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Obama talks about new bank bailouts —
We say: Nationalize the banks under workers’
control!
Simultaneous
with the announcement of his 10-year budget plan, Obama
rolled out new bank bailouts. Obama announced
on Feb. 26 that he was considering giving $750 billion or more to
banks. And he said that $250 billion more would be held in reserve,
based on a conservative estimate of what the government could lose in
the course of spending that $750 billion on assets that might never
regain their value.
The
day before, Obama ordered the nation’s 19
biggest banks to undergo "stress tests" to see whether they
could survive if the economy deteriorated further. The banks will have
to carry out supervised analyses of how much their capital would be
depleted under various scenarios.
If
regulators conclude a bank would not have enough capital, it would have
to raise private capital within six months or get it from the
government in exchange for ceding a part-ownership stake to Washington. And such a stake would be
bought at prices pegged to a date when they were relatively high,
minimizing existing shareholders’ losses.
Administration
officials, insisting they want to avoid full-fledged bank
nationalizations, left themselves wide discretion on how to interpret
the results of the stress tests.
"It
sure sounds to me like they are designing this to make it sound like
the banking system is in great shape," said Paul Miller, an
analyst at a brokerage firm.
Christopher
Whalen of Institutional Risk Analytics said the biggest banks would
almost certainly become insolvent once they absorb the full brunt of losses
from the economic downturn—and that Obama’s
plan doesn’t address this. "The stress test is about
politics," Whalen said. Washington, he added, already knows
the results of the test.
Progressive
economist Doug Henwood described the plan as
"coddling bankers," and quoted two Citigroup analysts saying
it was "bank-and-investor friendly." The goal, they said, was
to increase bank capital "while minimizing the amount and duration
of any government ownership of common stock."
And
by painting a rosy picture of the economy’s road to recovery, Obama provides himself an excuse for not
intervening more drastically in the banks’ business. The stress tests
lay out two scenarios—a baseline and a "more adverse"
scenario. The latter, which in theory would
lead to more drastic government intervention, is in fact more like
non-government economists’ baseline predictions.
So
the ban—which want bailout cash, not government takeover of even a
minority of their shares—can tell Washington "we’re fine,
thanks" and not have to announce what would happen to them under
the much more drastic downturn that is still to come. Obama’s motivation for the plan, said Henwood, is "anything but
nationalization!"
More
evidence of Obama’s kindly feelings toward
bankers and other financial institutions came in late February, with
new bailouts of Citigroup and the world’s biggest insurer, AIG.
Citigroup
got its third bailout in the form of a plan for conversion of $52
billion in U.S.-owned preferred stock to common stock, giving the
government potentially as much as 40% of such voting stocks. There is
no new infusion of cash involved, but the change leaves taxpayers
liable for losses in the common stock’s value; holders of common stock
absorb losses before those of preferred.
And
ironically, the seeming advantage of common—that it gives holders
voting rights—is one the government is refusing to wield for fear of
seeming to tread on the rights of private property!
Meanwhile,
AIG, the world’s biggest insurer, got its fourth bailout, for $30
billion. Yet mainstream commentators were universal in their
expectations that this will not be the last bailout for either firm, or for the financial sector in general.
As a result, calls for
"nationalization," Swedish style, are on the lips of a
growing number of pundits and politicians. In the 1990s Sweden temporarily took over
banks, but returned them completely to private
hands once their books were straightened out and they had been relieved
of the worst of their debts.
"This
idea of nationalizing banks is not comfortable," said Sen. Lindsey
Graham (R-SC), a self-described "fiscal conservative," on
ABC’s "This Week." "But we've got so many toxic assets
spread throughout the banking and financial community, throughout the
world, that we're going to have to do something no one ever envisioned
a year ago, no one likes. I would not take off the idea of
nationalizing the banks."
Nationalization
fears helped drag down shares of Citigroup and Bank of America as much
as 36% at one point on Feb. 20, after Senate Banking Committee Chair
Chris Dodd said he could see regulators briefly taking over the two.
Even
Alan Greenspan, former Federal Reserve chair and staunch free marketer,
told the Financial Times that the government may have to nationalize
some banks on a temporary basis. But this developing ruling-class
consensus is so far blocked by crucial holdouts. New York Senator Chuck
Schumer—a Democrat, and the biggest recipient of campaign funds from
Wall Street—rejected nationalization calls: "I don't think
government is good at making these decisions."
In
this he is joined by Obama, who in a recent
interview with ABC rejected the Swedish solution: "We want to
retain a strong sense of private capital fulfiling
the core investment needs of this country."
And
the day after Senator Dodd’s comments, a White House spokesperson said,
"The president believes a privately held banking system regulated
by the government is what this country should have." In this he
was seconded by Federal Reserve chair Ben Bernanke.
With
this stance the administration reflects the sentiments of their banker
friends, who don’t want even Swedish-style nationalizations, preferring
continued bailouts without government ownership or control. Every time
the media reports on threats to nationalize any or all banks, bank
stocks plunge on fears that the value of their stocks will be diluted
or even wiped out.
As
the type of nationalization being discussed would eventually return the
banks to private hands, the banks—and their friend in the White
House—may yet change their tune as the depression deepens. (But not, we
can be certain, before much more drastic efforts are made to get
workers to pay the price for their swelling losses.)
For
now, The New York Times reports, "President Obama's
top aides have steered clear of the word [nationalization]
entirely." And the Washington Post notes, "Administration
officials are ... trying to offer federal assistance to financial firms
without nationalizing them outright."
Treasury
Secretary Tim Geithner told Congress,
"We have a financial system that is run by private shareholders,
managed by private institutions, and we'd like to do our best to
preserve that system."
Simon
Johnson told Fortune magazine: "The FDIC does it [seizing banks]
all the time for small banks. But with the big banks, nobody has the
political will to do it."
Wielding
another increasingly common phrase in this stage of the crisis—“zombie
banks” (referring to the walking dead status of banks unable and/or
unwilling to perform their lending functions)—New York Times columnist
Paul Krugman wondered why, knowing that only
the government can resurrect these banks, "the Obama
administration keeps coming up with proposals that sound like possible
alternatives to nationalization, but turn out to involve huge handouts
to bank stockholders."
Krugman pointed out that under any of Obama’s
proposals so far, whether guarantees to banks against losses on
troubled assets, or lending money to private investors to buy toxic
assets, bankers win and taxpayers lose, no matter what direction the
prices of such assets go.
Normally,
any bourgeois government will recoil in horror at the notion of seizing
bourgeois property—unless forced to do so in the interests of saving
the system as a whole. This stems not only from a healthy respect for
the sanctity of private property, but also from a desire to avoid the
obligations which would come from exercising control over such
property. Should the government become even the largest minority
shareholder of a bank, political pressure to use that control to direct
bank funds to production or services would mount.
As
The Wall Street Journal put it: "While the goal of nationalization
may be to return companies to private hands, the temptation to run them
for political purposes would be immense." That is, if the
government controlled a bank, there would be political pressure for
such control to be used on behalf of homeowners facing eviction,
workers losing their jobs, and so on.
Writing
in the middle of World War I, Lenin explained in his book
"Imperialism" how the "interlocking" of big banks
and manufacturers represented the objective socialization of
production, and thus the potential for a revolutionary restructuring of
society:
"When
a big enterprise assumes gigantic proportions, and organizes according
to plan the supply of primary raw materials to the extent of
two-thirds, or three-fourths, of all that is necessary for tens of
millions of people; when the raw materials are transported in a
systematic and organized manner to the most suitable places, sometimes
hundreds or thousands of miles; when a single center directs all the
consecutive stages of processing the material right up to manufacture;
when these products are distributed according to a single plan among
tens and hundreds of millions of consumers—then it becomes evident that
private economic and property relations constitute a shell which no
longer fits its contents, a shell which must inevitably decay if its
removal is artificially delayed, a shell which may remain in a state of
decay for a fairly long period, but which will inevitably be
removed."
What
we are going through now is that same process of decay despite the
objective socialization of production via an even more thorough
"interlocking" of finance and production. To escape it,
workers must "remove the shell," as did Lenin and his
followers, by seizing in turn the banks, the biggest manufacturers, and
ultimately the economy as a whole.
To
start down that road we must demand access for committees of workers to
all the banks’ account books, both the ones they deign to show
regulators and the ones they keep hidden even from their own
government. Such committees meeting in congress can then work out a
plan for restarting production with a precise calculation of the money
available in these banks, the needs of working people, and the
production levels needed to match the two.
Such
a calculation will begin with a complete wiping off the books—not a
bailout—of all "toxic assets" and fictitious, pyramided
investments. And the complete price for such a measure will have to be
paid by the country’s rich through confiscatory taxes, while deposits
of workers would be fully protected.
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