Capitalist Meltdown: Profit System Wreaks Havoc

Members of Unite Here! labor union marching in support of SB 1306 at the State Capital in Lansing, Michigan. The bill would impose a two-year moratorium on foreclosures in the state. (Photo: Alan Pollock).
Originally uploaded by Pan-African News Wire File Photos

Profit system wreaks havoc: CAPITALIST MELTDOWN

Workers, oppressed to pay billions to bail out Wall Street

By Fred Goldstein
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 crisis.

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 U.S. history.

Merrill Lynch, another pillar of investment banking with another TRILLION dollars in assets, averted bankruptcy only after being swallowed up by Bank of America.

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 and weakness.

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 basis.

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 casino.

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 ago.

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 Latin@ 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 Latin@ population, which is even higher than the African-American population, shows losses of between $75 billion and $98 billion.

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 world.

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 production.

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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Foreclosures provoke coast-to-coast fightback

By Gerry Scoppettuolo
Boston
Published Sep 17, 2008 10:43 PM

If you read just the Wall Street Journal or the New York Times, or just watch CNBC, you would think the unfolding debt crisis is something just happening on Wall Street, despite the occasional “human interest” stories about home foreclosures and their impact on renters and homeowners.

The real story of the foreclosure epidemic, however, is being written on the streets in eviction blockades and community struggles. The real actors in this drama are not high-powered brokers or hedge fund managers, but working-class families—African American, Latin@ and white—who are fighting back by organizing neighborhood committees and joining rallies and demonstrations.

One leader in the struggle is Paula Taylor, whose home in Boston’s Roxbury neighborhood was foreclosed by Bank of America on Sept. 5 as 75 multinational protestors surrounded her house in Boston’s eighth eviction blockade this year.

The constable and a squad of 16 Boston police officers had to arrest four people in the two-hour standoff. Protesters chained themselves to Taylor’s back door after the police were deterred from going in the front door. Jim Brooks, an African-American organizer from Boston’s City Life tenant rights group, had chained his wheelchair to the front porch. As soon as the police left, a contingent of protesters, under City Life’s lead, marched to the local Bank of America branch where they picketed.

Boston City Councilor Chuck Turner joined the blockade, which included supporters from City Life/Vida Urbana, Four Corners Neighborhood Association, Service Employees union, Alternative for Community and Environment (ACE), T Riders Union, Women’s Fightback Network, the Boston chapters of F.I.S.T. (Fight Imperialism, Stand Together) and the International Action Center.

Three major demonstrations focusing on foreclosures will be taking place around the U.S. On Sept. 17, protesters in Michigan will gather at the state Capitol in Lansing starting at 11 a.m. for a mass action called by the Moratorium NOW! Coalition to Stop Foreclosures and Evictions. They will demand passage of a two-year foreclosure moratorium introduced in the state legislature there. To sign an online petition supporting the moratorium, go to www.moratorium-mi.org.

A demonstration on Sept. 17 will also occur in downtown Los Angeles at the Federal Building starting at noon, sponsored by the Los Angeles Labor/Community Coalition, which includes Service Employees Local 721. Protesters will demand a national moratorium on all foreclosures. And on Sept. 20 in Boston, activists will gather at noon outside Countrywide Bank at 811 Mass Avenue at Albany Street in a protest being organized by the Boston Women’s Fightback Network.

The Boston demonstration is part of an ongoing petition campaign demanding that the Governor of Massachusetts use his constitutional powers to declare an Economic State of Emergency in the state and issue executive orders to stop utility shutoffs, stop foreclosures and evictions, and roll back food and fuel prices. For more information and to download the flyer and petition, go to www.iacboston.org/wfn.

The Ad-Hoc National Network to Stop Foreclosures and Evictions sent an emergency letter Sept. 16 to members of the U.S. Senate Committee on Banking, Housing and Urban Affairs demanding a national moratorium on all foreclosures.

Under federal law, a mandatory 90-day moratorium on foreclosures is imposed during a government-declared state of emergency. The letter points out that the recent federal takeover of Fannie Mae and Freddie Mac is a de facto declaration of a state of emergency, and that the government should obey its own laws by implementing a mandatory moratorium on mortgages owned or insured by these institutions.

The Network also launched an online petition campaign directed at the new conservator of Fannie Mae and Freddy Mac, the treasury secretary, and the House and Senate Banking and Finance Committees demanding an immediate Federal Moratorium on Foreclosures and Evictions. To sign on, go to http://www.stopforeclosuresandevictions.org .
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Articles copyright 1995-2008 Workers World. Verbatim copying and distribution of this entire article is permitted in any medium without royalty provided this notice is preserved.

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Page printed from:
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Today's disastrous economic headlines have been brought to you
by Bush-McCain-style economic policies. They prove that an
economy built on Wild West behavior without legitimate
government oversight brings disaster.

Beyond the government bailouts of financial giants like Fannie
Mae, Freddie Mac and AIG, we need to restart our economic engine
by fixing our real economy - where real people live and work.

We need immediate action by Congress to provide relief for
working families, create new jobs and rebuild our economy from
the ground up. The AFL-CIO is calling for fast-track
congressional approval of a new economic stimulus plan that
includes:

* A moratorium on home foreclosures to allow for a restructuring
of subprime mortgages.
* Extended unemployment benefits for jobless workers.
* Fiscal relief for states and funding for food stamps to make
sure all Americans can provide for their families.
* A jump-start for ready-to-go construction projects to repair
schools, roads and bridges--construction that will help create
good, family-supporting jobs in many communities where currently
there are none.

Join us by calling your member of Congress today
and tell them to take action:
(202) 224-3121

We need to fix the real economy because families like yours
remain our true economic engine. It is clear that our economic
system is out of whack and we need to get to work fixing it
right now, not just bailing out huge corporations.

Tell your member of Congress to pass a new economic stimulus
bill that will help working families in the real economy as much
as the speculative economy. We need to restart America's real
economy.

In Solidarity,
Working Families e-Activist Network, AFL-CIO