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On Oct. 3, President Bush signed an emergency
bill to shore up Wall St. The measure, representing the largest
corporate bailout in U.S. history, will give bankers $700 billion to rescue
the banking industry, a sum to be overseen by the dictates of the
Treasury secretary.
The bailout is a desperate attempt to calm
the chaos in world financial markets. In September, likewise, the U.S.
government took over, the two biggest mortgage holders and the biggest
insurer in the country in order to protect the bosses' profits.
The scope of these fake nationalizations on
behalf of capital has inspired many workers to ask why real
nationalizations and bailouts can't happen by and for their own class.
To fend off such demands, lawmakers—liberal and conservative alike—put
forward reform proposals to tinker with the administration's $700
billion plan.
The final bill was only passed by both houses
of Congress after the Senate had added over $110 billion in tax breaks
and spending provisions.
The
plan, written by Treasury Secretary Henry Paulson, would allow him,
without challenge or review, to purchase up to $700 billion in
"distressed" (i.e. bad risk or worthless) mortgage-related
assets from financial institutions headquartered in the United States.
It was later amended to include foreign institutions with a significant
U.S. presence, and even hedge funds, perhaps the most notoriously
free-wheeling financial entities today.
The proposal would fund the purchases by
adding to the national debt ceiling (the actual debt now stands at $9.6
trillion). The $700 billion is roughly what has been spent on the Iraq
war and is more than the Pentagon's annual budget.
The plan was first proposed on Sept. 16, after
two weeks of bank failures and takeovers, and signs of impending
financial collapse. The capstone of these events was the withdrawal of
huge amounts from money-market funds and a virtual lenders' strike,
which combined to put in question the ability of corporations of all
kinds to get money for day-to-day expenses.
Calling the Paulson deal "a massive
relief," the chief economist for Merk Investments said, "if
you have hundreds of millions of securities that you cannot sell, you
can now unload them to the government."
AFL-CIO President John Sweeney issued a
statement backing Paulson's plan, and reiterated the federation’s
endorsement of Obama (who also endorsed the Paulson plan) as the real
solution, repeating his vague calls for "not just bailing out Wall
Street, but also respond[ing] to the real pain on Main Street."
However, after a day or two of virtual
unanimity among politicians and the media, mild dissent began to
surface. New York Times columnist Paul Krugman called the plan
"cash for trash." The Times editors noted that by holding
such vast assets, the Fed's goal of minimizing losses to taxpayers
could conflict with its goal of stabilizing the financial system—so
either way workers would pay.
A Times business columnist, Joe Nocera,
pointed out, "Four years ago, the SEC allowed the big investment
banks to take on a great deal more debt. Debt ratios rose from about 12
to 1 to more like 30 to 1. [Now] nobody understands who owes what to
whom—or whether they have the ability to pay. Sovereign [i.e., foreign]
wealth funds are no longer willing to supply badly needed capital
because they no longer know what they are investing in."
Nocera noted that in 1989, when the
government established the Resolution Trust Corporation to take over
failed savings and loans, "most of the assets in the S&L
crisis were real estate—which are always going to have value." But
this time, "the assets are complex derivatives of uncertain value.
… Will the government buy it at the too-high price? If it does, the
firms won't have to take additional write-downs—but it will constitute
a huge bailout.
"If the government gets the securities
for what they are really worth, say 20 cents on the dollar, the firms
would have to take more write-offs, further damaging their balance sheets,
and they would have to raise billions more in capital. One or more
could file for bankruptcy, creating yet another spasm of financial
turmoil."
Most workers and retirees interviewed were
urging rejection of the bailout as a whole, rather than the kind of
tinkering with it proposed by Democratic politicians. Some Democrats
and liberal columnists proposed that in return for bailing out the
banks, taxpayers get an equity stake in them. But this would still
leave workers on the hook should the taken-over banks go belly up.
These same commentators predicted that to
prevent this, the Treasury might eventually have to print more dollars,
thus further weakening it and angering foreign governments who have
been propping up the dollar.
But mainstream opinion still leaves
unquestioned the false claim that the amounts represented by the
securities needing to be deleveraged must be found in hard cash. Why
should the banks get $700 billion for mortgage-based assets that
everyone agrees are inflated 20 to 30 times beyond the underlying
physical assets they're based on?
This is debt that in analogous cases—such as
the astronomical loans forced on Third World countries by Western
bankers—was often written off when debtors threatened to default (although
not without pain via structural adjustment programs imposed in
retaliation by those banks).
Yet politicians and the media insist that the
health of the banks (and now the government agency) holding them
depends on finding such cash. Otherwise, they threaten, the banks would
cease lending to each other and, more dangerously, to companies that
actually make goods and services.
But the Paulson Plan, however it is modified,
would lead us down this road anyway. It's estimated that the $700
billion will eventually morph into something between $1 and $2
trillion. Adding such sums to the national debt would ensure that
interest rates go up, real estate crashes further, unemployment soars,
and foreign central banks abandon the dollar.
We can be sure that Washington and Wall
Street will try to force working people to pay for this bailout through
some combination of higher taxes, lower wages and benefits, cuts in
social services, massive inflation, or most likely a combination of all
the above.
Explanations of the crisis
Most commentators blame the crisis on a shift
in the economy toward financial services and away from manufacturing,
blaming that shift not on the working of the system but on specific
policy changes by individual villains.
Not surprisingly, these commentators focus on
"downsizing" the financial sector, imposing
financial-transactions taxes, limiting salaries for the sectors'
executives, etc. Even though
the government's "nationalizations" are for the benefit of
capital, they lead workers—and even some of the timid liberals and
progressives—to ask why more genuine and thoroughgoing nationalizations
couldn't take place, and why they couldn't be funded by the bosses
instead of by workers.
In previous articles we've discussed how the
housing and related financial crises must be placed in the context of
the longer-term decline of capitalism, and in particular, the current
"depressive long wave" in which the system has been caught
since the early 1970s.
Within that long wave not only are recessions
longer and deeper, but the recovery periods are more and more built on
profits from speculative capital—e.g., recycled
"petrodollars," excessive credit, the IT bubble, etc.
All of this occurred because the normal five
or seven-year cycles of booms and busts—products of an interaction
between the falling rate of profit, overproduction, and
underconsumption—were occurring within a longer (25 years or more)
period of systemic decline. And that decline in turn occurred after a
prolonged upturn long wave, itself increasingly dependent upon
speculative, fictitious capital, based as it was on a declining system.
In 1982—way before the specific events
supposedly causing today's crisis—Marxist economist Ernest Mandel
analyzed similar phenomena, products of the same underlying causes. The
monetary crisis then occurring, he wrote, had to be situated within
events since World War II: "The Western World floated towards
prosperity on an ocean of debts, of credits and bank money
inflation," an ocean that would inevitably sink the system.
"In the period of decay starting with
the First World War," Mandel wrote, "the system's own inner
forces cannot ensure long-term expansion. Without state intervention,
there will be permanent excess capacity and unemployment.“
In 1959, U.S. Marxist Arne Swabeck wrote:
"Marx subjected interest-bearing capital—the essential basis of
the credit structure—to a careful examination. While such capital
appears as an independent self-expanding value, he demonstrated how it
can have no independent function separate and apart from capital
employed in production.
"And Marx found a great proportion of
such ‘money capital’ to be fictitious. This purest form of gambling and
swindling has today gone far beyond anything ever experienced at the time
of Marx. The bankers and their government have manufactured money out
of thin air to finance public and private debt."
An excellent explanation of Marx's views on
fictitious capital is the book by Marxist economist Michael Perelman,
"Marx's Crises Theory: Scarcity, Labor, and Finance."
Perelman says that whereas "at first glance the whole crisis seems
to be merely a credit and money crisis," Marx traced each crisis's
roots back to "abnormal conditions in the process of production
and reproduction.
“The crisis first breaks out in the field of
speculation and only seizes hold of production later. Over-speculation
is only a symptom of overproduction, therefore appears to the
superficial view as the cause of the crisis.”
Linking these Marxist authors' insights
together, we can say that contrary to the claims of the liberals, the
manipulation of the financial system is only possible, and is in fact
inevitable, when the underlying process of production hits the wall of
capital's systemic limits.
To liberal whining about greed and corruption
on Wall Street, and calls for bourgeois politicians to have a greater
hand in overseeing and regulating bankers' bailouts, we counterpose the
call for the organized working class to expropriate the banks and
mega-corporations. We likewise call for the end of the system that
makes greed, swindling, and corruption inevitable.
As a first step, we propose a set of demands
based on the needs of the working class, to be won by their struggles.
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