The Hindu: Meera Srinivasan: New Delhi: Wednesday, April 18, 2018.
The recent bubbles in the stock exchanges and financial markets foretell an imminent financial crisis that would likely be stronger and more dangerous than in the past, according to Eric Toussaint, historian, political scientist and a spokesman of the Committee for the Abolition of Illegitimate Debt (CADTM).
In an interview to The Hindu, Mr. Toussaint, who was recently in Sri Lanka for a regional seminar on debt, spoke on the risks of banks engaging in speculative activities.
Charging regulatory authorities of being “very lenient” with the banks, he said that governments and regulatory authorities were supposed to moralise the banking system, separate commercial banks from investment banks, end exorbitant salaries and bonuses, and finally finance the real economy. “Instead… all we have had is a long list of misappropriations that have been brought to light by a series of bank failures and big scams.”
The CADTM is an international network of activists working on cancellation of illegitimate debt. Based in Belgium and Morocco, its activists work on developing alternatives to help communities tackle the pile up of debt, with particular focus on the global south. Mr. Toussaint’s book ‘Bankocracy’, published in 2015, drew global attention for its analysis of the role of banks and governments in enlarging public debt.
Now, he warns of a “new crisis”, consequent to a series of misjudgements in policy in recent years.
Central banks — the U.S. Federal reserve, the European Central Bank, the Bank of England, the Bank of Japan — implemented a policy of Quantitative Easing, injecting a lot of liquidity into banks, and buying “very toxic” products like mortgage-backed securities and asset backed-securities.
While the central banks bought such products, giving banks “a lot of money” in return, the banks did not lend it to producers or households. Instead, they used it for further speculative activities leading to “a new bubble” in stock markets for about four years.
“It is absolutely evident that the capitalisation of the stock exchange is totally exaggerated, that it does not correspond with the real value of the assets of the big corporations. Sooner or later, there will be a new financial crisis,” he said.
Private debt
There is also a big concern with the private debt of big financial and non-financial corporations, with their indebtedness increasing tremendously in recent years. “There is a new bubble in this segment of the financial market and that is another possibility of crisis.”
On the banking sector crisis in India and the demand from sections for its further privatisation, Mr. Toussaint said the problem does not come from the public character of the banks, but from them having adopted a behaviour similar to the private sector’s.
“The public banking sector, like the private banking sector, is in favour of secrecy and doesn’t want to be controlled. The challenge for us is to improve and to materialise the public character of the banking sector — and in the case of India, to defend the public banking sector, but to change it profoundly.”
‘Socialisation of banks’
Mr. Toussaint advocated the “socialisation of the banks” where citizens, the banks’ employees and local authorities control the activities of banks. “The public banks should intervene in the local economy and help it develop and coincide with the needs of the people.”
On microcredit and its presence in Latin America, Africa and Asia, he said there was a huge propaganda campaign and very strong institutional support — right from the World Bank to most national governments — to microfinance.
From his research, he found that there were more than 120 million borrowers of microcredit loans, 81% of whom were women.
My visit... has showed me how fast the microcredit industry developed its activity in the country after the end of the war in 2009 and how brutal it could be – it is impossible for people to repay a debt if they should pay 40% to 60% interest rates.”
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