Profit system wreaks havoc
Workers, oppressed to pay billions to bail out Wall Street
Published Sep 17, 2008 10:49 PM
Sept. 17—With the $85-billion government bailout of insurance giant AIG,
the Federal Reserve Board and the Treasury Department have made another
desperate attempt to shore up a collapsing global financial structure.
This latest attempt to rescue a huge capitalist financial firm comes on top of
the $200-billion-plus bailout of the two largest mortgage banks in the world,
Fannie Mae and Freddie Mac, just 10 days ago.
Secret deals stick workers with the bill
President of the Federal Reserve Bank of New York, Timothy Geithner and
Treasury Secretary Henry Paulson have been huddled in round-the-clock meetings,
hammering out deals. It has been done in secrecy, behind the backs of the
workers and the middle class, who will get stuck with the bill. They have been
working out these deals with the same loan sharks of high finance whose orgies
of speculation, gambling and deception in pursuit of profit led to the crisis
in the first place.
Wall Street’s speculative binge has led to a truly formidable world
Over the last three days, AIG, the largest insurance company in the world with
a TRILLION dollars in assets, came within hours of bankruptcy.
Lehman Brothers, a prestigious, 158-year-old investment bank with $639 billion
in assets and $613 billion in debts, went under in the largest bankruptcy in
Merrill Lynch, another pillar of investment banking with another TRILLION
dollars in assets, averted bankruptcy only after being swallowed up by Bank of
Washington Mutual, the largest savings and loan in the U.S., had its bond
rating reduced to junk and is on the ropes.
As the bankruptcy crisis was developing on Thursday, Sept. 11, Paulson told the
bankers that the government was through stepping in and that they would have to
solve the problem among themselves. That was last week. Now the U.S. government
has put up another $85 billion to bail out the banks. It is a sign of crisis
While the bailout of Fannie Mae and Freddie Mac had given relief to the holders
of trillions of dollars of debt owed them by the two mortgage banks, it also
put an enormous strain on the financial system and was another sign of profound
weakness and fragility. Further bailouts were ruled out, the government said.
It was drawing a “line in the sand.”
But Paulson’s and Geithner’s declarations made no impact on the
bankers. They all pursued their own immediate interests and stonewalled their
own government. In the end, while Washington let Lehman Brothers fail, AIG was
another story. The Federal Reserve Board and the Treasury made a humiliating
about-face and stepped in at the last minute, “fearing a financial crisis
worldwide.” (New York Times, Sept. 17)
The Fed bailout of AIG is instructive about the depth of the crisis. AIG is not
even a bank. It is not regulated by the federal government. The Fed had to use
emergency powers to intervene, which it deemed necessary not only because AIG
issues insurance policies to millions of individuals and commercial enterprises
but because it also has insured over $400 billion in mortgage-backed securities
and other risky investments of gamblers and speculators all over the globe.
AIG has borrowed money from many of the big banks and gambled its assets in
order to make bigger profits. As the mortgages began to fail and the holders of
the mortgage-backed securities began to demand their insurance payoffs,
AIG’s financial position was deteriorating on a daily and hourly
It is a measure of the system’s financial recklessness that an insurance
company, which is supposed to be regulated to keep it conservative, precisely
because it is the custodian of funds that must be available to meet the
emergency needs of the insured, was free to participate in the global
AIG operates in over 100 countries, has 116,000 employees—62,000 in
Asia—and has private banking facilities for wealthy people. It brokers
deals in stocks, manages mutual funds, owns 900 planes for its leasing
business, and in general has leveraged its insurance business into a
globalized, speculative operation.
Crisis of workers and oppressed is ignored
The crisis of the bankers has made sensational headlines, with hour-by-hour
accounts of the agony of a handful of millionaires and billionaires on Wall
Street. But the capitalist media has sidelined the real drama of mass
foreclosures and layoffs affecting the lives of millions of workers.
Hundreds of billions of dollars have been doled out to bankers who got into a
crisis largely because of predatory mortgage lending and the reselling of those
mortgages on the global capital market. No relief has been forthcoming for the
victims of the mortgage banking industry.
Little attention was paid to the news that in August there were 303,879
foreclosure filings—a 12-percent increase from the previous month and a
27-percent increase from a year ago. One in every 416 households in the U.S.
received a foreclosure notice in August. In California alone there were 101,714
filings, up 40 percent from the previous month and 75 percent over a year
While shedding tears over the travails of bankers, the capitalist press had no
headlines about a recent study entitled “State of the Dream:
Foreclosed,” which showed that the foreclosure crisis has resulted in the
greatest destruction of personal wealth in history in the African-American and
[email protected] communities.
According to the study, African-American borrowers have lost between $71
billion and $92 billion because of loans taken out over the last eight years.
The figure for the [email protected] population, which is even higher than the
African-American population, shows losses of between $75 billion and $98
Alongside the financial crisis is the growing crisis of the capitalist economy
overall, as overproduction results in mounting unemployment. More than 84,000
workers lost their jobs in August, bringing the yearly total up to 605,000.
More than 2 million people have been added to the jobless in the past 12
months, bringing the official total to 9.4 million out of work. Long-term
unemployment is also rising.
Unemployment for Black workers reached 10.6 percent, mainly due to job losses
among Black women. Unemployment among single mothers and youth is also growing.
And these government figures do not include millions of discouraged workers who
have given up looking for jobs.
In the midst of the credit crisis, it was announced that industrial production,
the basis of jobs and income, fell in August by the most in three years. There
was a 1.1 decrease in output in factories, mines and utilities. Auto production
went down by 12 percent, the most in a decade.
One thing is clear from the present crisis: Neither the capitalist class, which
owns all the productive wealth, nor the capitalist government, which oversees
the system, is in control of the economic or the financial situation.
Each measure they take to stem the credit crisis is followed by another
outbreak of panic. Each time the stock market surges, it quickly loses all its
gains and more. And no matter how much the pundits declare that there is no
recession, the steady growth of unemployment and the decline in production
continues, regardless of any so-called “economic stimulus.”
Shift in ruling class psychology
The intervention of the capitalist government in the banking crisis has brought
about a sudden shift in the psychology of the ruling class as they watch their
system spinning out of control. After the capitalist system got over the crisis
of the 1930s, the bosses in the U.S. began to forget why President Roosevelt
had taken unprecedented measures to rescue the economy. They began to scorn any
government intervention in their affairs.
Of course, they have always been ready to take handouts in many
forms—subsidies, military spending, special legislation, tax cuts, etc.
But they have felt themselves to be the high and mighty corporate rulers of the
Government intervention, they said, was for Europe and for social democrats.
The European ruling classes had been rocked by the workers and by class
struggle, division and war. Because the European rulers were weak and needed to
be propped up by the capitalist governments, they had to submit to state
monitoring of their affairs. Such a course, however, was strongly rejected by
Wall Street and the giant industrialists.
This latest crisis is a huge comedown for U.S. finance capital, which is used
to lecturing the other capitalist governments on the evils of government
intervention. Suddenly, however, the bankers and bosses are all united, from
the right wing to the moderates and liberals, in applauding the Treasury and
the Federal Reserve Board for their “timely” intervention. They are
submitting, grudgingly but clearly, to government oversight and monitoring in
the interests of saving their system from collapse.
With this crisis, the structure of U.S. capitalism is entering a new stage. The
capitalist government has begun, on a piecemeal basis at first but perhaps more
systematically in the future, to absorb the liabilities and bad debts of the
gambling and speculating financial oligarchy. This can only deepen the crisis
in the long run by driving it deeper into the organism of U.S. capitalism.
This is bound to have not only economic but political repercussions around the
world as rival imperialists see the vulnerability of the rulers in the U.S. It
is bound to weaken U.S. imperialism and at the same time make it more dangerous
as it seeks to get out of its crisis.
It is no accident that the Wall Street Journal on Sept. 16, in the midst of
in-depth reporting on the financial crisis, ran an article entitled
“Keeping Their Powder Dry: Draft Boards Hang On, Just in Case.” The
Journal does not necessarily speak for the whole ruling class, nor for the
Pentagon at the moment. But one reflex emerging in the midst of the crisis from
some section of the ruling class is beginning to think about an expanded war
drive as a solution.
With the “New World Order” stoking conflict with Russia in Georgia,
invading Pakistan and escalating the war against Afghanistan, the possibility
of a new military adventure should never be ruled out.
Capitalism’s basic contradiction
The Democrats want to blame things on Bush and call for more regulation. Of
course the financiers have gotten the government to overturn most of the
regulations, dating back to the Depression, putting restraints on their
gambling operations. This deregulation started with the Reagan administration
and reached a high point in the Clinton Administration. At the instigation of
Citicorp and Robert Rubin, who left Goldman Sachs to become Secretary of the
Treasury, the Glass-Steagall Act was repealed in 1998, under the sponsorship of
now McCain economic adviser Phil Gramm. The law forbids commercial banks from
becoming involved in investment banking, underwriting stocks and stock market
operations, underwriting and other activities that facilitated widespread
hyper-speculation of the type that preceded the Depression.
And of course the Bush administration undermined all attempts to inhibit the
predatory mortgage lenders and gave a complete free hand to all manner of
unregulated speculation in trillions of dollars worth of speculative gambling,
which increased the overall risk in the global financial system. But,
Democratic Party demagogy notwithstanding, the Bush administration is not the
cause of the crisis.
Government intervention, stronger regulation of the monopolies and more
“prudent” practices cannot overcome the fundamental contradiction
of capitalism: private ownership of the globalized, social means of
It is an irreconcilable contradiction that a tiny minority control the
production of the world’s wealth for their own profit. It is an
irreconcilable contradiction that this global apparatus stops functioning when
there is a crisis of profitability for the bosses. And such a crisis always
arises, sooner or later, because of the anarchy of capitalist production.
No capitalist knows where what is produced can be sold. But in the rush for
“market share” for the highest profit, each capitalist grouping is
compelled to expand production.
Simultaneously, the laws of capitalism compel each capitalist to reduce the
wages of the workers as much as possible. In the last three decades, the
capitalist class has created a low-wage capitalist system that pits workers
against each other on a global basis. This just aggravates and accelerates the
contradiction of the profit system.
Under capitalism production is anarchic and eventually expands to a point where
the workers cannot buy what has been produced at a price that will bring the
bosses a profit. This anarchy of production is being reflected in the anarchy
of the financial system in the present crisis.
In the present crisis, billionaires at the top of capitalist society may be
losing part of their wealth, which really existed only on paper, but they are
keeping their mansions, servants, limousines and Lear jets. It is the workers
who are bearing the brunt of the economic crisis.
The only way out is the way of resistance—like the movement to stop
foreclosures, which is gathering steam around the country.
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