Wall St., big banks seek gov’t handout

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.

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