Demonstrators outside Mayor Kilpatrick's meeting at MGM Casino Hotel in Detroit on the foreclosure crisis. From left to right, David Sole, MECAWI, Elena Herrada, Centro Obrero, Abayomi Azikiwe, PANW editor. (Photo: Cheryl LaBash).
Originally uploaded by Pan-African News Wire File Photos
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: dgriswold@workers.org
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