Class Warfare on Wall Street

The first thing that stands out when one observes the current reactions to the financial meltdown it that no one really knows what to do. This stems from the fact that uncertainty is part of the game; the way the market will react depends not only on investors’ own trust in the government interventions, but also, and even more so, on the amount of such trust they think they can attribute to other investors: we can’t consider the effects of our own interventions. We are thus forced to make choices without the knowledge that would let us make an enlightened choice, or as John Gray says: “We are forced to live as if we were free.”

But since we can’t stop repeating that confidence and belief are decisive, we also ought to ask ourselves to what extent the fact that the American administration raised the stakes amidst the panic might have aggravated the danger that it’s trying to avert. It’s easy to notice the similarity of the language used by President Bush in his address to the American people after September 11th and in the address that followed the financial collapse: it was like two versions of the same speech.

On those two occasions, he evoked the menace that threatened the “American way of life” itself and the necessity to react in a quick and decisive manner in order to face that threat. Twice, he called for the temporary abandonment of American values (the guarantees concerning individual liberties, market capitalism) to save those same values. It this paradox inevitable?

This pressure “to do something” resembles the superstitious need to make a gesture whenever we observe a process over which we have no real influence. Also, sometimes we act in order to avoid talking and thinking about what we’re doing. For example, responding quickly to a problem by making 700 billion dollars available instead of asking ourselves how it happened.

Let’s return to July 15th, when the Republican senator Jim Bunning attacked the chairman of the Federal Reserve, Ben Bernanke, by asserting that his proposal proved that “socialism is alive an well in America”: “Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem.”

Bunning was the first to publicly expose the main reasoning behind the Republican Party’s revolt against the federal rescue plan. This reasoning deserves to be examined more closely. Notice that the resistance to the rescue plan was formulated in terms of “class war”: Wall Street against Main Street. Why should we help those responsible for the crisis (“Wall Street”), and let the simple borrowers (of “Main Street”) pay the hard price? Isn’t this a perfect example of the economic theory called “moral hazard”? Moral hazard is defined as “the risk that somebody will behave immorally because insurance, the law, or some other agency protects them against loss that the immoral behavior might otherwise cause.” In other words, if I’m insured against fire damage, I’ll take fewer precautions against a blaze (or, in the extreme, I’d even set fire to the buildings that I’ve insured but that are generating losses). The same thing holds for big banks: aren’t they protected against large losses while being allowed to keep their profits? It’s no surprise to learn that Michael Moore has already written a public letter in which he denounces the bailout plan as the crime of the century. This unexpected overlap of the left and the Republicans ought to give us food for thought.

What the two sides have in common is their contempt for the big speculators and CEOs who draw profits from risky decisions but are protected from failures by golden parachutes. Wasn’t it the same for the failure of Enron in January 2002, which we can interpret as a sort of ironic commentary on the idea of corporate risk? The millions of workers who lost their jobs and their savings were surely exposed to a risk, but without really having any other choice. Those who, by contrast, had not only a real knowledge of the risks, but also the power to intervene in the situation (the directors), minimized their risks by cashing in their shares and their options before the crash. If it’s really true that we’re living in a society of risky choices, some of us (the Wall Street bosses) make the decisions, while others (the ordinary mortgage payers) assume the risks….

So is the bailout plan really a “socialist” measure, the dawn of state socialism in the U.S.? If that’s the case, it’s in a rather peculiar sense: a “socialist” measure whose primary goal is not to help the poor, but the rich, not those who borrow, but those who lend. The supreme irony lies in the fact that the “socialization” of the banking system is acceptable when it serves to save capitalism: socialism is harmful – except when it allows us to stabilize capitalism.

And what if, rather, a “moral hazard” was woven into the very foundation of capitalism? In other words, the problem stems from the fact that it’s impossible to separate the two: in the capitalist system, the welfare of Main Street is subordinated to the prosperity of Wall Street. Thus, while the Republican populists who oppose the rescue plan are acting badly for good reasons, the supporters of the bailout are acting well for bad reasons. To put it in the more refined terms of propositional logic, the relationship is not transitive: even though what is good for Wall Street isn’t good for Main Street, Main Street can’t prosper if Wall Street is sick. And this asymmetry gives an a priori advantage to Wall Street.

All this clearly illustrates that there’s no such thing as a neutral market: in every specific situation, the coordinates of market interaction are always regulated by political decisions. The real dilemma therefore isn’t to figure out whether the state should intervene or not, but what form that intervention should take. And here we’re confronted with genuine politics: the battle to define the fundamental “apolitical” coordinates of our lives. All political problems are in a sense non-partisan, if they relate to the question: “What is the nature of our country?”

Thus the debate over the rescue plan evokes a real political issue regarding the decisions about the fundamental elements of our social and economic lives, going so far as to mobilize the ghost of class warfare (Wall Street or the mortgage holders? State intervention or not?) We won’t find any well-informed “objective” positions that we can simply apply here; we have to engage politically.

What is the solution? The great German idealist philosopher Immanuel Kant responded to the conservative motto, “Don’t think, obey!,” not with “Don’t obey, think!” but with “Obey, but think!” When we’re subjected to a blackmail like the bailout plan, we must keep in mind that it’s a blackmail, and try hard to resist the populist temptation to express our anger and thus strike a few blows. Instead of yielding to such an impotent statement, we ought to master our anger in order to transform it into a firm resolution to think, to reflect in a truly radical way, to ask ourselves what about this society (that we’re in the midst of leaving) makes this kind of blackmail possible.

(Translated from English to French by Christine Vivier)

Slavoj Zizek is a philosopher.