Banking Contagion in the West, Banking Stability in the East

27-03-2023: The aphorism “safe as a bank” has long been out of date in the West, and none more so than today. Some 15 years after 2008, when the US government bailed out banks to prevent a society wide collapse, the Silicon Valley Bank (SVB) collapse could be a signal of more banking contagion to come. Silicon Valley Bank was the 16^th largest bank in the US, and the largest bank to collapse since 2008. The bank was undercapitalized with its assets exposed to interest rate rises. The bank’s assets were worth $210 billion while uninsured deposits sat at $160 billion. To forestall a classic run on the banks – the mass withdrawal of deposits – the Federal Deposit Insurance Corporation (FDIC) decided to extend interest rate protection to every dollar deposited.[1] Although the bailout word was studiously avoided, in effect it was a bailout.

Cracks in the system

Days later, the crypto-friendly Signature Bank was closed down by regulators. In a joint statement, the US Treasury and the Federal Reserve affirmed that all depositors would be fully protected from losses, which is usually only available to those with deposits below $250 000.[2] Yet it wasn’t only banks in the US which fell from grace. Credit Suisse, a formerly prestigious 167-year-old Swiss bank[3] was effectively ordered to merge with UBS by the Swiss National Bank (Switzerland’s central bank), which aided the process by offering up to $108 billion in liquidity assistance loans.[4] The cracks in the West’s banking system are showing, if they were not already. The question everyone wants to know is will the banking contagion spread to more Western banks, or will it be contained within a handful of financial institutions? No matter how much power Western governments have over the populace, which was demonstrated to a shocking degree during the fraudulent “Covid pandemic”, the operation of the “free market” means they do not have the ultimate power to stop a total collapse.

Michael Hudson, the economic and financial critic of neoliberalism, and author of Super Imperialism: The Economic Strategy of American Empire[5], writes that the current banking crisis is more serious than the 2008-9 “global financial crisis”. He states that the Obama Administration bailed out the banks with 15 years of Quantitative Easing (QE – or the printing of money) to re-inflate prices for bank mortgages, along with housing and stock and bond prices. The so-called “fight against inflation” is actually government opposition to rising employment and wage levels.[6] He goes on to write that the problem goes beyond banking. The entire (US) economy is weighed down with debt deflation, even with asset-price inflation. In his view, the longer the government continues to save FIRE (Finance, Insurance, Real Estate) investors from taking losses, “the more violent the ultimate resolution must be”.[7] One doesn’t have to have an extensive knowledge of economics to grasp the fact that the constant speculation with depositors money by Western banks pushes them closer to the edge.

Eurasian banks remain strong

While banks in the West tiptoe on the edge of a precipice, Russian banks, despite the proxy war being waged against it by the NATO powers, remain stable. One reason is that Russia is now so cut off from the Western dominated global financial system due to massive Western sanctions imposed against it, they believe they will face no impact from the collapse of Silicon Valley Bank. Kremlin spokesperson Dmitry Peskov stated that Russia’s banking system has some connections with some parts of the international financial system, but “it is mostly under illegal restrictions from the collective West”.[8] That is, the massive sanctions the US and European governments have levelled against Russia for defending itself against a proxy war via Ukraine, have in fact insured Russia against economic fallout. The sanctions have also boomeranged[9] back against the US and Europe, damaging their economies much more than Russia. One reason for this is that Russia is the tenth largest exporter of goods[10] in the world, with oil and gas, metals and metal products, chemical products, food and grains, machinery and equipment and timber and pulp and paper products the top earners.[11]

Last year, large numbers of Russian banks were cut off from the SWIFT transactions system by the EU (European Union). Notably however, two of Russia’s largest banks – Sberbank and Gazprombank – were exempted, as they handle the vast bulk of transactions to the EU for gas and oil payments, on which the EU largely remains reliant.[12] Whatever political disagreements workers internationally may have with President Putin and the government of the Russian Federation, the fact remains that around 20 years ago, Putin and his backers moved to take large section of the Russian economy under effective state control, in an effort to drag it out of the catastrophic economic and social collapse it experienced in the 1990s in the wake of the capitalist counter-revolution which brought down the former Soviet Union. Without these moves, Russian banking would not be in the position it is today, able to withstand massive Western sanctions on the back of its export and manufacturing base.

Banking in Russia’s Eurasian partner the People’s Republic of China (PRC) is in an even stronger position. Thanks to the momentous 20 year long uprising which culminated in the declaration of the PRC on October 1^st, 1949, the PRC’s banks are almost entirely state owned and state controlled. They form arguably the strongest pillar of its resultant proletarian state, despite the overwhelming preponderance of hundreds of millions of peasants who fought and defeated foreign imperialist enslavement under the leadership of the Communist Party of China (CPC). The state-owned banks in the PRC are thus even safer than Russian banks, as they are backed by a workers’ state and are thus are NOT used in a predatory fashion to achieve financial return at virtually any social cost.

This is the elephant in the room. Western banks collapse, or constantly threaten to falter, due to the vast imbalance of retaining only a tiny percentage of depositors’ money, while “investing” the rest in the casino stock market. By contrast, banks in the PRC cannot collapse, as long as the state is not overthrown. The imperialist ruling classes are well aware of this, hence their unceasing efforts to foment often violent separatism in Hong Kong, the Xinjiang Uyghur Autonomous Region (XUAR) Tibet and Taiwan, while creating and funding reactionary anti-China destabilisation in Myanmar, Thailand, Cambodia, Malaysia, the Philippines, Sri Lanka, Pakistan, and Afghanistan, while never ceasing to threaten obliteration against the DPRK (Democratic People’s Republic of Korea – “North Korea”). Despite these attempts, the PRC’s Big Four state-owned banks are simultaneously the world’s largest banks by assets and market capitalisation. The Industrial and Commercial Bank of China is the largest, followed by the China Construction bank at number 2, the Agricultural Bank of China at number 3, and the Bank of China at number 4. The largest Western bank – JP Morgan Chase – comes in at number 7.[13] This is just one of the real reasons why the US Empire is seeking war with China by 2025.

Big banks and socialism

The state-owned banks in the PRC are used by the CPC to drive societal goals, not just a return on investments. The China Construction Bank in particular, is used to develop China’s real economy, extend credit to major strategic national programs including the Belt and Road Initiative (BRI), supporting eco-friendly construction, providing “caring stations” (!) at its branches to provide services for industry groups, and donating millions of yuan to public welfare.[14] Such actions are virtually inconceivable in the West, with working people being accustomed to being ripped off daily by banks with exorbitant fees, and having banks repossess their homes if they fall behind in repayments. Does “charity” work by the PRC banks slow their performance? Hardly. In 2022, the largest state-owned banks lent out 103 trillion yuan by the end of December.[15] All but a tiny proportion of this amount was lent domestically, and this amount was roughly double what was lent internally by the PRC banks in 2014. There is no financial crisis, and no banking crisis, in China, as “free enterprise” clearly plays an overwhelmingly subordinate role to state-backed development and economic planning.

Paramount Russian revolutionary leader VI Lenin, during 1917, famously declared that without big banks socialism would be impossible. He declared that the state-owned banks would constitute nine-tenths of the socialist apparatus, and would provide country wide bookkeeping, country wide accounting of the production and distribution of goods, and that this would provide the skeleton of socialist society.[16] The parallels between Lenin’s words during the world’s first proletarian revolution and the practice today in Red China are striking. The banks in the PRC are used for state building, for national economic development, for bolstering welfare, for funding green initiatives and much more. In China banking is publicly owned, and is seen primarily as a service, not a business venture.

To be sure, the PRC is saddled with a conservative and bureaucratic political leadership contained within the CPC, which, despite its revolutionary heritage, never had any intention of extending the gains of 1949 internationally. The twin Stalinist nostrums of “socialism in one country” and “peaceful coexistence with imperialism” today override the political outlook of the CPC. This is one reason why some in the West cannot see a qualitative difference between the government of the PRC and governments of “their own”. They are correct to identify the CPC as non-revolutionary, but mistaken to imagine it is overseeing a similar system to the West. To open the road to genuine socialism, the Marxism of Lenin and Trotsky must prevail, through internationally linked proletarian political revolutions in the East with socialist revolutions in the West. For this, the forging of vanguard parties – a real leadership of the working class – looms as a critically urgent task.

WORKERS LEAGUE

www.redfireonline.com

E: workersleague@protonmail.com

[1] www.nakedcapitalism.com/2023/03/svb-and-the-only-choice-we-have.html (22-03-2023)

[2] www.businessinsider.com/signature-bank-shut-down-by-regulators-depositors-bailed-out-2023-3? (22-03-2023)

[3] www.reuters.com/business/finance/ubs-take-over-credit-suisse-central-bank-2023-03-19/ (22-03-2023)

[4] www.forbes.com/sites/marisadellatto/2023/03/19/ubs-agrees-to-buy-embattled-bank-credit-suisse-central-bank-says (22-03-2023)

[5] www.michael-hudson.com/2021/10/3rd-edition-super-imperialism/ (22-03-2023)

[6] www.counterpunch.org/2023/03/13/why-the-banking-system-is-breaking-up/ (22-03-2023)

[7] www.unz.com/mhudson/why-the-bank-crisis-is-not-over/ (22-03-2023)

[8] www.businessinsider.com/svb-bank-crisis-russia-western-sanctions-insures-fallout-us-ukraine-2023-3?op=1 (22-03-2023)

[9] www.thehill.com/opinion/international/3545188-have-sanctions-against-russia-boomeranged/ (22-03-2023)

[10] www.newsunrolled.com/economy/201588.html (22-03-2023)

[11] www.rbth.com/business/334557-russian-exports-in-2021-gas-oil-vodka (22-03-2023)