Something like a nuclear explosion took place on March 25. Its shock waves were felt not only in Toronto and New York but in London, Paris, Frankfurt and Tokyo. No, it was not a real nuclear explosion, but its financial and economic effects, and especially its social impact on the working class, will be devastating.We are referring to what appears to be the crack-up of Olympia & York, the world's biggest real estate conglomerate and developer. It is a true world-class capitalist conglomerate with financial strings tying it to banks around the globe.
Even though this company is organized in Canada and has much business in England, it is banks in the U.S. that are most deeply involved, among them Manufacturers Hanover. The company is owned by the Reichmann brothers of Canada, but Tom Johnson, the former president of Manufacturers Hanover, has now been appointed president of Olympia & York Developments, its main property subsidiary. Nonetheless, big banks from Tokyo, Frankfurt and Paris are also involved.
Sequel to BCCI
The crisis at Olympia & York is in reality a sequel to the collapse of the Bank of Credit and Commerce International. That mammoth international bank was regarded as a star in the firmament of Third World finance. It was reputed to have assets of $20 billion.
There were a number of peculiar ramifications to the collapse of BCCI. As the New York Times of July 6, 1991, put it in a front-page headline: "Seven Nations Charge Fraud and Seize a Banking Empire. Britain Finds the Bank of Credit and Commerce Concealed Losses."
The bank was really closed down not by seven countries but by three of the leading imperialist governments--the U.S., Britain and France. No real effort was made to find another arrangement for the bank to continue its operations, nor to protect its depositors, who were scattered over some 65 countries.
The imperialist powers characterized the operations of the BCCI as criminal. Their press coverage completely played down the fact that the bank enjoyed the services of quite a few illustrious figures. These included former U.S. Defense Secretary Clark Clifford, as well as Paul Volcker, former chairperson of the Federal Reserve Bank under the Carter administration.
The reason we compare BCCI to O&Y is because of the very opposite way the imperialist financiers and governments have handled these two institutions. In the case of O&Y, they treat it with tender loving care; they treated BCCI with crudity and downright malice. They have given O&Y almost two years to finally admit it has a liquidity problem, whereas they hurriedly shut BCCI down without even giving it a chance to appeal from the banking officials to the respective imperialist governments.
Time magazine (April 6) reveals that "cash at O&Y was probably becoming scarce as far back as September 1990." If that is the case, it means the O&Y crisis dates back a year earlier than the BCCI debacle of July 1991.
It's possible BCCI was set up by U.S. banking interests (or the CIA) in the first place. It was a vehicle for worldwide contacts and valuable information. BCCI thrived in the seventies, serving as a channel to drain the financial assets of oppressed Third World countries right into the imperialist banks. But once the capitalist crisis began to overtake the bank, the imperialists ditched it.
Notwithstanding all the charges made by the imperialist countries against BCCI's executives and founders, its failure (as we stated in our analysis at the time) was a symptom of the growing capitalist crisis, which was spreading deep and wide last summer and continues to this very day.
Proves economic crisis isn't easing
The crack-up of the vast O&Y real estate empire is one more unmistakable symptom that the capitalist crisis is not abating, that the so-called recovery which the Bush administration has been touting is not taking hold. On the contrary, the economic crisis is deepening.
It is not clear at this date what measures will be taken in response to the intractable problems of this real estate empire. Will it be forced to file for bankruptcy or be liquidated completely? Will some hocus-pocus arrangements be made so that many small banks and perhaps some large ones are forced to take huge losses? One thing is certain. The ultimate social effects will be devastating to hundreds of thousands of people, mostly workers.
Olympia & York is said to be indebted to the tune of $20 billion. In relation to its multi-billion assets, that may not be much at all. What has brought this giant real estate developer to the point of crisis, however, is its inability to pay its bills on time. It is suffering from what is usually characterized as a liquidity crisis, and doesn't have enough cash on hand to pay its creditors.
And who are its creditors? The very big banks which have been lending it billions of dollars for years. An aspect which aggravates this crisis is that not only is O&Y unable to pay the banks on time, but it is in desperate need of more bank loans on top of what it owes in order to stay in business. That makes it a crisis of the first magnitude.
Glut of 40 million square feet!
The cause of the debacle lies not in human frailties but deep in the anatomy of the capitalist system. It is suffering from the same disease which has overtaken so many industrial and commercial companies: capitalist overproduction. It has "a glut of 40 million square feet of unused space." (Time, April 6) Just as there may be a glut of grain in capitalist agriculture or a glut of steel in the steel industry, so there is a glut of unused space.
The most serious problem O&Y faces is its inability to finance the $6.9-billion Canary Wharf project in London. This is a 71-acre office complex in the Docklands area of the city. It is regarded as the largest commercial property development in Europe.
Clearly, this is not an accidental matter which can be fixed up by a temporary injection of funds to carry the company over a short period.
Whenever a capitalist mega-enterprise like O&Y fails, the effects take a long time to be overcome and are very deep and widespread. Most often, it is believed that so far as the workers go, the loss of jobs is confined merely to the enterprise itself. But that's not so. This is especially true with enterprises of a non-industrial character, such as the BCCI, Olympia & York and others.
A popular illustration of how the effects are felt far beyond the environs of the establishment itself is what happened in the failure of R.H. Macy & Co., reputed to be the world's largest department store.
One is led to believe, on the basis of the reports in the capitalist press, that as far as the workers are concerned, the effects are confined to Macy's alone. But that's not so. When a company like Macy's fails, just like Chrysler earlier, it affects hundreds of creditors from small-scale establishments that are its suppliers. When the reorganization of the company takes place, whether it be pursuant to a Chapter 11 bankruptcy or some other arrangement, a creditors' committee is usually formed.
What finally happens, of course, is that the multitude of small unsecured creditors are lucky to get paid off at 10, 20 or maybe 30 cents on the dollar. A company with several hundred workers usually relies very heavily for its own credit standing on the fact that it has a prestigious customer like Macy's or Chrysler. That may well be one of its fundamental assets when it applies for credit for its operations. If your principal customer is Chrysler or R.H. Macy, you're likely to get easier credit from your bank.
So when the big ones fail, a varied assortment of hundreds of small establishments are put at risk. Many are forced to go under, leaving a trail of unpaid bills and unemployed workers.
It often comes out that they have been dipping into the pension funds, health insurance and other assets belonging to the workers. So the failure of their principal customer comes not just as a big surprise but as an unforeseen calamity.
It is otherwise with the big banks that predominate in any creditors' committees. The hundreds of small ones are of course unsecured creditors. But the big ones usually have collateral security from the enterprise. If they don't have collateral security, they have the option of converting their loans into equity--that is, part ownership.
The big banks are so powerful they most often are the key element, not only in big business but also, even more frequently, in the capitalist state. Marx said it well in the Communist Manifesto--the capitalist government is merely the executive committee of the ruling class. But the ruling class is composed of individual capitalists who are all concerned with individual private ownership of the means of production. As a class they rule over the working class. As individuals they are also remorselessly and relentlessly in struggle with each other for their private property interests.
When an economic crisis breaks out, they are unable to control it, as has been proven in each and every capitalist crisis since 1825. On the contrary, they are controlled by it. Thus the anarchic character of the capitalist economy predominates, not only over the lives of the working class but over all of society.