The economy: scams of the rich and famous
By
Deirdre Griswold
Published Mar 2, 2008 5:57 PM
As with a rotten onion when it is peeled away, new layers of the capitalist
economic crisis are being revealed in all their slime and stink.
In recent weeks, government statistics have been issued showing higher
unemployment, declining house values and fewer construction of new homes, lower
retail sales (people can’t afford to buy stuff) and a slump in the
service sector—the part of the economy whose growth was supposed to have
cushioned U.S. workers from the shock caused when bosses seeking cheaper labor
dismantled and offshored so much manufacturing.
Big banks have started to reveal precipitous drops in their profits for the
last quarter of 2007. Much of this was attributed to their involvement in the
mortgage loan business—which earlier had delivered hundreds of billions
to Wall Street in easy earnings but has been in crisis since last spring.
Big business always whines that “big government” is interfering in
the economy with its environmental regulations, rules about the purity of food
and medicines, and safety and health laws for workers—laws that are
minimal in the United States and are constantly broken at little cost to the
corporations.
This doesn’t stop the corporate bosses from being first in line for
government handouts, however. In fact, they don’t even have to stand in
line—it’s all worked out behind the scenes.
Banks borrow cheap, lend dear—thanks to the Fed
One way the capitalist government has been flooding Wall Street with
“liquidity”—easy cash—has been to lower the interest
rate the Federal Reserve Bank charges to the big commercial banks. In January,
the Fed lowered this rate by 1.25 points—the biggest drop since 1982.
The banks can now borrow money from the Fed at 3 percent interest, but they are
charging homeowners more than 6 percent interest for mortgages—which can
balloon to twice that rate later on if the mortgages are adjustable rate, the
kind that “reset” at a much higher cost.
This is why so many homeowners now face foreclosure—they just can’t
meet the increased mortgage payments, especially in a time of rising
unemployment and higher prices for everything.
The latest government data show that homeowner mortgage debt in the United
States now amounts to $11 TRILLION, and one third of that is in shaky
adjustable-rate mortgages.
In February the average interest charged for a 30-year mortgage rose from 5.48
percent to more than 6 percent. This will cost the borrower an extra $38,000
over the life of a typical loan—and is rung up by the bank as an extra
$38,000 anticipated profit. (Bloomberg Online, Feb. 26)
Why they’re not cheering
You’d think the banks would be sitting pretty, making all that money. But
what goes around comes around. Money capital is like blood—is has to
constantly circulate or it will clot and cause big trouble for the organism.
And what cuts off circulation better than a tourniquet is a market that is
glutted with many more products than can be sold and too much capital—not
just money capital but also the huge, high-tech, global productive apparatus
that can now produce so many more goods while paying wages to fewer and fewer
workers.
The result is collapsing “bubbles” in the market, like the housing
bubble, a contagion that then spreads to the many convoluted mechanisms that
boosted credit and the financial markets even when there was little
real—that is, little increase in real goods and services—to pump
them up.
So even as the banks try to squeeze more out of homeowners, they find
themselves in big trouble. And it’s not just a U.S. phenomenon.
Northern Rock: nationalization for the rich
In Britain, where the repossession of houses by banks is at a 12-year high, the
government stepped in on Feb. 21 and nationalized Northern Rock, the
fifth-largest mortgage lender in the country. This nationalization was
motivated entirely by the fear of British capitalists that they could go the
way of the U.S. and have near-panic in their financial markets.
It required a special act of Parliament—the Banking (Special Provisions)
Act—for the nationalization to go through. The government will take over
all shares of the bank and an “independent” auditor will determine
how much compensation should be paid to the bank’s shareholders.
This comes hard on the heels of a move last September by the government to
“rescue” the same bank with an infusion of 25 billion pounds
(almost $50 billion U.S.). The government also stepped in to guarantee all
deposits. All that wasn’t enough to stave off the threat of bankruptcy.
However, it did deprive the working people of Britain of $50 billion that is
sure to come out of their social services, one way or another.
There are different kinds of nationalizations. On occasion, a country that has
been oppressed and robbed by imperialism gets the strength to kick out the
foreign exploiters and nationalize a vital resource that the outsiders had
controlled—like Mexico’s nationalization of its oil in 1938, or
Iran’s oil nationalization in 1953, after which the CIA conspired with
Britain to overthrow the Iranian government and install the puppet shah.
In these cases, whatever “compensation” was made to the
imperialists, they were furious because it was much less than what they had
expected to make in super-profits. But often an oppressed country that does pay
“compensation” for taking back its own resources calculates the
amount based on what the imperialist corporations have assessed the property
at—and it’s always very low to avoid taxes. So they get caught at
their own game.
Britain, soon after World War II, nationalized its railroads, coal and steel
industry. Since the nationalization was accomplished under a Labour Party
government, many equated it with socialism. But it was not. It left the
capitalist class and the capitalist system intact—in fact, it
strengthened British capitalism, which had been weakened by the war. None of
the wealthy wanted to commit their capital to rebuilding these essential parts
of the economy. They didn’t know how long it would take for them to turn
a profit—and profits are what capitalism is all about.
Today’s nationalization of Northern Rock definitely falls into this
category. Despite its name, the Labour Party government of Prime Minister
Gordon Brown, just like that of his predecessor, Tony Blair, follows the
dictates of the capitalist ruling class, not the workers. It already plans to
return Northern Rock to private ownership in a few months, as soon as the bank
has been stabilized.
Guess who’s cutting the budget?
Whether done through a Labour Party, the Democrats or the Republicans, state
intervention in a capitalist economic crisis is designed primarily to bail out
the banks and corporations and not those who suffer the most: the working
class.
This can already be seen in the struggles emerging over state budgets, which
are going into the red because of dropping tax revenues. In New Jersey, Gov.
Jon Corzine, a liberal multi-millionaire Democrat, is already proposing a new
budget that cuts deeply into services needed by the workers and poor, including
hospital assistance, Medicaid and public education.
In order to give the appearance of balancing the cuts, Corzine is also
proposing an end to property tax rebates for people who earn more than
$150,000. But there’s no equality of sacrifice here. Someone with that
level of income is not going to suffer in the same way that poor people on
Medicaid will.
The biggest problem facing the Federal Reserve Board now is how to stimulate
economic growth—and avoid a rip-roaring recession or
depression—without adding to inflation. It’s sort of like a patient
who is in danger of both bleeding to death and getting a blood clot in the
brain. Should the doctor prescribe a blood thinner and risk more bleeding? Or
something to stop the bleeding and risk a stroke? Either way, the patient can
die.
Wholesale prices took a big jump in January, up a whole percentage point in
just one month. Retail prices are sure to follow. If the Fed lowers interest
rates again, it may push inflation even higher. But if it does nothing, the
economy is sure to worsen. It is running out of options as
“stagflation” grows worse.
For the workers, the options have to be different. They can’t be based on
the notion that profits have to come first. There is no excuse for hunger,
homelessness or poverty in a country with a gross output worth more than $11
trillion (yes, the same as the mortgage debt)—which averages out to
$37,000 per person per year.
Nothing is more important than the right of the people to food, shelter,
education and health. A workers’ movement that defies the bosses, the
banks and their private property laws to win these rights is every bit as valid
as the civil rights movement that defied racist segregation laws to win equal
treatment for Black people.
E-mail: [email protected]
Articles copyright 1995-2012 Workers World.
Verbatim copying and distribution of this entire article is permitted in any medium without royalty provided this notice is preserved.
Workers World, 55 W. 17 St., NY, NY 10011
Email:
[email protected]
Subscribe
[email protected]
Support independent news
DONATE