I would be lying if I claimed to understand the full scope of the financial crisis afflicting world capitalism. Too much is deeply concealed by the exotic instruments, opaque hedge funds, private equity funds and other arcane aspects of the world of high finance. Rumors and speculation abound. Some say that $60-70 trillion dollars exist somewhere in the debt-credit universe with no solid mooring in the world of ordinary folks. What this sum means, how it was acquired, and what will become of it defies understanding by those of us who simply balance a checkbook.
My view for some time has been that the onset of crisis is a product of both a growing role for financial capital in the global economy and a speculative, parasitic direction pursued by this sector. Further, I see this direction as one encouraged by state-monopoly capitalism to bolster a sagging profit rate.
As the crisis intensified, policy makers in the US ruling class whistled in the dark, minimizing the depth of the crisis. First, they postured it as a crisis of sub-prime loans and declining housing values, then as a crisis of individual firms (Bear Sterns, Countrywide, etc.), later as a crisis of the financial sector, and finally as a full blown crisis of world capitalism.
With the recognition of its depth, these same policy makers used the panic in the stock market as a cover for a radical bailout of the monopoly financial firms. Fear, intimidation, and stealth defined an extraordinary week that led to a massive commitment of public funds to the privileged sector of the economy most responsible for the panic [http://mltoday.com/index.php?option=com_content&task=view&id=463&Itemid=57].
Actually, "bailout" was the wrong word; while the financial corporations lost billions of dollars of paper assets, they were actively encouraged to access tens of billions of dollars in credit from the Federal Reserve. Nonetheless, the bailout was sold as an attempt to break a credit log jam. But the constipation of credit was not due to a lack of funds, but to an understandable reluctance to take risk given the unfolding collapse of the world economy. How extending relief to credit lenders could shake this fear is a question that no one dared ask and no policy maker faced.
I saluted the unprecedented mass rejection of the bailout plan and condemned the flagrant, undemocratic legislative coup to promise $700 billion to the rapacious financial sector[http://mltoday.com/index.php?option=com_content&task=view&id=463&Itemid=81]. Yet many on the left embraced this audacious act of corporate welfare. I was surprised to hear a self-proclaimed "Marxist" professor on Michael Ratner's Law and Disorder radio show, when pressed, concede that the bailout was probably necessary. Even more surprising was the infamous "dose of socialism" article in the CPUSA People's Weekly World, actually celebrating the bailout as a kind of incipient socialism.
With the passage of only a few weeks, both the intent and practice of the bailout program - TARP - are being exposed for all to see. The veil has come off the official version - the restoration of the flow of credit - to reveal the shameful pillage of public funds for monopoly consolidation and corporate pillage.
Articles posted on Bloomberg.net make the connection between the first wave of public subsidies and the payment of the annual corporate bonuses of the big financial corporations. Commentator Jonathan Weil, in a fit of righteous indignation, explained on October 21 that very likely the Treasury subsidies for both Morgan Stanley and Goldman Sachs will find their way into the respective companies end-of-year bonus packages. Morgan Stanley, despite losing around a third of its stock value this year, has about $6.5 billion dollars in bonus commitments. The company's total employee compensation expenses this year amount to $10.7 billion which is nearly twice its pre-tax earnings. As Weil's title aptly reveals: "Morgan Stanley's Bonuses Get Saved By You and Me". Though Goldman Sachs is far healthier, they also got a $10 billion infusion from the US Treasury which will undoubtedly go a long way towards meeting its $11.4 billion compensation commitment. And surprise! That figure too is almost twice the company's pre-tax earnings.
In a follow-up article on Bloomberg.com dated October 27, Christine Harper and Serena Saitto developed the point further, exploring the similar gambit of Merrill Lynch. In the case of Merrill, the per employee compensation is actually higher than last year thanks to layoffs and in the face of five straight quarters of losses and a 70% slide in stock values.
The thrust of the game plan for corporate America was revealed in a New York Times article by Joe Nocera who spied on a conference call between JP Morgan Chase executives. The executives candidly asserted that the bailout monies are to be directed to M&A, the Wall Street acronym for "mergers and acquisitions". In other words, "freeing" credit for loans is neither perceived as a problem nor taken to be object of accepting bailout money. Instead, the public funds are meant for and to be used for consolidating the banking industry.
This candor only deepens our understanding of the government collaboration with PNC bank to both fund and secure the purchase of National City bank. While PNC was relatively healthy, National City was quite weak. Nevertheless, the Treasury agreed to a purchase of $7.7 billion of PNC preferred stock, a move unneeded by PNC except to make the acquisition. At the same time, the ailing National City was denied a similar deal which could have bought it a reprise from its difficulties. Clearly, the Treasury was complicit in the move. This did not go unnoticed by some Ohio legislatures, including Dennis Kuchinich, who cried foul, noting the government's "arbitrariness" in its efforts.
That there is nothing arbitrary in this move was confirmed in a Wall Street Journal article on October 28 entitled "Much Bank Aid May Not Go to Loans". The authors cite several bank executives in line to receive pieces of the first $125 billion tranche of bank welfare. All were coy about applying the monies to new loans. One executive frankly stated that "potential acquisition" was one option and another bluntly said "opportunities would certainly include M&A..."
These developments demonstrate that the TARP legislative act was really a trojan horse. The $700 billion bailout was not meant to break a credit log jam (in reality, a credit strike based upon risk aversion). If anything, giving the assets to gun-shy financials only served to encourage them to business-as-usual and renewed recklessness. Instead, the public funds were meant to encourage and execute a consolidation and restructuring of the industry. For capitalism, restructuring translates into more profits. Job cuts, reduced benefits, and inhanced productivity (speed-up) are all part of the rationale for consolidation. Capitalists plan to restore profits the old-fashion way: by increasing the rate of exploitation.
But it is not just the financial corporations that are looking for government subsidized restructuring. The long rumored GM-Chrysler merger is projected to turn on $10 billion of federal TARP funds which would allow the merged company to "layoff workers, close plants, integrate the two companies, and provide liquidity...", according to the October 27 Wall Street Journal. Internal estimates anticipate a loss of 40,000 jobs from a current work force of 166,000! In other words, public funds are being solicited to destroy 40,000 jobs and squeeze production dramatically from the remaining work force. Could there be a more audacious demonstration of the reality of the fusion of the state and monopoly capitalism?
Of course this is just the beginning of state-monopoly capitalism's offensive to restore capitalist profitability.
Shame on those liberals and Marxist poseurs who tried to sell the bailout as some kind of back door socialism! Now is the time to leave this sordid chapter and begin the fight for real relief for working people. Society's resources should be dedicated to society's needs and not the machinations of our false " representatives" and their corporate masters.