What lurks behind Bear Stearns bailout?
Published Apr 10, 2008 1:17 AM
The banks are made of marble
With a guard at every door
And the vaults are stuffed with silver
That the workers sweated for
—Folk song by Les Rice
The week of March 10, the fourth-largest U.S. investment bank, Bear
Stearns, collapsed. Panic-stricken investors, shareholders, employees and other
creditors simultaneously demanded their money in a run on the bank, which had
become the second-largest trader in speculative financial instruments.
Fear of a capitalist meltdown spread through the financial markets. Giant
commercial banks CitiGroup, Bank of America and Wachovia, plus investment banks
Lehman Brothers, Merrill Lynch and a host of others, were also swept up in a
tsunami of risky investments. All were flooded with subprime mortgages, faulty
structured investment vehicles, opaque credit default swaps and other
over-valued financial instruments. They were forced to write down hundreds of
billions in losses.
Britain’s Northern Rock went belly up, forcing the government to pick up
the pieces. Swiss bank UBS, Germany’s Deutsche Bank and other European
banks were also caught up in the whirlpool of risky financial instruments.
Was this the beginning of a 1929 meltdown? Or would bailing out the banks avoid
On the weekend of March 14-16, the leaders of the Federal Reserve Board and the
government met in all-night sessions, panicked and fearful of a financial
meltdown. Most important, JPMorgan Chase, one of the most powerful banking
conglomerates in the world, was invited to join the conclave. It became the key
player, dominating the negotiations and demanding big-time collateral and
guarantees to buy out Bear Stearns and alleviate the fears of Wall Street.
Federal Reserve Board chair Ben Bernanke and President Timothy Geithner of the
New York Federal Reserve, architects of the Bear Stearns bailout, were soon
called before the Senate Finance Committee. They “compared the turmoil
that weekend to the Panic of 1907 and the Great Depression-era run on
banks.” (Bloomberg.com, April 4)
JPMorgan Chase is an amalgam of the infamous banking houses of Morgan and
Rockefeller, widely heralded as the robber barons of yesteryear. They built
empires of high finance off the blood, sweat and tears of mainly immigrant
J. P. Morgan began his career by selling defective rifles to the government
during the Civil War. He parlayed those profits into railroads built on stolen
public land, and proceeded to build giant steel mills on the bones of small
John D. Rockefeller made his start in big oil by blowing up small rival oil
operations, then expanding into mining and real estate. JP and JD came to
dominate other monopolistic industries like auto and finance.
Both empires provoked wars abroad to consolidate their wealth, ruthlessly
fought unions and brutalized workers, and created company towns and stores that
kept workers in a constant state of debt and poverty.
Fed blesses Morgan buyout
In January, Bear Stearns stock had traded at $171 a share. By March, Jamie
Dimon, head of JPMorgan Chase, saw a chance to steal this 85-year-old Wall
Street dynasty at $2 a share. Although the price was later raised to $10, Bear
Stearns shareholders and employees were totally wiped out.
For a pittance, JPMorgan acquired $1.2 billion in prime midtown property along
with Bear Stearns’ premier assets. It arrogantly refused to take over
most of the risky financial instruments, forcing the Fed, and eventually the
worker/taxpayer, to assume that liability. The Fed blessed JPMorgan with a $29
billion credit line.
The swindle was worked out in secret meetings among powerful Wall Street
players and led by the Fed, regulator of more than a thousand banks associated
with the system. The government was represented by the Treasury Department, the
Securities and Exchange Commission, the Comptroller of the Currency and other
governmental agencies. These are the movers and shakers that influence the
Following this financial coup, the Dow Jones average of industrial stocks
climbed nearly 400 points. For the next few days the market elites were
claiming the capitalist crisis was over.
Although the stock market is an integrated sector of the financial services
industry, it is also the most prominent representative of capitalist
production. All industry, agriculture, commerce and the means of production
pass through the hands of stock exchange operators.
Workers bear the burden
When Fed chair Bernanke, savior of banking institutions, finally used the
“R” word—for recession, no news to broad sectors of the
working class—it was a confirmation that the financial crisis had drawn
in the broader capitalist economy. In March 80,000 jobs were officially lost
and the unemployment rate rose to 5.1 percent. However, these figures
understate the extent of the assault on the workers and oppressed, who have
lost more than 10 million jobs since the “jobless recovery” of
Increasingly, the workers and oppressed are faced with hard choices. Pay for
gas to get to work? Stint on groceries? Pay the mortgage or the rent? Or buy
the prescriptions? They have seen pensions disappear and wages sunk by
hyperinflation—an enormous leap in the cost of staying alive. And the
economy continues to stagnate.
One factor in rising inflation is the flood of money printed by the government,
which is sinking the dollar. Others are the stoking of the war in Iraq and
Afghanistan and the growing fear over the unprecedented debt and the credit
crunch. “The Federal Reserve and other global central banks have been
hosing the world with new money in their efforts to avoid a financial
crisis.... The cheap money didn’t stop a Wall Street bank run—it
was the Fed’s bold plan to absorb subprime debt that did that—but
it may add fuel to the inflation fire,” warned the Washington Post on
Multibillionaire George Soros, a prominent Wall Street global investor, says a
super-bubble is growing in the commodities markets. (“Wall Street
Journal,” NBC-TV, April 6) Rising prices in metals, food, energy,
services and a host of other staples are fueling hyperinflation, while the
subprime housing crisis has yet to reach bottom. Is Soros talking about another
A debate is going on within the ruling class—is the economy in a
short-lived cyclical recession or will there be a capitalist economic
The extreme volatility and sharp ups and downs in the stock market reflect the
A similar discussion took place in the latter part of the golden 1920s. The
argument was settled by the devastating 1929 stock market crash, which led to
the Great Depression of the 1930s.
Missing from the debate are the fundamental and material interests of the
masses. There is an absolute necessity for an independent, class-wide, massive
wave of demands, programs and strategies emanating from the needs of workers,
the oppressed and their organizations. Radicalization of the multinational
working class is inevitable. A struggle against the banks, the financial
institutions, corporate monopolies and their stooges in government will be a
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