What Would Nationalization of the Financial Sector Look Like?

Now that disgust with the financial sector and the government bailout is reaching a fever pitch, it's a good time to look at how nationalization of this wounded shark might proceed. Discounting those who foolishly defend the looting of public funds as nationalization, there are more and more calling for public ownership of financial institutions. Unfortunately, most calls for nationalization are short on specifics and potentially more harmful than helpful.

Below are some notes - admittedly tentative and sketchy - that may stimulate the discussion further.

1. What do financials "produce"? Essentially banks, insurance companies, and other financial institutions produce paper and plastic. More specifically, they deal in debt and other future obligations; they serve as an intermediary between people or institutions and money tendered and money borrowed or awarded.They collect assets from depositors, the insured, and investors and loan money or award money to willing borrowers or those meeting certain contracted conditions. What separates them from publicly-owned or cooperative financial institutions is profit. What they have in common with other privately-owned enterprises is, again, profit. Their primary mission is to make money and not serve any greater or collective cause. Their radical self-interest precludes any collective solution to the current financial disaster through individual bailouts precisely because their individual behavior is driven only by profit maximization. They have no social consciousness. Bailouts, like the current mega-gift to CitiBank, cannot work unless the profit motive is contained or by sheer dumb luck. Giving public funds to them is like giving drugs to a junkie.

2. If bailouts cannot work, what will? There is an essential need for the financial functions that are currently served by private institutions; without these services, there would be no economic activity, no hope for a better future. But for the vast, vast majority of people, these needs are fairly simple and easily administered: the accounting and distribution of compensation; insurance against life's unforeseen eventualities; loans for home purchase, education, consumer goods; guarantees of health care and retirement benefits; etc. Private institutions perform these functions poorly and at a high cost, duplicating services, incurring unnecessary expenses for marketing and promotion, thwarting economies of scale and, of course, expanding profits.

In addition, private financials are genetically determined to go beyond the essential functions of banking and insurance into areas of speculation. The profit imperative encourages speculation. If they engaged in reckless behavior with their own money, no one would care. But they are in the unique position of gambling with other people's money: deposits, retirement funds, insurance funds, savings, etc. Moreover, they are driven to take more extreme and socially irresponsible choices in pursuit of profit: securitization, derivatives, CDO's, and a host of other instruments that are impossible to explain or understand. The results are what the pundits call "toxic assets". They are indeed toxic because they engage and affect the fate of millions of people, but they are hardly assets. The real, original value of these instruments has been squeezed out through fees and charges, leaving nothing else but nearly worthless paper.

3. So what should be done? Three options are available. Firstly, we could shore up, at public expense, the speculative functions of the financial industry. This is the policy of the Bush administration and most of the Democratic opposition. Obama has not rejected this approach. It cannot and will not work.

Secondly, we could broadly nationalize the financial sector, paying current market value for their assets and taking on the essential financial services as well as the "toxicity".

Or, thirdly, we could simply create the means - easily and quickly - to provide the essential financial serves required by most of us. In other words, we could devise the necessary "products" through government agencies to provide - without profit, marketing costs,high management salaries, etc. - housing, automobile, health, home owners insurance; student loans; mortgages; consumer loans; etc. This move would fulfill the unrealized promise of Fannie Mae, the Federal National Mortgage Association, established in 1938. While Fannie Mae only addressed one aspect of the financial crisis of the Great Depression, it pioneered the creation of government institutions that supplied essential financial services formerly provided by the private sector. Over time, virtually all the existing financial liabilities incurred in the private sector could be absorbed by refinancing into the public sector. Such a move would be both rational, efficient and cost saving. Imagine if the estimated $7.7 trillion (the total value of ALL mortgages in the US is estimated to be $10.6 trillion!) already gifted to the financials were put to this use, a figure that is both wasted assets and equally a liability on the citizens of the US who must pay for it.

4. What would happen to private financial services: banks, insurance companies, etc.? They would remain whole based upon fair market compensation for any of their assets surrendered to the public sector, but they would be left to their own devices to dispose of the "toxic" assets that they have created. This harsh measure would eliminate the moral hazard of unfettered financial speculation, discipline their practices, and lower their profit expectations to levels commensurate with their actual productive value. I predict that they would shrink to service financial niches much as private doctors do in some countries with national health care.

5. Would there be other advantages to this nationalization other than stepping over the toxicity of greed fostered by the private sector? Sure. The current banking system is antiquated, changing slowly to adjust to new technologies. To a great extent finance is moving quickly to electronic transactions, but less so below the level of high finance. On the consumer level, the industry is still dominated by a "brick and mortar" approach , but with declining service stretching customer tolerance. Automated telephone systems, hidden penalties, long service queues, massive paper work, deceptive contracts, etc. are common complaints about the financial system. In addition, the security concerns associated with financial transactions engage draconian tactics, zero tolerance and extreme penalties, all, in the final analysis, enforced by the government.

Furthermore, the era of printed money and coinage is coming to a close only hindered by the untold cash transactions that the banking industry conducts with criminals and tax-evaders. Super-profits give the private bankers no incentive to report or hinder these transactions in the illegal economy.

A publicly-owned and democratically run financial organization free of the profit motive would eliminate the wasteful duplication of brick and mortar facilities, moving most financial transactions to the internet or other electronic media. Where two or three drive-thru banks are in one city block or in one mall, facilities for those unable to access or use these technologies would be strategically placed for convenience rather than where the money flows most freely. Uniform credit and debit cards, procedures, terms, and universal acceptance would replace the chaos and uncertainty found today. Consumers would democratically determine service levels and service mechanisms, balancing cost-effectiveness with ease of usage. Enforcement of obligations would, as with a humane health-care system, stress prevention over punitive remedies. Moreover, enforcement of obligations would be elastic to adjust for circumstances and external conditions, unlike with the shameless foreclosures and repossessions exploding in the current crisis. Needless to say, government monitoring of criminal finances would be vastly improved: drug dealers don't use credit or debit cards.

6. But what about enterprise financing? Assuming - contrary to my vision - private enterprises still exist, they can be financed directly from the government. Quietly - a few months ago - the Federal Reserve opened loans directly to financial corporations without the intermediary of banks. There is nothing different - except for cost-savings and efficiencies - in making this a general practice of a publicly-owned, democratically run central bank. Loan decisions would include, contrary to today, matters other than profits: environmental impact, social consequences, long term effects, etc. Certainly if private investment banks can serve this function better and more efficiently, but under government scrutiny, they are welcome to try.

7. Does this nationalized financial sector include insurance? Nothing in the private financial sector is as utterly parasitic as the insurance industry. A monkey could take the government funded and researched demographic data and contrive actuarial tables to balance set-asides with projected expenses. The trick, for the private sector, is to shave enough away from realized expenses to accrue a profit from accumulated charges. They have been very successful at the expense of equitable and efficient use of the resources they accumulate. They do this in many ways, including "over-insuring", denying insurance to the unlucky, denying benefits, offering misleading terms and coverage, inflating liabilities, and buying out the regulators. And in recent years, they have taken their reserves - set aside to cover beneficiaries - and gambled them in the insane speculative carnival that is now bringing down the entire financial sector. The insurance industry is the ultimate huckster.

It would take less than a week to establish a government agency to perform the functions of the insurance industry, an agency that would be more efficient, responsive, humane, and cost-effective than what we have now. I might add that without private insurance, the single-payer health care solution would not only be more likely, but essential.

8. In its simplicity, cost-effectiveness, and social responsibility, this nationalization option would best serve the needs of 90% of the people in the US. Perhaps, the other 10% would be less pleased. They could explore other options. But the poison of unbridled speculation would be expunged from the productive economy.

I offer this sketch of financial nationalization, not as a blue print, but as viable and attractive alternative. Such an option would not come about from the will of a treasury secretary or "progressive" president, but from an intense, determined class struggle. The forces arrayed against such a plan are formidable, but there is no better time to press for it.

Getting Beyond Euphoria

Of all the many post-election, euphoric self-congratulations over the Obama victory few can match in fulsomeness the long-winded, pompous posting of Carl Davidson on Portside. In "The Bumpy Road Ahead: New Tasks of the Left Following Obama's Victory (long)", Davidson indulges 19 Word-document pages of hyperbole and pontification to affirm much of the left's unqualified support for Obama and the elevated expectations from the electoral victory. In many ways this is a welcome document because it serves as an unabashed example of the strange, deluded route that so many chose to follow. A taste of Davidson's exaggeration should be quite enough to illustrate. Davidson writes:

"...hundreds of millions-Black, Latino, Asian, Native-American and white, men and women, young and old, literally danced in the streets and wept with joy,celebrating an achievement of a dramatic milestone in a 400-year struggle, and anticipating a new period of hope and possibility."

Hundreds of millions? Literally? A dramatic milestone? Of course there were not hundreds of millions even voting, nearly half of which voted against Obama! And "dramatic milestones" should be reserved for truly world shaking events like the Civil War, The Great Depression, and possibly the economic catastrophe now looming. This dramatic overstatement is precisely the kind of puffery that contributes to isolating the left from working people.

Davidson's foray into the politics of class alignment would be amusing if it weren't meant so seriously. Davidson lists the following as one Obama's strategic accomplishments :"...he realigned a powerful sector of the ruling class into an anti-NeoCon, anti -ultra right bloc.” This is sheer nonsense. The ruling class, with a few exceptions, turned against Bush before the 2006 elections, not out of hostility to the ultra-right ideology, but because his policies were failing and proved to be a hindrance to the advancement of capitalism. There is no fundamental change in ruling class thinking, only a shift to more reliable partners. To think otherwise is a flight of unfettered imagination.

He goes on:
"The Obama team at the top is comprised of global capital's representatives in the U.S. as well as U.S. multinational capitalists, and these two overlap but are not the same. It is a faction of imperialism, and there is no need for us to prettify it, deny it or cover it up in any way. The important thing to see is that it is neither neoliberalism nor the old corporate liberalism. Obama is carving out a new niche for himself, a work in progress still within the bounds of capitalism, but a 'high road' industrial policy capitalism that is less state-centric and more market- based in its approach, more Green, more high tech, more third wave and participatory, less politics-as- consumerism and more 'public citizen' and education focused. In short, it's capitalism for a multipolar world and the twenty-first century".

Davidson draws distinctions that don't exist and makes projections that are unfounded. The folks around Obama (the cabinet has yet to take shape) are Clinton retreads or worse. Vague notions like "'high road' industrial policy" and "third wave" are unhelpful in understanding a candidate like Obama who campaigned on broad, equally vague pronouncements and the virtues of bi-partisanship. Apparently, Davidson listened little to what Obama said.

The retail politics of the campaign are hard to reconcile with Davidson's claim that Obama has departed from "politics-as-consumerism". The clear fund-raising winner in the billion dollar presidential derby raised more money from most sectors of the ruling class than any candidate in the primaries or the general election. Through the ruse of so-called "joint fund-raising committees", Obama received contributions of over $25,000 from 2,205 individuals. Does Davidson really believe that they will have no more impact on the administration than an individual giving $200?

Perhaps Obama will carve a new niche, perhaps he won't. But history does show that bourgeois politicians never stray too far from the capitalist ranch unless there is intense popular pressure. There would be no revolutionary break with England without an uprising in the colonies; there would be no emancipation of slaves without an abolitionist movement; there would be no Social Security, unemployment insurance, or industrial unionism without mass action; there would not be integration without a civil rights movement; and so on. In no case was an electoral victory sufficient to guarantee these outcomes. And in no case were the movements that drove these victories dependent upon or limited by electoral outcomes.

So "...the important thing to see is that it [the Obama team's ideology] is neither neo-liberalism nor the old corporate liberalism." Given that the Obama's team is shaping up as old-guard Clintonites, this is a wildly misleading statement indeed. What are Obama's associates? Socialists? Closet New Dealers? Born-again progressives? One sees the transformation of hope into faith in such blatant, naive wishfulness.

To help us understand the new world opened with the Obama victory Davidson garnishes the victory with a flourish of pop-Gramsci:
"The Obama alliance is an emerging, historic counter-hegemonic bloc, still contending both with its pre-election adversaries and within itself. It has taken the White House and strengthened its majority in Congress, but the fight is not over. To define the victorious coalition simply by the class forces at the at the top is the error of reductionism that fails to shine a light on the path ahead".

O ne is surely struck dumb by a bloc that contends with its former adversaries by putting Hilary Clinton in charge of foreign affairs - a most unusual way of "contending". But Davidson is right; the fight is not over; in fact, it hasn't really began. To evade the glaring affirmative action for the ruling class among Obama's close collaborators, Davidson evokes the tired, cheap, and, by now, vacuous charge of "reductionism". Like a cross waved before a follower of the devil, the mere appearance of the word is supposed to drive the Marxist left back into the shadows.

Davidson distinguishes the layers of the Obama victory: At the top - as he likes to say - is a superstructure of solidly established, old guard politico's who have yet to propose one idea that departs too far from the limited toolbox of neo-classical economics and imperial foreign policy. Yes, there is talk of green initiatives, a friendlier relationship with labor, support for social liberalism, and a vague, dangerously tame reform of health care. But this group has shown no new thinking on the catastrophic economic crisis. Moreover, their timidly progressive pronouncements differ little from the false hope promised by the Clinton and Carter Democratic administrations that precede this one. This is hardly the promise of a "historic milestone" as foreseen by Davidson. Below this elite center of power is an electorate overcoming racism, demonstrating a decisive rejection of the Bush administration, and starved for real change. Yet Davidson never - even remotely - bridges the chasm between their aspirations and the actual promises of the new administration. Change will come from the efforts of those organized oppositionally to force new initiatives and not from those relying on the good will of ruling elites. To ignore this historical truth is to risk the disillusionment and alienation of all of those who have advocated change with their vote.

Davidson huffs and puffs in a scolding and self-congratulatory diatribe against those he characterizes as the "ultra-left" because they failed to share his total submission to the Obama road show. He singles out three organizations who "mostly got it", though he concedes that they are "rather small and not growing in any major way". Of course they're small and not growing! They have surrendered their independence and they have been completely absorbed by the Democratic Party campaign to take a turn at bourgeois democratic rule. The dogmatic proposition that the left cannot welcome the rejection of the Republican agenda without subjugating itself to the agenda of the Democratic Party is unacceptable to anyone committed to moving beyond the tyranny of the two-party system. It may come as a surprise to Davidson that many members of the three organizations mentioned were able to work for the Obama victory without vassalage to the Presidential candidate (full disclosure: I voted for Ralph Nader).

Now that the election is over there is no excuse for not working to build a socialist left - an oppositional force - that will go beyond a three decade long defensive struggle against a persistent and relentless rightward shift in bourgeois politics. Maybe the Obama victory signals a halt to that drift; maybe it doesn't. But the urgency of the moment - a profound economic crisis - affords a rare opportunity to advance an anti-monopoly agenda beyond anything that Democrats would or could support. For many of us this may well be the opportunity of a lifetime to make an anti-monopoly, if not a socialist, option a real factor in US politics. There is time to celebrate the repudiation of Bush and the setback to racism, but not too much time. We must not yield to those who urge the unearned confidence in a political party with a history of betraying that confidence.

Davidson's article is available at:
http://f1.grp.yahoofs.com/v1/wB4jSQWqMVluFwOwQg1tyTcEk6MIPIEMD8bZ2Z3aughKak_bW77kxxzQFTxGQ9FeiQ8KxkCSnGavGMOBTkId9FSkd69Vg5Zgpqnq4mQ/The%20Bumpy%20Road%20Ahead.pdf

zoltanzigedy@gmail.com

The Presidential Election: A victory for the People?

The 2008 US Presidential election is behind us. A fair estimation of the results might be as follows: A clear, significant statement of the US electorate; a hollow, likely disappointing result for the people. After the euphoria of the Obama victory, it is vital that we separate these two assessments and avoid the cynicism of leftist isolationism and the self-deception of hopeful idealism. What the voters wanted was unquestionably significant change. What they were promised was change. Whether change will come from the Obama administration is - at best - questionable.

The Meaning of the Vote

The vote was most importantly a repudiation of racism and the Bush administration. White voters in working class areas cast aside crude racist appeals, put aside the three-headed Trojan horse of abortion, gays, and guns, and voted economic self-interest. They knew that McCain would do nothing for them and they wanted to believe that Obama would. A kind of reverse Bradley effect - unnoticed by the media - was operating. Many were afraid to openly support an African-American, but were comfortable doing so in the privacy of the voting booth, canceling out any lost votes from the opposite tendency. Thus, the polls proved to be an accurate, if not underestimated, gauge of the election results.

The significance of this cannot be overstated. The level of overt racism - the open, vulgar racism fostered by talk radio, shock jocks, internet slime - should diminish with the expression that most citizens are comfortable with an African-American President. Of course it won't disappear.

Also, the vote opens the door to a more unified working class. Make no mistake about it, union leaders who were lukewarm, often absent fighters for equality were forced by the circumstances of the campaign to take strong, out-front statements against racism. This is a good thing, and, though their efforts were sometimes clumsy, commendable.

Of course much work lies ahead in the struggle against racism; voting for Obama is not a free pass for racial insensitivity.

The three strongest constituencies for Obama (giving Obama the largest portion of their group vote) were African-Americans, Latinos, and union labor. African-Americans understandable took pride in the candidacy of Obama with predictable results. Latinos voters represented 8% of the total vote, siding decidedly for Obama. Both the growth of their total vote and their stronger support for this Democratic candidate mark a greater importance in electoral politics and a powerful progressive tendency. These results were duplicated in Florida, where the intimidating gusano influence continues to wane.

The election confirms the demographic expansion of the minority population and their increasing importance for anti-monopoly political organizing. The shift in the Latino vote makes the excuse for appeasing the anti-Communist Cubans in foreign policy even more lame.

The union labor vote - which overlaps substantially with the minority vote - was strong for Obama: 67% supported him, according to the AFL-CIO. Most importantly, the union electoral drive proved effective in blunting and overcoming racism and the always present distractions of abortion, gun control, and gay marriage. Like the Prohibition issue in the election leading to the New Deal victories, these issues are used to deflect attention from more fundamental issues. The union electoral effort shows the potential for influencing policy well beyond the electoral arena and much more frequently than the electoral cycles. Labor activism is an untapped source, lacking only ideological clarity and militant leadership - a task for the left in the coming period.

The Catholic vote went for Obama despite the efforts of many right-wing bishops to to swing the vote towards anti-abortion candidates. Protestant Obama fared better than Catholic Kerry in 2004 - another measure of self-interest trumping self-identity.

In general, the vote results show an electorate ripe for new policies, new answers and moving in a clear progressive direction. The trends exposed by the Pew Research Center's two decade long polling study ("Trends in Political Values and Core Attitudes") towards social democratic policies and away from insularity and obscurantism is born out by the 2008 election.

The Meaning of the Obama Victory

There is a glaring contradiction between the wants and needs of the people of the US and the issues debated and embraced by the Presidential candidates - it is as if they existed in two different worlds. The institutionalization of the two-party system both allows and insures this fact. It is no criticism of Obama or his hope-filled partisans of change who worked with such great enthusiasm to point this out. But, by the same token, it is delusional to forecast a progressive turn in the Obama administration from this great effort. If Nader, if Cynthia McKinney, if even Bob Barr were allowed to debate the candidates before a television audience, there might well have been progressive issues on the legislative table. If... if... if... But the institutionalized two-party system does not allow for such opportunities. And it will continue to block any move leftward without a dramatic mass movement forcing it.

The political influence of the right-wing Democratic Leadership Council surrounds Obama with the appointment of Rahm Emmanuel as chief-of-staff only underlining this reality. With Emmanuel as the gate keeper, the notion that progressives at least have access to the White House is even more remote. Despite the fact that the DLC is completely out of touch with the needs of the majority of the citizenry, they exercise inordinate influence within the Democratic Party. It must be remembered that they have a strong base in the South as well as the suburban bed-room communities in the North. These suburban communities proved to be the power base for sweeping away the progressive platform of the Democratic Party after the 1976 election victory.

Again, in 2008, suburban voters left the Republicans and sided with the Democrats. Despite their fickle loyalty to the Democratic Party (they respond mainly to the Party's social liberalism agenda of gun control, abortion rights, gay marriage, and other personal freedom-based issues), they are the main justification for the constant urging by the Party's pundits to tack towards the center and center-right). Their "activism" is what the Democratic Party best understands - money and power. And they stand as rivals for policy influence with African-Americans, Latinos, and labor.

On the economic front, Obama's advisors are hardly inspiring; indeed, they are a bit scary - Paul Volker, Lawrence Summers, Robert Rubin. Austin Goolsbee, Jason Furman, Timothy Geithner, and Warren Buffet have all the wrong corporate and academic credentials. None have stepped too far from the warm, comforting waters of neo-liberal orthodoxy. And in a world of real oppositional politics all would have been ferreted out for previous personal or policy sins. For the hope-crazed progressives, there should be some puzzlement at the absence of Krugmans, Stiglitzs, and Reichs from this group (actually Reich is part of the transition team - a rose among so many thorns).

At this early date, the names floated for key cabinet positions are largely political retreads of previous administrations and old legislative warhorses. Very few wear any progressive medals for deviation from the center, center-right agenda.

Regrettably, the electoral victory was no victory at all for the left. That is just to say that the Obama victory brought no assured policy reward for left support. At best, the Obama administration would be more accomodating to, less intransigent against any advances forced upon it by mass action. That is something, but hardly a justification for most of the left's unconditional support of the Obama campaign. The occupation in Iraq is no closer to conclusion; universal single-payer health care is no closer to being achieved; there is no plan to end the Afghan war; the Cuban embargo remains policy; Palestinians remain political untouchables; and so on and so on... And every indication is that the Obama administration will continue down the path of advancing imperial interests and privileging corporate America.

Looming over this election is the global economic catastrophe - a giant gorilla towering over all other issues. Many see a repeat of the Great Depression - a sense not completely farfetched. And many hopefully see Obama as the new Roosevelt launching a new New Deal - a sense built upon the sand of "Yes we can". In truth, Roosevelt was not the great savior of capitalism or the people, a myth that lingers in liberal theology. But the facts give no portent that Obama is Roosevelt, either. It's time for the left to put the aside comforting illusions and rebuild an independent, oppositional front that is not dependent upon the good will of the corrupted Democratic Party. We desperately need that left to forge a true people-saving agenda from the destructive gorilla.

Oh Glorious Day!!!

I woke up this morning with socialism in the air. Everywhere I turn someone is speaking or writing of socialism.

When I turn to the right, the wacko-right is speaking in a hysterical, ominous voice of Obama's socialism. "Spread the wealth", he says, and Fox news and the talk radio hosts hear "socialism".

Add it up: Obama actually had social intercourse with a self-avowed radical - one of those ultra-revolutionary rich kids who embraced armed struggle in the sixties, only to be re-admitted into polite circles with his redemption. Of course, political discourse with terrorists like Ollie North or the gusano Posada is never elevated to a serious media issue. Furthermore, Obama - in an off-the-cuff comment not vetted by his corporate consultants - actually spoke of spreading the wealth! He must be a socialist.

Actually, I welcome the right's new strategy of red-baiting (pink-baiting?). Common sense says that where there is no red-baiting, there is no fear of the left. Years ago, when a friend commented that since the demise of the Soviet Union red-baiting had subsided, I suggested that that only meant that there was no perception of a threat from the left. So maybe the new scare tactic signals a new born threat of the old specter - socialism. Maybe they're looking over their shoulder nervously!

And when I turn to the left, progressives and the soft left are finding socialism sprouting in every garden. David Sirota, who assures us that he would surely know socialism since he worked for Bernie Sanders, finds the germ of socialism in the aftermath of the elections ("The Potential Progressive Mandate"). Robert Borosage acclaims that "socialism is winning" ("A New Progressive Era"). And The Nation, in a euphoric editorial, finds the buds of socialism springing from the bailout program (see my "The Bailout Scam" below). Breathlessly, The Nation editorial declares: "And yet here we are in 2008, with the old Wall Street hand Hank Paulson, of all people, suddenly seeming to embrace the idea [of nationalization]".

Forgive me for being skeptical, but I don't think socialism will emerge from the efforts of Paul Volker, Robert Rubin, and Lawrence Summers (Obama's principal economic advisers) and surely not from the actions of Ben Bernanke and Henry Paulson.

Nonetheless, socialism should be in the air. Not the moralisms that the demented-right shrilly attacks, not the false alarms of the hope intoxicated Obama-maniacs, but real socialism.

How do we know real socialism?

First, it will not be delivered as a gift by the ruling class. Epic conversions should be left to religious zealots and not the real world of political change. History speaks to the determination of capitalists to cling to their system to the death of the last worker.

Second, socialism will not come without class struggle. While class consciousness is rapidly emerging with the deepening of the world economic crisis, capitalism will not simply surrender in the face of public outrage. The defiant behavior of the financial elites who have drawn deeply from the public trough as a result of the bailout program demonstrates this dramatically (again, see "The Bailout Scam" below). One need only look at the polls to see the contempt that the capitalist class and its minions have for the opinions of the majority.

Third, class struggle needs to be organized. Advanced workers must come forward to constitute a critical mass of dedicated advocates - what Lenin calls a "vanguard" - to spread the idea of socialism and organize for its attainment. Historically, this has been the role of a Communist or Workers Party, but sadly many of these organizations have succumbed to opportunistic parliamentarianism or embraced bourgeois parties as instruments of change. Thus, the job of revitalizing these parties becomes vital. Even the tireless Presidential candidate, Ralph Nader - no advocate of socialism, but one of the greatest living reformers - understands this point profoundly. William Greider, writing in The Nation quotes him: "I see a lot of anger around the country, but I don't see it organized...Anger that's unorganized has no power."

Many on the left reject the idea of a vanguard party, believing falsely that class struggle will somehow organize spontaneously and find a way to socialism. But history shows this to be morally commendable, but practically unfeasible. From the early Christian martyrs to the peasant revolts in Europe, from the the long history of anti-colonial resistance to the selfless, but futile sacrifices of anarchism, victory is only achieved through organization and leadership. There is simply no way for the vast majority of working people to successfully battle a resourceful and powerful capitalist class without an organization of revolutionary change.

Fourth, socialism must spring from an understanding and a vision of how the world would get on without capitalism. In short, working people must be presented with a new ideology - an ideology free of the corrosive elements of capitalism and promising a better life.

That ideology must reflect the conditions necessary for the realization of socialism. Again, history shows that socialism cannot be attained until the decisive organs of power are in the hands of working people. From the Paris Commune to the Salvador Allende government, from reconstruction in the defeated US South to the attempted coup in Venezuela, this lesson has been brutally demonstrated. Radical change requires a fundamental redistribution or neutralizing of the coercive forces operating in society. Though distasteful to many, this truth separates the arm-chair socialist from socialist militants.

Marx has been criticized for failing to offer a socialist blueprint. But surely expecting one is most unrealistic. Socialism is not declared by fiat, but created democratically from the experiences, needs, and resources of working people at a particular time and place. To construct a blueprint would depart from the Marxist method. Ideology, like all social processes, evolves with new experiences and deeper understanding. Similarly, the shape of a new society will evolve in the cauldron of struggle.

Yet socialism is not merely people's power, but people's power guiding a material life without exploitation and, necessarily, without the engine of private profit. For Marx and other students of history's trajectory, common ownership of the sources of material life was both the truest, and most effective route to eliminating exploitation and the other miseries of the capitalist regime. By common ownership, Marx, and those who followed him, understood that the resources and means of creating wealth would be shared by all, developed and administered by all, with all enjoying fairly the benefits of their shared efforts. Such a regime of social justice is clearly impossible with capitalism.

Vague notions of "shared wealth" are not compatible with this vision. Tax policies may "reform" capitalism, welfare programs may "humanize" capitalism, and charitable activities may take the sharp edge from capitalism's injustices, but they will not replace capitalism nor will they reverse the inequalities that capitalism invariably produces.

By the same token, government stock ownership schemes in private companies, public-private partnerships, "injections" of public wealth, and other forms of government interventions that are meant to revive an ailing capitalism are not socialism. And public assumption of the waste products of capitalist excess - whether its called "nationalization" - is far, far away from socialism.

In the end, there can be no socialism ushered in enthusiastically by the capitalist ruling class - only by the conscious, organized efforts of a determined working class..

But I may wake up some morning with socialism really in the air.

The Bailout Scam

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.

Fundamentals of Capitalist Crisis

Marxism offers a unique and challenging explanation of the development of capitalism. While academic economists have acknowledged the business cycle - periodic rises and falls in economic activity, most believe that policy has tamed the worst of these fluctuations. Marxists, on the other hand, believe that capitalism fundamentally begets crises of all kind: political, social and economic.

By fundamentally, we mean, regardless of policy actions, crises will arise again and again because of inconsistencies - what Marxists call "contradictions" - in the very nature of the capitalist system.

What elevates Marxist economic theory beyond a mere opinion or semi-religious dogma is the testability - the availability or absence of real world evidence - for the claims of the theory.

With the global economy spiraling into a seemingly bottomless pit, with policy makers searching frantically for answers to the decline, and with the vast majority of the world's population facing insecurity and deprivation, the evidence is mounting that not only is capitalism failing, but the comforting theories that justify capitalism have failed. The dominant academic economic theories and the popular assumptions spouted by the media appear now to be mere apologies for a system unable to serve the interests of working people.

Conversely, the persisting realities of economic decline serve as evidence that Marxist economic theory, with its prediction of inevitable systemic crisis, better captures the trajectory of global capitalism.

Since there is an understandable growing interest in alternatives to the reigning economic orthodoxy, there are many versions of Marx's theory of crisis circulating, some from pretenders, others from those simply confused.

The global capitalist economy is very complex with numerous divisions and multiple layers. To dissect this body in a theoretically revealing way, Marxists employ three interrelated concepts that are both unique to and essential for an analysis of capitalism. They are:

1. Class Marxists see a great division in capitalist society between those who create the wealth of society and those who expropriate a surplus of that wealth -profit - without themselves creating it. In a capitalist society, private ownership is the precondition and exploitation the mechanism for expropriating wealth from the producers.

2. Profits At the heart of capitalism system - the purpose that sustains it - is the private accumulation of greater surplus, both absolutely and relatively. The surplus is acquired through private ownership and remains private in the hands of one class.

3. Exploitation The process of expropriating a surplus - profit - by the capitalist class from the productive class is the basic motor of capitalism.

Though there are other important concepts in Marxist economic theory, these three notion serve as a cornerstone for understanding capitalist crisis. Generally, when self-proclaimed Marxists get off track, they fail to take all three fundamental notions into consideration. For example, a theory of crisis that stresses that production often outstrips the ability of economic consumers to acquire commodities (overproduction) may very well express an important insight: an increase in exploitation and class inequalities may often precede or coincide with capitalist crisis. As inequalities grow, the purchasing power of those outside of the capitalist class diminishes as well, restraining the potential growth of production.

But this insight overlooks two important points:

1. Economic periods of overproduction in and of themselves will not generate crisis, except if these periods also disrupt the growth of profits. It is not instability, human suffering, dislocations, cyclical changes, etc. that force the system into crisis; it is a marked decline in profits that disable the capitalist system.

2. Overproduction, like dislocations, imbalances, underinvestment, and the many other factors that may interrupt the smooth operation of capitalism are subject to policy correction. The tendency for the capitalist system to fail to generate profits is not.

The popularity of Keynes' economic theory after the Great Depression probably accounts for the widespread adoption of the crisis theory of overproduction by Marxists. Keynes is widely and correctly touted for demonstrating that a capitalist system will not automatically achieve a balance between productive output and that output's successful exchange in the marketplace. While this conclusion came as a blow to conventional economics, it actually implied that a full understanding of market failure would generate policy remedies that would, in fact, restore balance or equilibrium to markets. In other words, the Keynesian diagnosis gave rise to policy prescriptions that should, theoretically, heal an ailing capitalism. Even more to the point, proper understanding of the treatments should effectively blunt the onset of any future crises.

Neo-Keynesians - friendly to the Marxist critique of stable capitalism - like Joan Robinson, helped to popularize a thoroughly Keynesian version of crisis theory among Marxist economists.

Theories of overproduction, imbalance, underinvestment, dislocations, etc address the anarchy of markets, a reality not to be denied. Certainly economic exchange organized within markets will always generate disruption, but if Keynes is right, the policy tools for correction are available or, in theory, can be constructed. For a Marxist to base capitalist crisis solely on market aberration is to rest on the faith that capitalist policy makers will stumble or err and not upon sound theory.

One of the great myths spread widely is that the neo-liberal turn inaugurated with the Thatcher-Reagan revolution booted out Keynesian economics. Conservatives promote this view because they are out to decimate New Deal programs which are mistakenly viewed as coextensive with Keynesian policy. But the idea that conscious policy decisions can modify effective demand is alive and well, especially in the area of military spending and its related areas. The huge military budget and its attendant costs - the cost of empire - account for roughly half of the US federal budget and function as the chief policy instrument for fiscal stimulation. Military Keynesianism is Keynesianism to the bone.

In addition, capitalism constantly creates and modifies stimulative tools to boost effective demand for productive outputs. The expansion and evolution of credit, for example, serves as a source of purchasing power for consumers. Time payments, layaway programs, mortgages, credit cards, loan consolidations, second mortgages, unconventional mortgages, etc are all instruments that expand buying power beyond current incomes. As stimulative agents, they replace direct assistance, jobs programs, and other entitlements. The advantage to capitalism is obvious: they generate profit - albeit deferred profit - where social programs may well not. Thus, neo-liberalism replaced the stimulative function of welfare economics with an advanced, expanded mechanism of credit.

But in Part III, chapter 13, of volume III of Capital, Marx sketched a theory of crisis, not based upon market anomalies, but upon the tendency for the capitalist system to fall in profitability. While only a brief and undeveloped argument, Marx placed great stress on the important insight that the capitalist system was inherently prone to pressing economic growth - in pursuit of profits - to the point where competition and an increase in labor productivity would actually inhibit profit. The argument was strictly a logical argument and turned upon a highly schematic model of capitalism and assumed the labor theory of value. Over the years, Marx's theory was widely criticized and came in for considerable scorn. Nonetheless, the notion that capitalism's ability to generate profit stood at the core of Marx's crisis theory. Marx, I believe, understood that it was the direction of profitability, in all cases, that determined the relative health of a system based upon social production for private gain.

The argument in volume III of Capital was never meant to be descriptive of capitalism in his time or any other, but an exposure of how the basic mechanism of capitalism could hang itself by its own rope. Marx left it to others to elaborate this process with regard to a constantly evolving capitalism. As Marx said in a correspondence with Engels in 1868: "the tendency of the rate of profit to fall as society progresses [is] the great pons asini of political economy to date." (quoted in Maurice Dobb's Political Economy and Capitalism, p. 81)

With the advent of state-monopoly capitalism - the current era of capitalism - the expropriation of society's surplus takes more complex, more varied forms. The exploitation of productive labor remains the ultimate source of society's wealth, but the methods of directing and distributing the surplus have become infinitely more diverse. Monopoly capitalist enterprises rely more and more on predatory methods: marketing campaigns, mergers, acquisitions, shaping perceived needs, etc. to acquire a larger share of the surplus as well as the cooperation of a state that serves their and, to every extent possible, only their interests.

Nonetheless, the drive for profits remains the cornerstone of capitalist development and the source of crises. The roots of the current crisis follow on the heels of a long period of economic stagnation in the 1970's and early eighties that saw profitability and incomes lagging while inflation raged. The deindustrialization and rising rate of labor exploitation of the eighties in the US produced a growth in profits, but the fall of the Soviet Union and the socialist community gave capitalism and its profit potential the greatest boost. The incorporation of new markets and the destruction of alternative trade relations paved the way for the process popularly called "globalization", a process of simply absorbing the ex-socialist community and those developing world economies that formerly had other options available. With both an advanced mobility of productive enterprises and huge pools of cheap labor, production and trade expanded rapidly. A new division of labor developed with productive and service activities located in areas of low labor costs and financial activities located in the advanced capitalist countries, especially the US. Of course, this expansion and division of labor produced a sharp rise in the rate of labor exploitation and a consequent leap in the rate of profit.

The technological advances associated with computers and sophisticated programs promised to further increase labor productivity at the end of the twentieth century. The possibilities of both radically restructuring the means of production and exploiting an enormous consumer market drew billions and billions of investment monies to this high-tech sector. Of course, the goal of these investments was greater profits. But the investments far out-stripped the real potential for profit causing a severe downturn, primarily in the hi-tech sector, and the loss of trillions of dollars of capital.

Policy makers sought to isolate the damage from other sectors with monetary policies, lowering borrowing rates to unprecedented levels, and creating an environment of easy credit. This action encouraged riskier actions in order to boost the rate of profit. At the same time, a weak labor movement and a brutal campaign of restructuring and concessionary labor agreements combined to further raise the rate of exploitation and shore up profits. As a result, the capitalist world, principally the financial sector, found itself awash in capital, but with fewer and fewer customary investment opportunities for high return, as the Wall Street Journal noted in 2003.

To hold capital without any place to invest it profitably is a neither a desirable nor stable position for the capitalist. In a real sense, it is comparable to Marx's schematic presentation of the tendency for the rate of profit to fall, where investment in new machinery to raise productivity has the unwanted effect of lowering the profit rate. Idle capital plays the same role insofar as its not used to generate profits.

The enormous concentration of wealth in the US financial sector created and extended new, obscure, and risky investment instruments to utilize this capital. As Maurice Dobb wrote in 1945, "New methods of extending the field of exploitation - extending it to new and untapped strata beyond its former frontiers - [has] to be pioneered" as "compensation for a falling rate of profit which seems to constitute the primary difference between the crises of the earlier and later stages of capitalist economy." In our time, the pioneering spirit of capitalism pushed even further.

Though the numbers are only speculative, some estimate that the financial sector created securities and other opaque financial instruments totaling $60-70 trillion in order to draw investment towards a promised profitability.

Often the current crisis is referred to as "the mortgage crisis" or "sub-prime crisis", but clearly mortgages were merely the opportune vehicles for constructing an enormous edifice of speculation. The persistent rise in housing values and easy, stable credit made mortgage speculation attractive, but other areas would have been found if necessary.

As a counter to the tendency of profits to decline, the financial gambit proved to be a bust. The failure at the base with failed mortgages shook the entire edifice, amplifying what would otherwise be manageable losses to waves of financial destruction.

From a policy perspective, there are two concerns - the same concerns that occupied policy makers in the Great Depression: Do we rescue profitability? Or do we rescue the billions of victims of capitalist profit-seeking?

To date, US and other policy makers have reduced this to one question: How do we rescue capitalism? It is unimaginable within the board rooms and legislative chambers to separate the interests of the masses from the forward march of capitalism.

In the Great Depression, human misery and militancy forced action benefiting the victims upon both Hoover and Roosevelt. At the same time, capitalist failure opened minds to alternatives for hundreds of thousands of capitalism's victims - alternatives that included socialism.

Despite all the nonsense about "socializing assets", "nationalization", "partial government ownership" that circulate around ruling class attempts to restore profitability in the current crisis, policies have advanced no further than the furtive efforts of the Hoover administration. In fact, Hoover's Emergency Relief and Construction Act, adopted on July 21, 1932, addressed the issue of mass suffering far more than anything on the table today. ERCA provided for relief as well as public projects to generate employment.

Capitalism will stabilize when the rate of profit is restored. The fate of the millions harmed by the crisis will be dealt with when we make our rulers understand that people come before profits.

Joe, the Plumber: Class Traitor

A man that is a credit to "Our Red White and Blue."
His head is made of lumber, and solid as a rock;
He is a common worker and his name is Mr. Block.
And Block he thinks he may
Be President some day.

Joe Hill, songwriter for the working class, wrote the above lyric in 1913. A different blockhead, Joe - actually, a Sam - has become the darling of the media. Joe had the audacity to walk up to Presidential candidate Barack Obama recently and challenge his tax policies. It seems that Obama wants to increase taxes on all those making more than $250,000 a year while reducing those below that threshold, a commendable proposal, indeed. Now most workers would see Obama's proposal as a positive move, but not our Joe, the plumber. Joe's unhappy because he wants to buy his boss's business which he judges to be worth $250,000.

And so the love fest with the media began. Joe became the voice of the working class to our incorruptible, unbiased journalists. His every word was closely examined for signals of the mood of those alien to the elites - workers. Joe proved to be such an "everyman" - a Long John Willoughby in Capra's movie, Meet John Doe - that his deep thoughts dominated the final debate between the major party candidates.

A bit of research by the Cleveland Blade - not the prestigious New York Times, The Wall Street Journal, the networks, or the cable shouters - turns up some interesting facts about the Ohio native: Ole' Joe is not really a plumber - he had no license; he wasn't a registered plumber - but a plumber's helper. Well, actually, his boss also wasn't registered, so I guess he wasn't a plumber's helper, either. With Joe making about %40,000 a year, it will be a long time before he buys the bosses business especially since he'll have a hard time getting a loan with a lien against him for failure to pay property taxes. It seems Joe's against property taxes, too.

So Joe is a windbag - filled with strong opinions and cocksure of his destined success. We all know people like him; there's always a few in every working class neighborhood.

Joe brings to mind the poll results from a few years ago. I can't remember the source, but the poll asked respondents if the thought they were, or would be, in the top 1% of incomes. Approximately 20% said they were and another 20% said they would be! Joe, like Joe Hill's Mr. Block, undoubtedly fits into one of these two groups.

Now some will say that I'm too hard on Joe; after all, "class traitor" is a pretty strong charge. Certainly Joe is not alone with his twisted ideas, ideas reinforced by elite word mongers on talk on talk radio, Fox News, and the rest of the lapdog media who make much more money than Joe will ever imagine. I suffered through a Fox interview with Joe, thinking "Joe, how can you let this rich rich white guy in a business suit make such a fool of you?" The interview makes an obscene amount of money for journalistic buffoonery; he stands to pay more with the Obama tax plan; and Joe lets the creep use him to attack working class interests. Yes, Joe's a class traitor.

But it is satisfying to watch the politicians and media courtesans squirm when they encounter working class people - I'll give that blockhead Joe that much. They act as though they are in the presence of a newly discovered species - not unlike their unease around African-Americans.