Committee for the Abolition of Illegitimate Debt

In this extract from his doctoral thesis, [1] Christoph Sorg summarises the CADTM’s position on the financial sector and banks. This extract from the thesis corresponds to pages 184 to 186.

As for financial sectors and national economies, CADTM has suggested a set of immediate (radical) Keynesian measures as well as the complete socialization of the banking sector (Fattorelli 2013, 46 ff [2]; Toussaint 2015, 181 [3]), for instance in an open letter jointly published on CADTM’s homepage by 24 authors including Costas Lapavitsas, David Harvey, Stathis Kouvelakis, and Miguel Urbán (Toussaint et al. 2016 [4]). While this analysis differs from many other Marxist accounts, which argue that a new deal of Keynesian measures are Utopian under contemporary conditions of neoliberal globalization, the idea is that the immediate measures “would constitute progress in resolving the crisis in the banking sector,” to be complemented by socialization as a long-term transformations. The immediate measures would effectively produce a more social and regulated welfare-state market economy:
‒ Restructure the banking sector
‒ Radically reduce the size of banks
‒ Separate commercial banks from investment banks
‒ Prohibit credit relations between commercial banks and investment banks
‒ Eradicate speculation
‒ Prohibit speculation
‒ Prohibit derivatives Derivatives A family of financial products that includes mainly options, futures, swaps and their combinations, all related to other assets (shares, bonds, raw materials and commodities, interest rates, indices, etc.) from which they are by nature inseparable—options on shares, futures contracts on an index, etc. Their value depends on and is derived from (thus the name) that of these other assets. There are derivatives involving a firm commitment (currency futures, interest-rate or exchange swaps) and derivatives involving a conditional commitment (options, warrants, etc.).
‒ Require banks to request authorisation before placing financial products on the market
‒ Separate consulting activities from market activities Market activities
trading Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit.
‒ End banking secrecy
‒ Prohibit over-the-counter financial markets.
‒ Prohibit transactions with tax havens
‒ Regulate the banking sector
‒ Require banks to radically increase the volume of their own funds (equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. ) in relation to their total assets
‒ Prohibit socialisation of the losses of banks and other private financial institutions
‒ Restore unlimited liability of major shareholders in case of bank failure
‒ Tax banks heavily
‒ Systematically prosecute bank directors who are guilty of financial crimes and misdemeanours and revoke the banking licences of institutions which do not comply with the prohibitions and are guilty of misappropriation
‒ Find another way to save banks
‒ Find other ways of financing public debt
‒ Strengthen existing public banks
Shortened list of measures (from Toussaint et al. 2016).

Since the short-term measures would only regulate the power of financial capital, the long-term strategy seeks to overcome capitalist finance via a “complete deprivatisation of the banking sector” (Toussaint 2015 , 187 ff), “to replace a banking system based on competition, deregulation, and opaque functioning with new system based on solidarity, strict regulation of financial operations, and transparency” (Fattorelli 2013, 46). A “deprivatisation” of finance as imagined by CADTM equals a socialization of the banking system, which the network explicitly differentiates from nationalization, seeing the latter as lacking the “essential role of citizen oversight” (Toussaint et al. 2016).

The idea is that …

… socialization involves democratic appointment of managers and decision-making by representatives of bank employees, customers, local government and representatives from national and regional banking authorities. In such a system, the Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx could lend directly to the State and public-sector entities. One of the essential mandates of publ ic banking would be to facilitate the transition from a capitalist and productivist economy to a socially oriented and ecological one. The financial system should serve the population, and not the other way around. (Fattorelli 2013, 47).

Toussaint cites several historical inspirations, which serve as lessons for future action. These range from the Paris Commune, which he argues was wrong to spare the Bank of France [5]; the bank nationalization after the Russian Revolution in 1917; Franklin D. Roosevelt’s Glass Steagall Act and subsequent banking legislation in Europe; bank nationalization in France after the Second World War and under Mitterrand in 1982; the appointment of Che Guevara as the president of the National Bank after the Cuban Revolution; the unfinished de facto nationalization of private banks in the aftermath of the 2008 financial crisis; to what he perceives as Syriza’s failure to leave the Greek banks untouched and suspend debt
repayments (Toussaint 2018).

Additionally, CADTM sees the socialization of finance as one part of a much larger project, …

… which would trigger the adoption of a transition to a new, post-capitalist and post-productive model. Such a program, which needs to be Europeanwide but which may first be put into practice in one or several countries, would include abandonment of austerity policies, cancellation of illegitimate debt, implementation of an overall tax reform with heavy taxation of capital, an overall reduction in working hours with compensatory hiring and maintaining of wage levels, socialisation of the energy sector, measures for ensuring gender parity, development of public services and social benefits and the implementation of a strongly determined environmental transition policy. (Toussaint et al. 2016)

The CADTM and the Sovereign Debt Sovereign debt Government debts or debts guaranteed by the government. arbitration

Christoph Sorg also highlights the CADTM’s deep doubts about the feasibility of setting up an international arbitration mechanism for debt restructuring and sovereign debt disputes. As underlined by C. Sorg, the CADTM is in favour of unilateral sovereign action by governments.

This extract from the thesis corresponds to pages 182 to 184.

CADTM criticized the initiatives for sovereign debt arbitration, since “one can reasonably doubt the real determination of governments of creditor countries to break away from the existing framework,” and because the network feels that the initiatives do not guarantee fair and transparent engagements between equal parties; thus:

As far as the CADTM network is concerned, arbitration cannot resolve the public debt problem of the developing countries. Like the Jubilé South network, we believe that the governments of the South and of the North should immediately take unilateral actions: suspend payment of the public debt (with freezing of interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. ), audit the public debt and repudiate/write off all illegitimate debts. Such unilateral acts are legitimate under international law. (CADTM 2011 [6])

CADTM suggests such unilateral debtor action to establish debt audits, which repudiate illegitimate debt, as an immediate task. The experiences of Argentina, and especially Ecuador, would serve as historical lessons for future attempts. As a next step, CADTM proposes two radical structural solutions: new regional financial architectures and the socialization of private banking under public control.

Ideas for new regional financial structures emerged especially in Latin America, where social movements had started to mobilize around the issue (Fattorelli 2013, 44). In 2007, the heads of states of Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay and Venezuela signed the Founding Charter of the Bank of the South (“Banco del Sur”) in Buenos Aires. The same countries officially established Bank in 2009 and promised to capitalize it with an initial 20 million US dollars. The idea was to de-link from Western financial (and economic) power structures and to have the Bank of the South finance sustainable regional development without exploitative conditionalities. (Toussaint 2007 [7]). However, the process has quickly stalled, as member of CADTM AYNA Daniel Munevar observed:

[A]s the financial crisis of 2008 hit the region, those plans where [sic] shelved. As their economies came under pressure, the governments behind the Bank of the South delayed and scaled down their commitment to the integration agenda. This helps to partially explain why it took 6 years since the foundation of the Bank to have its first Council of Ministers, and 7 years for its first Council of Administration (El Pais, 2013; Nodal, 2014). In addition, as the foreign exchange struggles of Venezuela and Argentina deepen, there is still no date for the transference of the agreed initial capital contribution to the Bank. With this precedent, is [sic] not unrealistic to think the NDB could experience the same difficulties. (Munevar 2014)

He concludes that while “the experience of the Bank of the South shows how hard it is to break with established conventions,” that fact “doesn’t mean that countries in the South shouldn’t keep trying.”

CADTM : a radical network with the Global Justice process [8]

CADTM identifies as a radical network with the Global Justice and World Social Forum processes and thus focuses on fundamental critiques and the construction of radical alternatives. Pluralist anti-imperialist, socialist, ecological, and feminist perspectives, among others, critique debt as a problem constitutive of systemic injustice, one whose abolition is necessary but insufficient to solve intersectional grievances. CADTM perceives debt is a system, which facilitates the dispossession of the commons, subaltern classes, and the South in order to maintain or increase capital accumulation. Such a perspective structurally focuses on the internal contradictions of capitalism and its inherent empowerment of the capitalists as a class. Along the same lines, CADTM perceives the recent crisis as the product of mainly excessive financial-corporate debt, which has entailed further dispossession via the socialization of private losses.