Back to Front - A fraud on workers
WORKERS, NOVEMBER 2008 ISSUE
“Very little is now built to order. Anyone wanting a new house picks one from among those built on speculation or still in the process of construction. The builder no longer works for his customers but for the market and builds from 100 to 200 houses…..thus embarking on an enterprise which exceeds his resources twenty to fifty times. The funds are procured through mortgaging. Then if a crisis comes along the entire enterprise generally collapses.”
Such was the testament of a builder before a bank committee in 1857 and was quoted by Marx and Engels in Volume II of Capital. They gave this as an example of where credit is deployed alongside greater speed in the production of housing, leading to a reduction in the turnover time of capital invested for house building purposes.
Things of course have accelerated since 1857. Through the development of machinery and advances in materials, the building time for new houses has shortened and with it a corresponding reduction in the time that circulating capital is tied up in the building process, before its exit with a profit.
It is no longer a builder or landowner taking on the risk of an ongoing mortgage but instead the servicing of mortgage debt has been dumped onto the back of a worker as notional house owner, rather than as a tenant renting. The mortgage itself is sourced from worldwide fixed capital markets that unlike circulating capital seek a steady long-term yield rather than a quick high return. Marx described this interest-bearing capital as “the fountainhead of all manner of insane forms, so that debts, for instance can appear to the banker as commodities”.
This insanity is all the clearer today. It was the investment bank Goldman Sachs that in 1980 was the first of the contemporary bankers to step up this insanity by hitting on to the idea of packaging mortgages as a commodity and recycling them as a CDO (collateralised debt obligation).
The attraction of a CDO was much like that of Government gilts or bonds: although de facto debt, a CDO could be traded and used as collateral against the issuance of further new debt (the spiv term for this is pyramid selling). Provided workers continued to service the original mortgage loan and the asset value increased (i.e. house prices), banks could raise further lines of credit (sourced recently from places like China) without the need to produce domestic savings in the form of bank deposits normally needed to back such debt.
It is hardly surprising that this alchemy from 1980 onwards has been promoted by treacherous politicians speaking about a worker’s right to buy a house or the more recent phrase of creating “affordable housing” for Britain’s hard-working families.
The consequences of this 30-year falsehood of mis-selling are going to be dramatic, as Britain (unlike in 1857) has a small manufacturing base. As we know British manufacture has been destroyed, for counter-revolutionary reasons, by the very same politicians who have fronted the mortgage culture. A revolutionary solution to this beggars’ muddle will therefore require the British working class for the first time to take on its historical responsibilities. In this respect we are extremely fortunate to have the political economics of Marx and Engels as a starting point – the rest will be down to us as a collective working class to sort out.