Debt Generation

By David Malone
Edited by Mark Tanner

Book review by Ritchie Hunter

“Whoever has will be given more; whoever does not have, even what he thinks he has will be taken from him.”
Luke 8:18

On 16 March 2004 a worrisome problem was raised at a US Federal Reserve Bank meeting. There had been growing concern about potential overbuilding and speculation in real estate markets, especially in Florida, with buyers freely admitting they had no intention of occupying the units, just selling them on at higher prices. This was an early indication of the expanding financial bubble that was to lead to a massive failure within the banking system. But a public debate about what was happening was stifled by the then Fed chairman Alan Greenspan.

These were heady days for the banks. In a modern day version of Tressell’s money trick, the banks could raise finance on the back of the property boom, package debt up, sell it on and make huge profits from it. This debt could be packaged again and again, being sold on and on, and sometimes going around in a circular route and being bought once again by a speculator who had sold it before. This was like pass the parcel in reverse, another layer of worthless paper being added each time. An enormous amount of debt was formed, based on nothing more than the original, hyped up, overpriced equity in a building. Dollians collected in the vaults of finance houses around the world, but times were good, economies were growing and money was being made, for some.

We all know the next part of the story. And David Malone relays this in an insightful manner, using a collection of his comments on the Guardian website and from his blog, between 4 July 2008 to 11 May 2010.

The back of the book says that, “The Debt Generation is both a compelling account of the crisis as it happened and a devastating critique of the financial system and of our political leaders who bowed down to it”, and I would agree with this.

He describes how the £billions earmarked for public services have disappeared into the black hole existing in bank cellars. But this is not the end of it; it’s not even the beginning of the end. According to Malone the banks are still carrying masses of bad debt, but now they have our money they can tell us what to do, and that means they can demand more, meaning extra cuts to come.

Malone says the banks are like large ships, being holed below the waterline, while carrying huge sweating cargoes of dynamite.

The owners, and those whose cargo is being carried, want to save their fortunes. So, we have to pour in more and more money and effort in an increasingly vain attempt to save them. What we should do, he says, is let the boats sink to the bottom and use our money to build smaller, lighter and safer ships to do the job better. We should do the same with the banks.

These financial institutions are above the law. Take the case of Goldman Sachs the global investment bank. They knowingly sold dodgy securities to pension funds and other investors, then betted on them going sour, and when they did, took bailout money from the US government to cover their loss. So they made money out of these deals three times! The authorities know they did this but won’t prosecute because it may affect the markets.

The Government role in this is to sell our democratic control to the markets. “It has happened in developing countries for decades where many governments have simply been the puppets of the IMF. Now we are going to enjoy the same status. Major civil unrest may be some way off yet, but some sort of significant protest now, even civil unrest, would be better than keeping quiet until we have been herded into a state where only extreme measures and huge disobedience can extricate us.”

Of course, governments hope we can consume our way out of this mess, but under capitalism ‘growth’ or ‘development’ brings only conflicts over trade and currency, stagnation and unemployment. It means devastation of the natural environment, poverty and war.

The only criticism that can be made of ‘Debt Generation’ is that it does not mention the sweated labour from which all wealth comes, and that it is this which underpins the whole edifice of capitalism. Having said that, David Malone has done a real service to all of us who want to understand what is really going on. This is done with humour, creating images and using analogies that allow the reader to follow his reasoning easily. While all our politicians and most journalists have bought the idea that there is no alternative to public sector cuts, Malone tells us we have no alternative but to resist these plans, with civil disobedience if necessary.

David Malone is in FACT on Wednesday 23 Feb to answer questions after the film Inside Job.


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Comment left by TD on 23rd February, 2011 at 17:23
Good that everyone is finding out what the bankers are up to. 'Resist The Cuts'...come to London on Saturday March 26th for the anti cuts march.All trains out of Liverpool fully booked, some coaches may be available.