for, designing the system so that the worker would wind up in debt to the company. The same reality is occurring today except along class lines in a macroscopic sense. Although the credit institutions rely upon the lower class providing services which people have deemed necessary and beneficial (the service industry, manufacturing, etc) in order to sustain the economy which their industry relies upon, in practice they are treated as leaches who aren’t working hard enough. Wasn’t the reactionary standpoint with regard to the subprime mortgage crisis to blame the poor? In the liberal ideology it is not okay to blame the poor, but what is utterly unthinkable, as the bailouts teach us, is questioning the systematic impoverishment of people that is capitalism, itself. Everything can and will be suspended by the upper class, even democracy, to sustain capitalism, which it benefits from.

Capitalism is often understood, in the liberal mindset, as a rational order. Aren’t the economic depressions, the ups and downs which the economy as a whole suffers the proof that capitalism is anything but rational? In the subprime mortgage crisis, all the material wealth of the system, the actual houses, the productive services the buyers provided society, the food, the entertainment, it was all still there. The only thing which comes into question in times of “economic crisis” that aren’t rooted in things like natural disasters or drought is the monetary worth of things.

Marx understood that the upper class of society in capitalism would come to believe that capitalism were the rational expression of a system which has always existed, but in reality capitalism as a system is a technology. Money is a technology. What Marx understood was that thinking about things strictly in terms of capitalism is technologically limiting to society. Because we put maintaining the norm, maintaining the mores of capitalism, first, we are unable to substantially address the actual problems of existence because we treat the symbol, which is money, as more real than the reality which it is supposed to reflect.

There was a popular demand to bring those who were involved in the subprime crisis to justice. There is nothing wrong with demanding bringing predatory institutions such as subprime lenders to justice, nor is there anything wrong with demanding the death of exploitative institutions such as banks (which primarily make money by owning a stake in productive industries rather than by producing actual goods, much like a stock market investor profits simply by having money, by having ownership of something, rather than contributing to whatever that industry is producing). However, in capitalism, capital is regarded as “above the law.” This is a part of what Zizek means when he says Capital is the Real of our lives, capital isn’t the law itself, it’s the reality according to which we write the law.

Money can no longer be said to be symbolic, as it is, for individuals in capitalism, the point of production. It’s considered fine to say we should imprison the subprime lenders, and even the people at the top of the pyramid scheme that is modern speculative investment. But if you question whether it’s necessary or even beneficial to the majority of people to have money be the point of all economic relations, rather than basing economic relations on real particular ends and needs of society, the liberal reaction is “but Stalin,” as if anyone were advocating a repetition of Stalinism.

We’re encouraged, as individuals, to be charitable, to have pity for the poor. Whatever you do, though, don’t try to solve it, too many people stand to benefit from the system of financial mysticism and systematic exploitation that capitalism proves itself to be (in reality, of course, only a privileged few actually stand to benefit from it). It’s not as if we couldn’t provide the elderly with a system that takes care of them, we all want to, but we’re told “money doesn’t allow it.” It’s not that we like the banks and financial institutions which inflate values, provide very little if nothing in the way of productive services, and penalize the poor, it’s that it’s the way capitalism “works.” Oh. Thank God for capitalism, the rational expression of the way that the world works.

A fashionable statement in late capitalism is “make your money work for you” (as if it could!). Today, we theoretically could develop the technology to make our actual, non-symbolic wealth work for us. We could largely automate the means of production and make life less work, less oppressive to individuals. In capitalism, this would never be beneficial though, as the point of production isn’t to produce useful things, it’s to make money. As Theodor Adorno says, “no emancipation without that of society.” Without changing the actual structure of society all notions of equality, freedom, and justice will die before the market and in the name of it.

Written by Ross Wheeler, a young working class Marxist who believes in the necessity of letting suffering speak.