The bling mentality!
What appears as a crisis on money market is, in reality an expression of abnormal conditions in the very process of production and reproduction.
This is the point various news reports and analyses have missed on the collapse of the African Bank. The crisis levels inequality, unemployment and poverty persistent in South Africa 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 capitalist 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 nation of individualism and became the mindset of its victims.
The mentality mainly, but not exclusively, spread from the United States and was fuelled by the rise of neoliberalism in the 1970s. In South Africa, our transition to democracy in 1994 occurred in the aftermath of the rise and the growing dominance of neoliberal globalization.
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 modeled to finance and not production and 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 United States. This problem, like a disease, became contagious. Through the links it has with other bad banking practices, interactions with other toxic financial products and all sorts of dealings that were not backed by production, the contagion cased the biggest global economic crisis since the Great Depression of the 1930s.
IT is fact 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 productions conditions. It must be added that the irrationality become worse with exorbitant interest rates on short term loans, which is the space the African Bank has occupied in the country.
On its website the African Bank states that it has about 2, 6 million customers.
The South African Communist Party and the Financial Sector Coalition Campaign having 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 was actually called upon and had investigated the African Bank for its modus operandi.
The regulator followed up by referring a case of reckless lending committed by the bank to the National Consumer Tribunal, and called for a fund of R 300 million with the final settlement being R 20 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 addition income, then these people become over-indebted and will obviously default of repayments.
In addition, we have a problem in the structure of production in South Africa.
We are importing finished goods, while raw materials are a significant proportion of our exports. We have a huge trade deficit. By the wat, most African Banks loans were made to finance the consumption of luxury imported goods. This does not help drive local production and enterprise development.
You cannot build an economy on microfinance. 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 loans without security except for the incomes of the customers. Such loans are vulnerable to interruptions in income conditions.
When their incomes are interrupted, consumers’ spending is interrupted too. When they are over-indebted, the interruption in spending also affects loans 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 increases exponentially due to the new charges being 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 South Africa will manage collections after bailing out the African Bank will therefore be interesting to see.
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 and so on, the workers and poor are not being bailed out.
They according to the deal, must continue to pay, while Liberty Life, African Bank’s second largest investor, along with the 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. 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 is indirectly.
The Reserve Bank is buying (“nationalizing”) the bad book, while the good book is left in private hands. The question that needs to be asked is what does the major banks that have underwritten African Bank’s bailout stand to benefit?
The question that must be understood in the context is where banks receive deposits and savings and use this as part of their capital to issue loans. In addition, there is actually a practice whereby banks issue loans for money, which they do not have and still charge interest to make money out of nothing.
There is no transparency on the question of what they stand to benefit from underwriting African Bank’s bailout.
One thing is certain, there is something they stand to benefit, otherwise they would be exposed as a result of the problem, and are acting preemptively in self-interest. We need to know the details.
It’s also clear the collapse of African Bank is a result of weak regulation in respect of unsecured lending practices if not interference in implementing existing regulations.
A joint statement issued by the SACP and the FSCC calls for the NCR to perform its functions without fear or favour and the national Treasury and Reserve Bank to stop interfering in its work, particularly where the curtailing of NCR powers is isolated. The two regulatory institutions are then called upon to strengthen their regulatory hands. Meanwhile the Bank said it was engaging with African Bank for almost a year if not more.
The demise of the African Bank was foreseeable; therefore we must ask what role did the engagement play to stop the crisis?