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Beyond Goldman Sachs’ fraud

The real crime: CAPITALISM

Bankers roll in riches — 30 million workers need jobs

Published Apr 21, 2010 3:42 PM

The Securities and Exchange Commission has leveled sensational charges of multi-billion-dollar fraud against the investment banking firm Goldman Sachs. That this comes just when the bank is reporting a 91 percent increase in its first-quarter profit over last year is sure to inflame even greater public anger at the Wall Street institution.

What every class-conscious worker should be aware of, however, is that the SEC has put the spotlight on only one limited operation by a larcenous, global financial power, while shielding the rest of the banking system and capitalism itself from criticism.

Goldman Sachs is being charged with fraud for selling billions of dollars worth of mortgages, bundled up into bonds, and designing those bonds to fail — without telling its customers. Then Goldman and the clients for whom it designed the bonds turned around and made money betting against the very bonds they had created.

The way Goldman and its clients, in particular a multi-billion-dollar hedge fund run by John Paulson, made money was to insure the bonds with American International Group and then get paid off when the bonds declined in value. Paulson himself made a billion dollars on the transactions.

“According to the SEC filing,” writes Mike Whitney, the banking firm “failed to make material disclosures about the synthetic collateralized debt obligations (CDO) they sold to their clients. These kamikaze CDOs were designed to blow up just months after they were constructed (which they did). According to former regulator William Black, ‘Goldman did not just withhold information, they told people, “Hey, the investment decisions are being made by experts who would only choose good quality stuff,” when in fact, the stuff that was put in was chosen because it was considered the most likely to suffer near-term downgrades.’ So they deliberately misled investors. That’s fraud. They also never told investors that the securities were selected (in part) by a prominent hedge fund manager, John Paulson, who planned to bet against the same CDO.” (“Goldman Sachs’s Bloody Nose,” Counterpunch, April 19)

One consultant characterized it as like buying fire insurance on someone else’s house and then setting the house on fire.

A falling out among thieves

The headlines blare as if the SEC is preparing an epic battle against Wall Street. But as far as the workers are concerned, this is strictly a dispute among robbers.

To be sure, the struggle between Goldman Sachs and the Obama administration is quite serious on both sides. The context is the fight over financial regulatory reform, over how to stabilize the capitalist financial system. Both sides have much at stake. But the workers must look to their own independent struggle to influence how the financial system impacts them.

The New York Times of April 20 made clear a good part of what this investigation is all about. The accusation is “that Goldman devised a complex mortgage investment that was intended to fall apart and then sold it to benighted investors.”

So the robbers at Goldman Sachs cheated their “benighted investors,” who were seeking to make money from the masses by collecting interest on subprime mortgages. Meanwhile, Goldman was looking to also make money gambling on the failure of the masses to be able to pay these exorbitant mortgages. And Goldman was one of the heavy promoters of these toxic mortgages in the first place. In either case, Goldman made hundreds of millions in fees for the transactions.

Unemployment amidst fabulous wealth

All the headlines are focused on the SEC charges against Goldman. But as far as the workers, the communities, youth and students are concerned there is a more pressing scandal. Goldman and the other bankers are rolling in riches while 30 million workers need jobs. This is a scandal worthy of investigation.

The real outrage of the moment is that Goldman Sachs made record profits of $3.46 billion in the last quarter, topping JPMorganChase at $3.3 billion but still behind Citigroup at $4.4 billion. Meanwhile, weekly first-time claims for unemployment insurance rose 24,000 to 484,000 in mid-April. There are now 6.4 million workers who have been out of a job for more than 27 weeks.

Among the other scandals that need to be uncovered is how Goldman Sachs and other bankers are milking the cities of billions of dollars in interest. Cities and states across the country are paying hundreds of billions of dollars in interest to banks while schools, hospitals, AIDS programs and SCHIP health care for children are cut, government workers are laid off, and much more.

The capitalist government in Washington does not want to launch an investigation of how banks are throwing millions of workers out of their homes. It is the banks that are behind the millions of foreclosures that have taken place, including a record 250,000 in the first quarter of this year. They stubbornly refuse to give aid to homeowners, many of them unemployed workers and their families whose income has been cut during the economic crisis. The bankers will let the sheriffs and marshals throw families in the street while they sit comfortably in their plush offices and live in the lap of luxury.

The SEC charges do not carry criminal penalties.

If Washington were genuinely interested in how the banks attack the people, it would launch criminal charges against the bankers for actions like charging outrageous interest on credit cards and reaping close to $40 billion in additional fees last year alone.

It could cancel the debt on escalating student loans that have turned a generation of students into indentured servants to the banks for years after they graduate.

The banks are rightfully hated by the people. That hatred must be directed not just at the banks alone but at the banks as the summit of all capitalism. It is capitalist exploitation that is the foundation of the banks, the corporations and all the problems of the workers.

Bankers’ profits come from workers

The profits made by the banks come from the wealth created by the workers in the first place. Mortgage interest and credit card interest are nothing but a claim on workers’ wages after they leave the place of work where they are exploited by an employer.

The taxes used to pay the bankers interest on municipal or state bonds are taken from workers’ paychecks and recirculated into the vaults of the banks. The corporate taxes that get paid to the government come out of profits created by workers. The foundation of all profit is unpaid labor.

Banking and capitalism

In fact, the banks dominate industry and are merged with the corporate boards and directors. The banks and financial houses that float the stock of the corporations have quarterly phone calls with the top executives of the big corporations. They want to hear only good things about the profit on their investments. The bankers and financiers can force the corporations into plant closings, crackdowns on wages, cutbacks in the work force and implementation of new technology that destroys jobs.

The banking industry is inseparable from capitalism itself. This scientific truth based on a Marxist analysis was elaborated by V.I. Lenin in his work “Imperialism: The Highest Stage of Capitalism,” written in 1916.

When the Republic Windows and Doors workers from United Electrical Workers Local 1110 in Chicago fought to keep their boss from running out without paying them their benefits and severance pay, it was revealed that it was Bank of America that held the strings to the company’s finances. Only after taking over the factory were the workers able to get their benefits — from Bank of America.

When Enron collapsed in the biggest bankruptcy in history, destroying the pensions and savings of thousands of people because the executives had engaged in a big pyramid scheme, the executives went on trial and some even went to jail. But behind the scenes, financing this criminal enterprise, were JPMorganChase, Bank of America, Morgan Stanley, USB and all the same names later connected to the financial collapse and the subprime mortgage scams.

Put bosses and bankers on trial!

It is capitalism that should really be on trial. For example, it was the profit system that led to the murder of 29 miners in the Massey mine in West Branch, Va. The capitalists of the mine industry own the regulatory agencies and the Congress members who are supposed to enforce safety. But production and profits come first.

Capitalism is behind the deaths of thousands of undocumented workers desperately trying to cross the desert to get to the U.S. because the North American Free Trade Agreement, which benefited U.S. agribusiness, destroyed their economy. And it is the profit system that preys on vulnerable workers without papers in order to squeeze every ounce of cheap labor out of them.

Now that their labor is not needed as much because of the economic crisis, capitalism unleashes Homeland Security ICE raids to hunt down and terrorize the undocumented and scapegoat them for the crisis.

It is capitalism and the profit motive that bring together the oil industry, the coal industry, the utilities and the big industrialists to stop any and all attempts to put limits on their right to pollute the atmosphere, the soil, the water and the very air humans need to breathe. Profits are endangering the environment of the planet.

The investigation of Goldman Sachs is significant politically for the Obama administration and for the struggle inside the ruling class over how to make the system more stable. But as far as even reforming the system, it is a mere sideshow.

Actually, the SEC should investigate itself for dereliction of duty, as it closed its eyes while every financier on Wall Street and beyond was gambling with an estimated total of $600 trillion (!) worth of derivatives, selling toxic mortgages, peddling them around the globe, and devising ever more creative schemes to fleece the public and each other.

There should be an investigation of Moody’s, Standard & Poor’s, and all the rating agencies that stamped junk bonds as triple-A so they could be sold. The Treasury Department and the Federal Reserve, including Alan Greenspan, should be in court answering charges of abetting the massive casino speculation that burst and cost millions of workers their homes and their jobs.

And, along the way, Bill Clinton, Robert Rubin and Larry Summers — all pawns of the banks — should be indicted for opening the floodgates in 1999 to this orgy of speculation when they overturned the Glass-Steagal Act. This New Deal legislation was designed to keep commercial banks, which loaned to corporations, from trading in corporate stocks.

In short, the entire capitalist establishment, the government and the financiers were in a broad collaboration to fan the flames of speculation. The entire system rests upon the exploitation of the workers, who create all the wealth. The lion’s share of that wealth is siphoned off in profits by the owners of the economy — of the factories, mines, fields, hospitals, stores, etc. They use it to make more profit.

If there were an investigation of how the capitalist economy could “recover” for six months while the crisis of the workers and the communities deepens, it would show that capitalism is a bankrupt system that cannot meet the needs of the vast majority of the people.

The results of a workers’ investigation could only conclude that the profit system must go. The resources and the means of production and services should be taken over by the mass of the people, socially owned, and run in a planned, organized way to distribute the wealth based on human need and not on profit. This lays the basis for real socialism.