Panic has gripped the stock markets of the world. Things are completely out of control, and there is nothing that governments can say or do that can stop it. As in 1929, every time people thought that the worst had come, further falls were just round the corner. Nobody knows how far share prices have still to go. The world economy now finds itself in unsheltered waters.

What caused this financial crisis? Whilst the collapse of house prices was the straw that broke the camel’s back, this requires that it was already heavily laden with straw. Marxists understand that historical events don’t occur in a vacuum; rather, they are a result of the build up of contradictions within the system.

The Banks are going down like ninepins. The whole financial system has been based on an unstable house of cards of credit. The pyramid had been built up over years of mad speculation. Now it is all unravelling.

Such was the indignation of ordinary Americans that yesterday the much trumpeted $700billion bailout was voted down in Congress, sending shockwaves around the world's financial institutions. Whatever they do now, a new package or no package will mean serious economic downturn and reveal the real nature of capitalism to all.

Bradford & Bingley has finally been put out of its misery. After months of cliff-hanging the government has been forced to nationalise the bank. In many respects the ‘rescue’ plan is a clone of the $700bn Paulson plan being pushed through in the USA. The basic idea is that the good stuff is sold off to the private sector while the taxpayer is lumbered with the bad debts, the toxins. Socialism for the rich and the rigours of free enterprise for the rest of us!

Let us compare the perspectives of the Marxists with those of the bourgeois. In contrast to the bourgeois economists who committed the grave error of believing their own propaganda, the Marxist tendency explained the reality of the situation long ago. The Marxists were laughed at then... not anymore. What we have been saying for years is now becoming reality for all to see.

We live in exceptional times. The financial panic in the USA is creating waves that are threatening to engulf the whole world. This is rapidly transforming the consciousness of millions. Alan Woods, in a two-part article looks at how the world economy reached the stage it has, where it is on the brink of a serious downward, so serious that it could be as worse if not worse than 1929.

Last week US Treasury Secretary Henry Paulson unveiled a dramatic plan to arrest the present financial crisis and prevent future economic catastrophe. It is to cost $700bn. It sounds like a breathtaking break from neo-liberal philosophy. It’s not really. Neo-liberalism was always a giant lie. Homeless people don’t matter. People in danger of losing their jobs in a recession don’t matter. But, when it comes to banks and billionaires, self-reliance is for the birds. These people are hapless bums.

The capitalist system is in the throes of the worst financial crisis since the Great Depression. This is the view not only of the billionaire George Soros, but also of the International Monetary Fund, the custodian of the capitalist system, and all the serious capitalist commentators.

After a week of turmoil on financial markets, on Saturday 20 September President Bush said he was proposing to spend $700bn of taxpayers’ money to buy the rotten mortgage assets held by the banks on Wall Street. He said he was doing this to help the average American family with their homes and jobs.

Financial markets in Wall Street, New York, the City of London and all over are in turmoil. In just 24 hours, two out of the four largest investment banks in the US have disappeared. All this confirms what Marxists have always maintained: capitalism does not operate in a smooth and steadily increasing way to progress. It operates violently, lopsidedly, in cycles of boom and slump. Now more banks are set to fail and there will be more misery in the financial markets. Working people are also set to suffer as massive job losses are announced.

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