Failing banks line up for gov’t handouts

Panic is spreading among Wall Street investors. Have their dreams of an everlasting, profit-driven capitalist economy à la Goldilocks—not too hot, not too cold, just right—become a nightmare?

After having reached dizzying heights of optimism, the transnational banking empires, financial satellites and corporate boardrooms—which have gathered riches beyond belief at the expense of the multinational working class and oppressed nationalities—are now gripped by fear.

“Many investors are on edge after federal regulators seized the California lender, IndyMac Bank, one of the nation’s largest savings and loans, last week. With $32 billion in assets, IndyMac, a spin-off of the Countrywide Financial Corporation, was the biggest American lender to fail in more than two decades.” (New York Times, July 13)

IndyMac, the giant mortgage lender, had gone bankrupt and was bought at a fire sale by the Bank of America.

The article continued: “Time may be running out for some small and mid-size lenders ... but the troubles are growing so rapidly at some small and mid-size banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.”

Many more banks are on the hit list as the credit/debt crunch deepens. They are holding fictitious capital—like collateralized debt obligations, structured investment vehicles, hedge funds, derivatives and other incomprehensible financial instruments that are becoming nearly worthless paper.

Larger institutions will present financial reports in the third week of July and multi-billion-dollar write-offs are expected. The stocks of investment banks like Lehman Brothers, Merrill Lynch, Morgan Stanley and Goldman Sachs were battered following the run on IndyMac. National City Bank stopped trading after its stock plunged 20 percent, but started up later in the day. “Washington Mutual fell 27 percent, Wachovia dropped 12 percent. M&T Bank, which reported a 25 percent drop in its second-quarter earnings early Monday, fell 15 percent.” (Wall Street Journal, July 14)

Banks—large and small—feed the arteries of the capitalist state. Is their accelerating meltdown leading to a government bailout for which the worker/taxpayer will have to pick up the tab?

That’s what happened when Bear Stearns, the fourth-largest investment bank, went belly-up in March. The Federal Reserve Bank and the Treasury cranked out $31 billion, accepting subprime mortgage paper and other debt as collateral so JPMorgan Chase could buy Bear Stearns for peanuts.

Can the U.S. government assume the humongous private sector debt incurred by a period of hyper-speculation, inflation and economic stagnation? The government is already burdened with a $9.5 trillion public debt, thanks primarily to debt service owed the banks and borrowing for costly imperialist wars and other military spending.

The government debt is concealed in a general fund, which is the recipient of all tax monies. The fund is guaranteed to cover two major areas before any other disbursements are made. What do they consider the top priorities? All interest payments must be made to the banks and all military expenditures must be covered. If anything is left over, maybe the government will meet some of its obligations to the people whose taxes keep it going.

Bank bailouts involve considerable risk for the government. The Federal Deposit Insurance Corp., which guarantees investors/depositors up to $100,000, has $53 billion set aside for this purpose. IndyMac alone will eat up at least $4 to $8 billion of that fund. The Federal Reserve has nearly $600 billion of debt on its books, based primarily on the global mortgage collapse. And under its legal statutes and obligations, it must provide funds to the government.

Printing money is one path to salvation but it debases the currency, causing hyper-inflation and driving down the value of the dollar in the global market. Letting banks and other capitalist entities fail is another path. That is also happening now.

These are dangerous times for the multinational working class and the oppressed nationalities. Even the 15 million union members are victims of stagflation and the vicious boom-and-bust cycles endemic to the capitalist system.

The bankers and the banking system itself are a leading cause of this capitalist crisis, responsible for the significant rise in hyper-speculation. No large-scale speculation in stocks, bonds and commodities like oil can take place without the banks. The banks supply the loans for speculation and accept all kinds of stocks and mortgages as collateral.

The banks were the fundamental agent of the hyper-speculation that preceded the 1929 crash and the devastating economic collapse that followed. The banking crisis, which first developed during the “roaring twenties,” was cataclysmic. The banks were falling like trees in a tornado.

The first act of Democrat Franklin D. Roosevelt when he took office as president on March 4, 1933, was to proclaim a “bank holiday.” He shut down the entire banking system for four days—an unprecedented act that literally stopped the daily functioning of the capitalist system. Thus he began his dramatic restructuring of capitalism to save the system. And save capitalism he did.

The banking system is in crisis and is demanding the government put out the money to rescue the banks. Facing huge budget deficits in coming fiscal years, the government, whether led by Democrats or Republicans, will cut social programs to the bone—while health care is denied, jobs disappear, pensions are wiped out, and food and energy costs rise at an astronomical rate.

The prospects are for the capitalist crisis to grow deeper and more profound. It will propel the exploited and the downtrodden masses into struggle and has the potential to unleash worldwide revolutionary forces.

This is a profit-driven class system that enshrines the private ownership of the means of production. Yet it has developed these same productive forces to such a vast extent that they have outgrown the limitations of private ownership and become social in character.

The scientific-technological revolution has brought the means of production to such a level of development that they could feed, clothe, house and provide joyful lives for all of humankind. But a new system that socializes the ownership of the means of production must replace capitalism before they can be in synch with human needs. That system is socialism and it is objectively within reach.