Abayomi Azikiwe, Pan-African News Wire Editor, holds the infamous MECAWI leaflets that required a federal court order to distribute at a "avoid foreclosure" fair in downtown Detroit. (Photo: Cheryl LaBash).
Originally uploaded by Pan-African News Wire File Photos
By Gary Wilson
Published Mar 13, 2008 1:17 AM
Just days after the worst jobs report in almost two decades, a giant financial boost was provided by the capitalist government—not to the laid-off workers, but to the biggest banks.
The news on March 11 that the Federal Reserve Bank had made the unprecedented decision to practically give away $200 billion in loans to the biggest banks in the world at first stunned Wall Street. The Dow Jones average of industrial stocks stopped falling, then started falling again. But by the end of the day, it had risen 400 points over the previous day’s close.
Wall Street cheered. The giant giveaway goes into the pockets not of those most needy but of the rich banks and finance capitalists.
The Federal Reserve Bank is turning over U.S. Treasury funds in exchange for failing subprime housing loans. The deal relieves the lenders—mostly banks—of the immediate crisis of the bankrupt loans, but it does nothing to protect the homeowners from foreclosure or eviction. And eventually the working class, as taxpayers, foots the bill for all this.
While the Constitution says that only Congress can tax and spend, where were the howls of protest over this unauthorized giveaway of tax monies?
Of course, last December when Congress was voting on measures to “alleviate” the economic crisis, including a small “tax rebate,” the provision that would have extended unemployment benefits and food stamps was cut out, while the provision of emergency funds to the big mortgage companies was expanded.
The March 11 Wall Street Journal noted that “The Fed’s effort won’t eliminate the root cause of the economy’s problems.” That’s right. It just fattens the pocketbooks of the bankers and financiers.
While the stock market ended the day with its biggest rise in a couple of years, it did not even roll back the 500-point drop of the previous three days. And it is still down about 2,000 points from its October 2007 high.
63,000 jobs lost in February
The sharp drop in jobs last month— 63,000 were lost—was the steepest one-month decline in more than five years. Unemployment is now at a level last seen in 1990.
Not included in that 63,000 figure are the 450,000 people the U.S. Labor Department says have left the labor force in February—that is, have given up looking for work. If they had been included, the jobless rate would be 5.1 percent instead of 4.8 percent.
But it doesn’t bottom out there. Also left out are the millions in jail or prison as well as the working class youth who are in the military forces because they couldn’t find better jobs. None of these are counted, though they are clearly jobless.
Rebecca Blank of the Economic Policy Institute told Congress’s Joint Economic Committee on March 7 that the current unemployment rate among young men is significantly higher than the official figures show.
“By expanding the prison population, we have removed more and more young men from our labor market count,” she testified. Blank said that the adjusted figures show that the jobless level now is almost the same as during the major recession of 1990, when it was officially 5.5 percent. That recession brought down the first George Bush presidency. It was the stupid economy.
The second George Bush said on March 8 in response to the Labor Department’s jobless report the day before, “Losing a job is painful.” He appeared to be thinking mainly of himself.
The tabloid newspapers and the television newscasts, from CNN to Fox, didn’t shout RECESSION. But the staid voice of the corporate executives, the New York Times, reported that Wall Street economists all now agree that the country is in a recession.
“Unemployment typically starts to rise only after a recession has started,” the March 8 Times reported.
Falling rate of profit
Job cuts are the capitalist response to a falling rate of profit. The failure to make a profit is the crisis.
In any capitalist crisis, the bosses always blame the workers. Sometimes they say the problem is that the workers aren’t buying enough, not borrowing enough or not charging enough on their credit cards. Other times, it’s that workers’ wages and benefits are too high.
None of this is the reason for the crisis, but that doesn’t stop the bosses from blaming the workers. It is the falling rate of profit that has put the capitalist economy into a crisis.
When the profit rate falls, the bosses become ruthless. In an attempt to increase the rate of profit, jobs are cut, wages and benefits are decreased. The rate of exploitation of the workers is increased.
Profits are the driving force of capitalism. The profits come from the labor of the workers. Profits are the unpaid wages.
Capitalists are always competing with each other for profits. Part of that competition is the introduction of new technology that increases the rate of exploitation of the workers.
In “Capital,” Karl Marx showed that capitalists introduce new technology not to reduce costs, though that can happen. They do it in order to raise the rate of profit.
The first capitalist to introduce a new technology raises the productivity of labor. The commodities made using the new technology cost less to produce per unit. So the capitalist increases his own profit by either selling the cheaper commodities at the old price or selling them at a lower price while increasing market share.
But once the competing capitalists also start using the new technology or introduce newer, even more productive technology, then the higher rate of profit disappears. And, since by this time the capitalists in general are spending much more on technology and less on workers, the rate of profit actually falls—because profits come from the exploitation of human labor.
When the rate of profit falls, the capitalists start cutting wages and benefits and eliminate jobs. Unemployment rises. Capitalists also respond to the falling profits by increasing prices, which creates inflation.
For the bosses, laying off workers is a way to try to increase the rate of profit. Right now there are absolutely no restrictions on job cuts and layoffs. Bosses can give any reason or no reason. It doesn’t matter how many years a worker has been on the job or the amount of profits he or she made for the boss during that time.
Clearly, this is not justice. Even in an economic crisis, workers should have a say in any decision regarding their own jobs. Workers have a right to protect the investment of their labor in the company.
Every company is built on the labor of the workers. That makes the workers the primary investors in the company.
As the recession deepens, it becomes ever more important that workers fight for and win this essential right to protect their jobs.
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JPMorgan buys Bear Stearns for $2 a share
By Francesco Guerrera in New York and Henny Sender in Abu Dhabi
March 17 2008 01:49
JPMorgan Chase agreed on Sunday to buy Bear Stearns, the stricken US investment bank, for about $236m in shares in a deal that puts an end to Bear’s 85 years of independence and highlights the risks faced by banks during the credit crunch.
JPMorgan’s cut-price takeover of Bear, which has the backing of the Federal Reserve and the Treasury, came as the Fed cut its discount rate for direct loans to banks and created a special lending facility for primary dealers – two emergency moves aimed at stabilising financial markets.
JPMorgan said that in addition to the loans extended to Bear on Friday, the Fed had agreed to fund up to $30bn of Bear’s less liquid assets – a move that will alleviate the need for a fire-sale of mortgage-backed securities.
The arrangement by the Fed significantly decreases JPMorgan’s risks and underlines the authorities’ concerns at the prospect of seeing one of the largest US investment banks go under.
People close to the situation said the Fed and Treasury pressed for a deal before the opening of Asian markets on Monday morning because they wanted to stave off a run on other US and European banks.
However, the deal, which values Bear at just $2 per share, compared with the $169 hit in January last year and the $30 reached on Friday, will wipe out most of the value of the investments of Bear’s shareholders.
Senior Fed officials sought to reassure investors that Bear has placed itself in a uniquely vulnerable position and that no other large Wall Street institutions faced such grave problems.
They denied the move was a bail out of Bear – which was undone by investors’ rush to withdraw funds amid rumours over its financial health – but was instead an orderly resolution to a difficult situation.
Before the deal was announced, Hank Paulson, Treasury secretary, had sought to allay fears that the crisis of confidence that hit Bear would spread to the rest of the financial sector. “The government is prepared to do what it takes to maintain the stability of our financial system,” he said. “That’s our priority.”
Investor sentiment towards financial companies is likely to take another knock this week when investment banks, including Goldman Sachs and Lehman Brothers, are expected to report first-quarter losses in their leveraged loans and mortgage-related portfolios. On Friday, Lehman announced a $2bn unsecured credit line to shore up its balance sheet.
The takeover will enable Jamie Dimon, JPMorgan’s chairman and chief executive, to add Bear’s prime brokerage franchise and mortgage business to his bank. JPMorgan, which is expected to incur a $6bn one-off charge to pay for potential litigation and shrink Bear’s balance sheet, is also likely to retain Bear’s New York headquarters, which are worth around $1bn.
However, JPMorgan is likely to sell other businesses, such as the investment bank, and to lay-off many of Bear’s 14,000 employees .
JPMorgan had been contacting clients to inform them of the coming consolidation. An executive in its private banking side told one client that the private bank had taken control of $150m in assets of Bear’s clients.
“JPMorgan stands behind Bear Stearns,” Mr Dimon said on Sunday. “This transaction will provide good long-term value for JPMorgan Chase shareholders.”
Alan Schwartz, Bear chief executive, said: “The past week has been an incredibly difficult time for Bear Stearns. This transaction represents the best outcome.”
Additional reporting by Demetri Sevastopulo, Peter Thal Larsen, Anuj Gangahar and Hal Weitzman
Copyright The Financial Times Limited 2008