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The Crisis Deepens; the Plot Thickens
By: John Reimann
In
an attempt to further profit from the increasing economic crisis of US
and world capitalism, finance capital - through the person of Treasury
Secretary Henry Paulson - has proposed a new profit-making scheme - the
$700 bn. bailout of the Wall St. speculators.
Paulson is paraded before the people here as an "economics expert" but
who is he really? A former member of the Nixon administration and an
underling to Erlichman, who was subsequently sent to prison for his role
in that administraion, Paulson went on to become CEO of Goldman Sachs,
one of the largest and most powerful of the Wall St. firms. In that
position, he played a key role in the whole credit mania that his firm
and others profited from for decades. Incidentally, he amassed a $500
million personal fortune. Far from being a disinterested "expert", he is
the outright representative of the very same finance capital that has
seized the US economy.
What Price?
What Finance Capital's bailout bill would do is to buy the bad loans
from the Wall St. lenders with taxpayer money. A question that has
arisen is whether these loans will be bought at "market value" - that is
at pennies on the dollar. This is what these assets are actually worth
in the real world, but if they are bought for this then the firms will
not benefit at all and there will be no net effect on the economy.
Therefore, the plan must be to buy them at or near face value.
Increased Interest Rates
Regardless of what price these assets are bought at, the net effect will
be that the US Treasury will float a massive amount of Treasury Notes on
the world financial system. The selling of these notes will compete with
every other form of loan - loans to businesses and to individuals. This
will include the payments for the "adjustable rate mortgages" which many
homeowners have. Interest rates will go up for all other borrowers,
including these homeowners. This will push a whole other layer of homes
into foreclosure as well as force companies to cut back on production,
meaning more layoffs.
Far from helping the economy, this bailout will make matters worse. But
there is a purpose to it aside from simply swelling the coffers of
finance capital:
25-Year Growth Cycle & Debt
Since the early 1980s, there has been tremendous economic growth. This
was stimulated by several factors. One was the domination of US
capitalism on a world scale, which did lend a certain order - repressive
it is true, but order nonetheless - to the world economy and to world
finance. Another major factor was a massive increase in credit (debt),
especially here in the US. From 1974 to 2006, total debt in the US
(financial and non-financial, private and public) grew from $2.4
trillion to $44.7 trillion. (Source: Kevin Phillips, "Bad Money" p. 43)
Since the "money supply" depends on the amount of debt, this money
supply reflected this. From 1980 to 2007, the US money supply (as
measured by "M2) grew at triple the rate of the US economy as a whole.
This helped stimulate the US economy and the world economy, but it had
its limits.
There were periodic financial crises during this period, such as the
stock market crash of 1987, the dot com collapse, the Savings and Loan
collapse. Every time, the federal government stepped in to bail out the
system. And every time, the debt increased.
Marx explained in Capital (V. III) that "The credit system appears as
the main lever of over-production and over-speculation in commerce....
At the same time credit accelerates the violent eruptions of this
contradiction - crises... " This is exactly what happened - credit
and its twin - speculation - developed to a massive extent - protected
and shielded from the consequences of its own forces by the role of the
state. Eventually, however, just like water building up behind a dam,
these forces had to burst loose. That "eventually" is now.
Had the state not played this role, had its policies not allowed for the
massive inflation of housing prices and the inevitable collapse, then
all this means is that this crisis would have happened sooner.
Bailout Plan Swindle
Now, a $700 bailout plan is being proposed. Under it, the federal
government (meaning the tax payers) will take over the bad loans that
the banks and financial institutions made. They will pay for these
losses by issuing Treasury notes - essentially borrowing money on the
world market. since T-notes are considered safer than other bonds (which
are really loans), then other borrowers - whether they be individuals
trying to buy or pay off a home or corporations seeking funds for
continued operation - these borrowers will have to pay more for the
loan. Interest rates will rise, in other words. This will push a whole
sector of home owners who are on the brink over the edge - a new wave of
home foreclosures in other words. It will also mean that more
corporations will have to cut back and lay off workers.
This bailout plan is a giant fraud, a swindle, aimed at having the
taxpayer (the worker or middle class person) assume the losses of the
large finance houses. And why should this surprise us? Henry Paulson,
the Secretary of the Treasury, who proposed this plan, is fresh from
being CEO of Goldman Sachs, where he amasses a $500 million personal
fortune developing the speculative frenzy that helped lead to exactly
this crisis.
"Shock
Doctrine"
Naomi Klein in her book "The Shock Doctrine" describes how in one
country after another the capitalist class has used one form of shock or
another to increase their absolute control over society and eliminate
any sort of government controls or regulations. They used tsunamis and
hurricanes, military coups, and economic crises towards this end. Under
the proposed bill, all federal laws regarding conflict of interest and
other issues would not apply to the expenditure of these funds. Further,
these funds would be disbursed by private companies, not the government.
It doesn't take a genius to figure out who will be handing out the loot
while skimming of a big chunk in the process - the very same finance
capitalists who will be receiving it!
In other words, they are using this economic crisis to even further
privatize the functions of the government and to even further gain
corporate control over all aspects of society.
Public Opposition
There is widespread public opposition to this bill despite all the scare
tactics of the Bush administration. Bowing to this public sentiment in
this, an election, year, the Democrats and some Republicans are holding
up the bill and asking a few questions, but they are really avoiding the
real issues. Of course, none of them is pointing out who Paulson really
is and who he represents.
Meanwhile, it is being revealed that the director of the McCain campaign
is a paid lobbyist for Fannie Mae and Freddie Mac, the two mortgage
firms recently bailed out by the government. On the other hand, the top
economic advisor to Obama is Robert Rubin, former chief economist for
Clinton who led the deregulation of the banks and was a main strategist
for financial deregulation in general.
Public Protests
Just yesterday, an independent journalist named Gupta sent round an e
mail letter calling for protests on Wall St. against this bill. This
letter absolutely rocketed around the internet and it appears that such
protests will be taking place. This is only the start of the process.
For many decades, the US working class was lulled to sleep by a
capitalist class that appeared to have things well under control. Now,
that control is obviously collapsing. An increased ferment within the
working class will be an inevitable result. As for socialists, we should
take to the streets with a simple, two-pronged campaign:
1)Unionize the workers in the finance houses, banks, etc.
2)For nationalization of the banks and the finance industry, under the
control and management of the unionized workers and the depositors, each
of which shall receive one vote no matter how large their deposits. No
compensation to be paid to the stock holders over that amount that is
guaranteed to depositors under existing federal insurance.
The ideas of genuine socialism received a black eye from the role of
Stalinism throughout the world. That is now over. After its collapse,
the propaganda of the "free market" affected the consciousness of many
workers. That propaganda is now proven to be a lie. More so than at any
time since WW I, socialists have a giant opportunity - and also a giant
responsibility - before us. We must take to the streets to live up to
the demands of history.
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