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Umsebenzi Online

Volume 13, No. 32, 14 August 2014

In this Issue:


Red Alert

African Bank and credit for consumerism: The collapse of a model

By Alex Mashilo

`…what appears as a crisis on the money-market is in reality an expression of abnormal conditions in the very process of production and reproduction` (Karl Marx, Capital, Vol. II)

This is the point various news reports and analyses have missed on the collapse of the African Bank. The crisis levels of inequality, unemployment and poverty persistent in SA are a part of, and indicative of, the `abnormal conditions in production and reproduction`. Amassing more and more commodities on an immense scale, which is what capitalists do to accumulate wealth on a private basis, is also one of the driving forces of consumerism - the bling mentality. This is a product created by the conditions of inequality. In the last two decades, it has been reinforced by the neoliberal notion of individualism and became the mind-set of its victims. The mentality mainly, but not exclusively, spread from the U.S., and was fuelled by the rise of neoliberalism in the 1970s. In SA, our transition to democracy in 1994 occurred in the aftermath of the rise, and the growing dominance, of neoliberal globalisation. A tendency emerged in which sections of our society wanted to possess belongings which they had never had before, and to live a lifestyle which they had only seen on television. But with the accumulation of possessions came the accumulation of debt. This is what the African Bank was modelled to finance, not production, not development.

The collapse of the bank must be taken seriously. This is because it appears to be the collapse of the model it was based on, as was the case with the sub-prime lending crisis in the U.S. This problem, like a disease, became contagious. Through the links it had with other bad banking practices, interactions with other toxic financial products and all sorts of dealings that were not backed by production, the contagion caused the biggest global economic crisis since the Great Depression of the 1930s.

Marx states in Capital that interest rates, that is the price charged for money based on loans, are irrational because by and large they bear no relation to any underlying production conditions. It must be added that the irrationality becomes worse with exorbitant interest rates on short-term loans, which is the space the African Bank has occupied in SA. In its website the African Bank states that it had about 2.6 million customers.

The South African Communist Party (SACP) and Financial Sector Coalition Campaign (FSCC) have been leading a campaign for the transformation of the financial sector to serve the people, rather than rip them off through, among other things, exorbitant bank charges, high interest rates and expropriation of their houses through repossessions and evictions - which are frequently fraudulent. The campaign is also against reckless and unsecured lending practices that lead to people becoming indebted. The National Credit Regulator (NCR) was actually called upon and had investigate the African Bank.

The regulator followed up by referring a case of reckless lending committed by the bank to the National Consumer Tribunal, and called for a fine of R300 million with the final settlement being R20 million. When people take loans without proper information, without capacity to repay the loan plus interest, and when these loans are used for consumption and not to generate additional income, then those people become over-indebted and will obviously default. In addition, we have a problem in the structure of production in SA. We are importing finished goods, while raw materials are a significant proportion of our exports. We have a huge trade deficit. By the way most African Bank loans were made to finance the consumption of luxury imported goods. This does not help drive local production and enterprise development. In Confronting Finance,Milford Bateman in his chapter titled `The Microfinance Delusion`, shows that you cannot build an economy on microfinance. He presents evidence conclusively underlining the fact that microfinance does not help drive enterprise development.

Another general problem is unsecured lending which is not wrong in itself but can have unintended consequences, depending on how it is being managed and under what conditions it takes place. This involves issuing out loans without security except for the incomes of the customers. Such loans are vulnerable to interruptions in income conditions. As Marx states in Capital, when their incomes are interrupted, consumers` spending is interrupted too. When they are over-indebted, the interruption in spending also affects loan plus interest repayments. In addition, the methods of debt collection do not do any good. Once the debt collectors are brought in, the amount customers owe increase exponentially due to the new charges imposed for collection. People end up owing more and sinking deeper into debt, in addition to the irrational interest rates that they suffer. How the Reserve Bank of SA will manage collections after bailing out the African Bank will therefore be interesting.

Meanwhile, there is this argument that the bailout is in the interest of all. In class terms, those people who are indebted or over-indebted as a result of loans - the lower middle class professionals, teachers, nurses, etc., the workers and poor, are not being bailed out. They, according to the deal, must continue to pay. Liberty Life, African Bank`s second largest investor, along with others, are the ones who are actually being bailed out. After all, the African Bank functions like a middleman standing between these investors and the indebted customers. Basically, the bank obtains money from investors, passes it on to customers through loans, collects it back with interest, keeps its cut and pays back the investors. The Government Employees` Pension Fund managed by the Public Investment Corporation is African Bank`s largest investor. Only in this sense do public servants stand to benefit from the bailout, even if indirectly. Another class question: the Reserve Bank is buying (“nationalising”) the bad book, while the good book is left in private hands.   

But what do the major banks that have underwritten African Bank`s bailout stand to benefit?

This question must be understood in the context where, in addition, as shown from Marx`s Capital, the money used by banks as `interest bearing capital` `draws upon the money capital accumulated through the sale of commodity capital, as well as the hoards [“money held for future purposes”] of temporarily idle money of the industrial and commercial capitalists, workers, the state or anyone else. These hoards and savings are collected and centralised in the financial institutions, and transformed into potential money capital on behalf of capital as a whole` (Marx`s Capital, 5th ed., Ben Fine and Alfredo Saad-Filho). As Fine and Saad-Filho correctly put it, this money `is not, however the juridical property of these institutions, and depositors are entitled to withdraw their funds (however, different types of financial investment may incur temporary restrictions on the ability to make withdrawals)`. And, indeed, as the authors further underline, `Banks normally extend credit over and above the levels of deposits…` and, in addition still charge interest on loans issued from this to make money out of nothing - the money they do not have.

Let us make a point in passing. The workers and the poor often receive far less for their savings and investments with the banks than the banks make from them in interest rates and bank charges through loans. In addition, debt has been converted into a commodity. It is also being sold from hands to hands through new financial instruments (such as securitisation). Those who buy benefit in varying degrees. Interest rates adjustments and collection charges play their role in this accumulation scheme.

There is no transparency on the question what the major banks that underwritten African Bank`s bailout stand to benefit. But one thing is certain. There is something they stand to benefit - otherwise they are exposed as a result of the problem, and are acting pre-emptively in self-interest. We need the details.

It is also clear that the collapse of the African Bank is a result of weak regulation in respect of reckless and unsecure lending practices if not interference in implementing existing regulations. A joint statement issued by the SACP and FSCC on Sunday calls on the NCR to perform its functions without fear or favour and the National Treasury and Reserve Bank to stop interfering in its work - particularly the curtailing of NCR`s powers is isolated. The two regulatory institutions are then called upon to strengthen their regulatory hands. Meanwhile, the Reserve Bank said it was engaging with the African Bank for almost a year if not more. The African Bank`s demise was foreseeable. Therefore we must ask: What role did the engagement play to stop the crisis?

Alex Mashilo is SACP Spokesperson


The question of Palestine in historical perspective: What does the Bible say?

By Future Msebele

We have seen on our television screens image after image of Israeli planes and heavy artillery bombarding the narrow coastal strip dominated by the city of Gaza. Hamas, the dominant party in control of Gaza has retaliated by relatively harmless rocket attacks against Israel.

Why is Israel attacking Gaza? Who are the Israelis? Who are the Palestinians?

In Zimbabwe there is a strong body of opinion which says “This land belongs to the Jews because the Bible says so.” This is indeed a very short-sighted and misinformed statement. When the Christian religion began, it adopted wholesale the Jewish scriptures which we know as the Old Testament. Read the relevant historical portions properly and you will find that there were many different peoples there long before the invasion by the Hebrew tribes who were to adopt and introduce what we now call the religion of Judaism.

18: In the same day the LORD made a covenant with Abram, saying, Unto thy seed have I given this land, from the river of Egypt unto the great river, the river Euphrates;
19: The Kenites, and the Kenizzites, and the Kadmonites,
20: And the Hittites, and the Perizzites, and the Rephaims,
21: And the Amorites, and the Canaanites, and the Girgashites, and the Jebusites.

Genesis 15 vs. 18-21 (KJV)

Two things are obvious here: firstly that there were other people already living there; secondly, as all would know too well through the European versions of African history - history is mostly written by the winners. It is the Israelites, and not all the other people mentioned who are saying that the land was promised to them!

Further on, in the First Book of Samuel Chapter 15, we read that God ordered King Saul to commit genocide against the Amalekites!

1: Samuel also said unto Saul, The LORD sent me to anoint thee to be king over his people, over Israel: now therefore hearken thou unto the voice of the words of the LORD.
2: Thus saith the LORD of hosts, I remember that which Amalek did to Israel, how he laid wait for him in the way, when he came up from Egypt.
3: Now go and smite Amalek, and utterly destroy all that they have, and spare them not; but slay both man and woman, infant and suckling, ox and sheep, camel and ass.

Again, Jews regard Jerusalem as their historic capital. But they did not build it:

4 And David and all Israelwent to Jerusalem, which is Jebus; where the Jebusites were, the inhabitants of the land.
5 And the inhabitants of Jebussaid to David, Thou shalt not come hither. Nevertheless Davidtook the castle of Zion, which is the city of David.

1 Chronicles 11 vs. 4&5 (KJV)

What we read, then, in the Old Testament is about a group of warlike nomadic tribes with their herds of cattle, sheep and goats, conquering peaceful city dwellers and establishing themselves as rulers.

As we study the history of the Jews through the Bible and other sources we find that the people of Palestine/Israel, lying between the two great early civilizations of Egypt and Mesopotamia (Iraq) were of extremely mixed origin including in their gene-pool both fair-haired Hittites and black Ethiopians. Likewise, when it comes to religion we find that worship of the Golden Calf and of Baal went side by side with the worship of the one God - with different forms of religion being dominant at different times. People who did not originally belong to the Hebrew tribes began to practise the Jewish religion and people that were of Hebrew origin turned to other religions.

By the time of Jesus, there were more Jews outside Palestine than in Palestine, many of them proselytes, that is converts.

Following unsuccessful Jewish revolts against the Romans in 70CE - when the temple was destroyed and the Bar Kokhba revolt of 132CE, the Jewish leadership left Palestine, leaving behind the peasants who slowly converted - first to Christianity, then later to Islam. Many people do not know that about 15% of Palestinians are Christian - descendants of the earliest Christians. Most of the rest are Muslims.

The Palestinians of today, then, are the descendants of the many different peoples that inhabited the land in ancient times - including Jews - since which they have also acquired ancestry from the Arabs of the Arabian Peninsula, West European Crusaders and Turks - all of whom conquered that territory at various times. Israeli Jewish historian Tsvi Misinai states categorically in a piece written in 2009 that “90% of Palestinians are descended from Jews.”

At the same time, many people of non-Palestinian origin converted to Judaism. In the Acts of the Apostles:

Now when the congregation was broken up, many of the Jews and religious proselytes followed Paul and Barnabas: who, speaking to them, persuaded them to continue in the grace of God.

Acts 13 v 43 (KJV)

There are a number of other references to proselytes in the New Testament.

More than that, we know of many cases of whole communities which converted to Judaism in Yemen, Ethiopia and most spectacularly in the Khazar Kingdom which covered an area now in Russia and eastern Ukraine. In the 8th century CE, an entire Turkic-speaking kingdom, the Khazar Kingdom converted to Judaism, and, although estimates vary, it is definite that a considerable part of European Jewry have Khazar ancestry.

How then did Jewish settlers from all over the world come to claim Palestine as theirs?

During the 19th century in Europe, nation states began to be formed. Italy became one nation in 1851, Germany in 1871. Others, Poles, Czechs and Hungarians were seeking to form nation states. Some Jews began to ask themselves where they belonged.

In 1895, an Austrian Jew, Theodor Herzl wrote a book called The Jewish State. Two years later the First World Zionist Congress took place in Switzerland. Herzl approached the Turkish government for a Jewish settlement in Palestine (at that time part of the Ottoman or Turkish Empire) although permission to establish a Jewish state was refused (despite an offer to assist the Turks pay off substantial debts), small groups of Jews began to settle in Palestine. However, Palestine was not the only place thought suitable for a Jewish National Home, part of British East Africa (now Kenya) was also seriously considered!

In Russia in 1910, as the Tsarist Empire grew to a close, and only 7 years before the Russian Revolution. Pogroms - attacks on Jewish settlements by right-wing thugs (the Black Hundreds) took place. Some emigrated to America, a few to Palestine. This group formed a solid core of Jews in Palestine.

As fascism grew in Europe during the 1930s, more and more Jews, fleeing persecution, went to Palestine. Following the end of the Second World War, many Jews who escaped Hitler’s attempt to destroy them, fled to Palestine (by then under British control). They began to fight the indigenous people for their land. The newly formed United Nations agreed to partition Palestine into a Jewish and a Palestinian state. In 1948, the State of Israel was formed. They had already seized considerably more land than had been granted to them by the UN. The West Bank became part of the Kingdom of Jordan and Gaza was administered by Egypt.

In 1964, the Palestine Liberation Organization was formed and was given immediate recognition by many countries as the sole representative body of the Palestinian people. It obtained UN observer status in 1974. But in 1967, war had broken out between Israel and its Arab neighbours and the Israelis seized both the West Bank and Gaza.

Nevertheless, in 1987, the Intifada, the uprising against Israeli occupation, started. By 1993, the Israelis, led by Prime Minister Yitzhak Rabin and the Palestinians led by PLO President Yasser Arafat signed an agreement to recognize both the State of Israel and the State of Palestine.

In 1995, Rabin was shot dead by an assassin who represented the extreme right of the Zionist movement. Soon after that, Israel was ruled by a succession of extreme right-wing governments which refused to recognize Palestinian rights and continued to steal Palestinian land and build Jewish settlements in the West Bank. Yasser Arafat was humiliated in front of his own people and in 2004 was poisoned by a radioactive chemical. The Palestinians have been reduced from being the owners of the whole area of what is now Israel and Palestine to being confined to the tiny area of Gaza and a few even smaller enclaves in the West Bank.

The Zionist Jews who came to Palestine to flee persecution have now themselves become the persecutors - or as one commentator put it:

The Palestinians are the last victims of Hitler.”

Future Msebele is President of Zimbabwe African People’s Union Youth Front (ZAPU Youth Front)