The takeover of Credit Suisse (CS) by UBS exposes the massive instability of the global financial market. It is an expression of the rottenness of the world capitalist system. As always, while the bankers gamble away, the working class has to pay.
The bankruptcy of CS would probably have led directly into the global financial and eventually economic crisis. Federal Councillor Keller-Sutter refers to the UBS takeover as a “commercial solution”. With the use of an emergency law and state guarantees of 209 billion francs, this is tantamount to a bald-faced lie. The state, which according to the liberal myth “should not intervene in the economy”, had to rescue by decree the capitalists from themselves – for the second time in 15 years!
In order to make the takeover palatable to UBS, i.e. to save the financial system, particularly risky bonds (‘AT1’) were expropriated, and the voting rights of the shareholders were legally cancelled. Democracy and the rule of law under capitalism are but a shell for the dictatorship of finance capital. The interests of the working class, whether as wage earners who will suffer from coming mass layoffs, or see their pension fund investments in the balance, do not factor into the equation. They will ultimately pay the costs of the bank bailout.
The dramatic events surrounding CS are of utmost importance for the class struggle in Switzerland. After the 2008 banking crisis, which was followed by the pandemic, the parasitic neutrality debacle around Ukraine, and inflation, the working class is watching the seemingly eternal Swiss stability fade away.
Not ‘mismanagement’ but capitalism in decline
The collapse of CS is an expression of the acute capitalist crisis. To combat galloping inflation, the ruling class has one tool: raising key interest rates to drain liquidity from the market. We have repeatedly shown that the capitalists do not have a good solution. The collapse of California's Silicon Valley Bank (SVB) was a direct consequence of interest rate hikes. The SVB collapse sent shockwaves through the entire financial system, which ultimately led to the implosion of CS. The dramatic events of the last few days show the instability of the capitalist world economy.
The chain broke at the weakest link. Nobody had any confidence left that the massively battered CS had the slightest chance of survival in the new environment of crisis, war, inflation, interest rate hikes and recession. There were historically high outflows of assets of over 10 billion a day. Last Wednesday, the Swiss National Bank issued a guarantee of 50 billion – but the fate of CS was already sealed.
However, it is foolhardy to seek the cause of CS's ruin only in ‘mismanagement’. CS was the rottenest apple – among many rotten apples. The entire financial sector is fully involved in risky business and speculation. The enormous scale of fictitious capital and financial speculation is an expression of the depth of the crisis of capitalism.
Since the 1980s, the world banking sector and the whole capitalist economy have been sinking more and more into the morass of financial speculation. This is a consequence of the organic crisis. There are fewer and fewer investment opportunities in the real economy because these yield no or very low profits, due to overproduction. Investment in industry is falling, while speculative bubbles are inflating to bursting point. The explosive growth of fictitious capital and speculative transactions is not a moral aberration of the bankers. It is a consequence of the iron laws of capitalism, of competition and profit compulsion, in the period of the system's decline.
CS was exposed to these constraints – in the context of increasing competition and the long-term decline of Swiss imperialism. Since the 1990s at the latest, the big Swiss banks have tried to compete against the very big ones in the USA and elsewhere in risky investment banking. This exacted its revenge, especially on UBS in the banking crisis of 2008. The USA and the EU took advantage of the fact that Swiss banks were on their knees after 2008 to overthrow Swiss banking secrecy. That was a very hard blow – to the banks' profit opportunities. Since then, CS in particular has oriented itself even more towards high-risk and speculative investment banking. As we showed last year around the ‘Suisse Secrets’ leak, all the scandals of CS in recent years expose the deep crisis of the Swiss financial centre.
The new mega-UBS: Switzerland at the epicentre of the capitalist earthquake
Now CS is being taken over by UBS at a state-protected bargain price. The option of a state takeover of CS was quickly rejected because it would have entailed extreme risks for the state finances and would therefore have triggered a vastly greater public backlash. The government was afraid of this, which is why the solution with UBS was pushed through. This forced Swiss merger was clearly preferred by the banking capitalists of the US, UK, EU and Switzerland to the bailout of CS by the Saudi National Commercial Bank, which was another prospect. In this way, the position of the Swiss banking centre could be maintained, at least for the time being, i.e. the ‘neutral’ hoarding of assets from all over the world.
We must be absolutely clear: this bank merger will not solve any problems; on the contrary, it will create a bigger problem for the future. Instead of two big banks, Switzerland now has one megabank exposed to the highly speculative international financial market. It is only a matter of time before the next banking crisis and bailout.
The short-term, naive hope is that the comparatively stable situation of UBS will transfer to CS as a subsidiary. This is by no means certain: UBS is integrating a completely ailing bank with the takeover. UBS share prices have been extremely volatile since the takeover. Various rating agencies lowered their outlook for the new UBS to ‘negative’. It cannot be ruled out that the so-called crisis of confidence at CS will spread to UBS. The historic international reputation of the Swiss banking centre was destroyed or at least permanently damaged over the weekend.
UBS is just as much a part of the crisis of the international financial system. The foundations of this system are packed with dynamite. Inflation, the threat of recession, historically high mountains of debt, looming sovereign bankruptcies, the bursting of speculative bubbles – all this can trigger a global financial crisis at more-or-less any time. The huge instability of the Swiss banking centre will continue. With the new mega-UBS, Switzerland is extremely exposed to any of the coming capitalist earthquakes.
UBS's new balance sheet total is more than twice the Swiss GDP. If UBS now also had to be rescued by the Swiss state – which is likely at some point in view of the prospects of world capitalism – Switzerland would reach the debt level of Italy in one fell swoop. With the bank merger, the Swiss ruling class has used up another anti-crisis tool. But the present banking crisis is only a foreshock. We have entered the most turbulent period of capitalism. The crisis of capitalism has definitely arrived in Switzerland as well.
“How does the bourgeoisie get over these crises? By paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.” These lines from Marx and Engels' Communist Manifesto fit the current situation like a glove.
Period of preparation for the social explosion
This also applies to the whole economic situation. Inflation is very dangerous for the ruling class because it has uncontrollable economic consequences and ultimately fuels the class struggle. That is why the national banks are raising interest rates. But it was precisely these interest rate hikes that were a decisive factor in triggering the collapse of the SVB and thus the current banking crisis.
The national banks react to the collapse of SVB, CS and other banks by again providing huge amounts of state money. But this again fuels inflation. Capitalism and its governments are at an impasse: they have to choose between inflation and economic crisis (and financial crisis) – and eventually they get both. The real prospect is ‘stagflation’ or ‘slumpflation’, i.e. long periods of high inflation coupled with economic stagnation and severe slumps. Moreover, the sword of Damocles of the “mother of all debt crises” (in the words of economist Nouriel Roubini) hangs over the global economy. Capitalism faces a perfect storm.
Small Swiss imperialism, extremely integrated into the world market, is being hit disproportionately hard in the crisis of world capitalism. The collapse of CS is another decisive turning point. 10 years ago the Swiss bourgeoisie lost its privilege of banking secrecy. For years, more and more large corporations have been turning away from Switzerland. With the war in Ukraine, Swiss ‘neutrality’ is under constant attack. In times of protectionism, Switzerland is being squeezed between the big geopolitical blocs. Now the bourgeoisie is losing another of its pillars, Credit Suisse. Last weekend, the banking centre, its highly praised legal security, and Switzerland as a business location suffered a massive loss of reputation and stability.
The Swiss bourgeoisie is largely at the mercy of these processes; they cannot avoid them. Increasingly, their only way to strengthen their profit conditions is to attack the working class. The brutal attack on pensions, the nationwide austerity measures and the complete passing on of inflation to the workers are only the beginning. Switzerland is at the beginning of a long period in which class contradictions are intensifying rapidly. The Swiss class struggle has entered the period of preparation for the social explosion.
The only way forward: expropriation and workers' control!
While bread inflation is at 11 percent, health insurance premiums are rising, care workers are collapsing under the pressure of austerity measures – this weekend millions of people watched live as the Federal Council revealed its true character as the political arm of finance capital.
The reformist Socialist Party states: “Systemic and personal failure in the banking sector: nothing has changed since the financial crisis 15 years ago. Nothing at all. Managers, shareholders as well as the entire industry must be held accountable.” This is absolutely correct. But what does it mean concretely?
What is the alternative to the “financial casino”? The SP's answer is: “We finally need effective regulations”. This demand, which the SP shares with almost all bourgeois parties, is miles behind the needs that the current situation places on the labour movement. It is based on a completely wrong analysis of financial capital.
The collapse of CS proves quite clearly: no law, no equity ratio, and no regulation can tame capitalism. As long as the banks are in power, there will be massive speculation, bank collapses, and therefore catastrophic crises for the working class. This is not because these laws are too weak. The fundamental reason is the capitalist crisis of overproduction, which pushes the banks to invest in parasitic activities.
In capitalism, it is not any ‘regulations’ that decide. It is the laws of the capitalist market and crisis that decide what banking transactions are undertaken and what investments are made.
In this way, banks take the economy and society hostage. They control the social wealth created by the working class. They gamble with the living conditions and future prospects of the people.
The main character of the government's measures over the weekend was to maintain this position of the banks in society. The Federal Council had received an explicit mandate from international and national finance capital to save the rule of the banks.
The working class is now paying for this with the darkening of its future prospects. Up to 15,000 jobs are being massacred at CS. Inflation, which is now being rekindled, is eating into workers’ wages. The use of state guarantees is paid via harsher cuts in the state budget. To ‘regulate’ and thus maintain the rule of the banks is to save a system that consistently puts the interests of a minority above necessary investments in health, education and ecological restructuring.
Today, even the die-hard bourgeois ideologues speak of nationalising the banks. The NZZ writes: “In fact, the course was set on 19 March towards a future nationalisation of UBS.” But what the capitalists and their state mean by nationalisation is so-called “temporary public ownership”. That is, the state takes over an ailing bank, restores it at state expense, and then privatises it again to hand it over to the capitalist financial market. This shows two things: first, nationalisations are absolutely possible. Second, the crucial question is which class will benefit.
The only way forward can only be the complete overthrow of the capitalists. You don’t control what you don't own. The entire banks must be expropriated without compensation and placed under democratic control of the working class. The bonuses and dividends of the managers and shareholders must be seized immediately. The working class creates all the wealth of society – it must therefore decide how and in what it is invested!
However, current events clearly show: the state is a tool of the capitalists and will never enforce such measures in the interests of wage earners. We need a government of the working class. Those who want to free society from the hostage-taking of the banks must fight for the overthrow of capitalism – and to build the revolutionary organisation that will actively lead this battle!