GLOBAL STOCK MARKET CHAOS
Wall St., big banks seek gov’t handout
By
Deirdre Griswold
Published Jan 24, 2008 8:59 AM
Jan. 23—Can all the king’s horses and all the king’s men put
Humpty-Dumpty back together again?
Wall Street is looking to Washington to rescue it from disaster. But everything
that the government has done so far has failed to reverse the fortunes of U.S.
capitalism.
And now, the stock market crash on a global scale has finally begun.
It started on Wall Street on Thursday, Jan. 18. Stock values fell 3 percent,
even though the head of the Federal Reserve Bank, Ben Bernanke, had just told a
congressional hearing that he supported the idea of a government
“stimulus package” after dismal earnings reports from major banks
and corporations.
By Monday, Jan. 21, while U.S. markets were closed for Martin Luther King Day,
stock markets in Asia and Europe started to tumble wildly, some closing down as
much as 10 percent in one day. Declines are continuing as of this writing.
There has been no accounting yet, but it is certain that trillions of dollars
in paper (or electronic) value have “vanished.”
By all accounts, the panic abroad was caused by the realization that the United
States is in a recession that will sharply curtail its imports as purchasing
power declines. The U.S. consumer market, which has absorbed such a large
portion of the world’s commodities, has been crucial to Asia’s
industrial and financial development. Indeed, the global restructuring of U.S.
manufacturing, in which many corporations have moved their operations abroad to
get cheaper labor and higher profits, has been integral to this
development.
Early Tuesday morning, Jan. 22, before the U.S. markets opened, the Federal
Reserve Board announced it had held an emergency meeting and was lowering
interest rates by an unprecedented three-quarters of a percent, to 3.5 percent.
This allows the federal government to pour more money into the hands of the big
banks. The ensuing “easy credit” is supposed to stimulate
production and restore investor “confidence” in the economy.
Such a dramatic move by the Fed would ordinarily push the U.S. markets up from
red ink to black. But it didn’t. It only staved off for a little while
longer the kind of stomach-churning dead drop that had been occurring
elsewhere. U.S. market indices continue to fall, but as of Jan. 23 are not yet
in a 1929-type “panic”—although that dreaded word is
appearing more and more frequently in the business media.
Big capital wants free lunch
For a long time, the U.S. ruling class establishment has pushed the view that
the markets would solve all the problems facing the capitalist government and
the masses: entrenched poverty, unemployment, rising debt and so on. Cut the
social “safety net” of anti-poverty programs and entitlements; the
market will fix everything!
Now they want the government to solve the problems of the market.
Lowering interest rates is supposed to help. But government economists are
worried about going much lower, because that can have other consequences, like
inflation. They’re between a rock and a hard place. Yet they’re
afraid not to. In Europe, after the central bank for the European Union said it
would not lower its interest rate, stocks there took another huge tumble on
Jan. 23.
For the first time, even President George W. Bush is now working with
congressional Democrats and Republicans on what is supposed to be an
“economic stimulus” package of emergency bills. Bush’s
turnabout is a sure sign that the super-rich want the government to bail out
their system.
They will be looking for populist language to sell what, in essence, will be
more handouts to their class, dressed up with a few crumbs for the workers like
an extension of unemployment insurance. This extension should have happened a
long time ago, but was not considered necessary by the ruling class while their
profits were high, no matter what level of suffering was inflicted on the
workers.
Banks in crisis, too
An important feature of the current crisis, one that indicates that it is
severe and will be long lasting, is the perilous condition of the big
banks.
The drop in global stock markets was accompanied by reports from banks and
major corporations in the U.S. on their fourth-quarter 2007 earnings. Many were
disastrous. Three giant banks reported either losses or virtually no
earnings.
Citigroup’s “earnings” report was actually a loss of $10
billion in the final quarter—the largest decline in the bank’s 196
years of existence. It blamed the mortgage crisis, since the bank held many of
the financial instruments created to gamble on the huge amount of debt owed by
homeowners.
When the mortgage crisis hit last year, it became clear that millions of people
could not pay the higher interest rates kicking in. This resulted in
unprecedented numbers of foreclosures, and banks and mortgage companies found
their golden eggs had become worthless paper.
Immediately after reporting its loss, Citigroup strong-armed several overseas
banks, mostly in Asia, to give it money to cover the shortfall.
Next, Bank of America reported its fourth-quarter profits had fallen 95 percent
to $268 million, compared to $5.26 billion last year. The bank’s profit
for all of 2007 fell 29 percent to $14.98 billion.
Wachovia’s fourth-quarter net income fell about 98 percent to $51
million, compared to $2.3 billion in the same period last year. For the year,
its profits were down 19 percent.
What made them vulnerable
The stock market decline has further exacerbated this crisis for the banks.
Walk into any bank branch today and you will see a “financial
adviser” urging depositors to put their savings into mutual funds or
other instruments connected to the stock market. Of course, the bank gets a
juicy commission from every transaction.
Before 1999, that was illegal. Commercial banks were prohibited by law from
involvement with the stock market. The law was the Glass-Steagall Act, passed
in 1933 after the disastrous crash of the stock market had triggered a collapse
of the banking system. The government had actually suspended operations of the
banks for a while when panic withdrawals drained their vaults and led them to
barricade their doors.
For more than 60 years, Glass-Steagall insulated commercial banks from the
shocks of a stock market crash. But in 1999, under the deregulation pressure of
big bankers who felt this law prevented them from getting onto the lucrative
gravy train underway in Wall Street, Bill Clinton signed into law the
Gramm-Leach-Bliley Act. It repealed those elements of Glass-Steagall that had
separated commercial banks from investment banks. They are now vulnerable again
to severe shocks in the stock market.
The banks also hold trillions of dollars in credit card debt. Whether
you’re retired, a student, unemployed or have a low-paying job, how many
times in the last year have you received letters from banks offering you a new
credit card? The interest and fees are enormous and have kept the banks’
profits up.
But with the economy turning down, millions will not be able to keep up with
their payments and at the same time buy food, energy and other needed
goods—let alone pay for health care or education. Even if they’re
working, much of their income will go to pay interest in one form or
another—on student loans, on mortgages, on credit cards. It all adds up
to deepening poverty and crisis.
Workers can’t accept bosses’ scenario
This is the ugly scenario concocted by the super-rich for the working class in
this country. It is one that has already been played out in so many oppressed
countries that have lived under the heel of imperialist corporations and banks
for more than a century.
But there can be another scenario. The working class is not helpless—far
from it. In fact, it can decide whether buses and trucks run, food is picked,
data entries are made, cargo is loaded, and water and electricity are turned on
in the Stock Exchange. Its potential power is immense.
There are 140-plus million workers and their families. Many are already living
on the edge or have completely fallen into the abyss of unemployment,
homelessness and living hand to mouth. Millions are in unions, but seven times
as many are not.
Like the crisis of the 1930s, this one can be the catalyst for organizing on a
greater scale than ever before—one in which the leading role of militants
schooled in the struggles against racism, sexism, homophobia and
immigrant-bashing can provide the framework for true class-wide solidarity.
E-mail: [email protected]
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