The Creation of Financial Crisis

Few if any politicians, Wall Street moguls, economists, or writers have been straightforward with America about the economic down cycle and the latest $700 Billion corporate bailout proposal (HR 3997). It's hard to know what to believe, but these people have a track record of deceiving the working class. The tab so far has been $30B for Bear Stearns, $ 9B for Indy Mac, $300B for Fannie Mae/Freddie Mac, and $85B for AIG.

Thomas Wolfe describes the lives of the "Masters of the Universe," hedge fund managers who took the money and ran as the house of cards they created, the false economy, collapsed.

There have been a few who talked of the dangers of unfettered markets: liberal economists Nouriel Roubini, Robert Shiller, and John R. Talbott* and historian Stephen Mihm, on the academic side. But the information was drowned out by louder imprudent voices.

This last among many so-called "crises" took decades to be created (see 3-14-08 post on Upper Class Welfare). Unfortunately, radical economists, who could probably provide the most thorough historical analysis, have been marginalized.

Citigroup purchased Wachovia Bank assets today, leaving an unknown amount of losses for the public. It is only another step in a series which privatizes profits, socializes losses, and undermines the working class. [Update 10-3-08: Wells Fargo bought Wachovia Bank after a federal deal was scrapped. Ailing Citigroup is considering filing a lawsuit to stop the deal.]

*Talbott's 2003 book was titled "The Coming Crisis in the Housing Market."
http://www.usnews.com/usnews/biztech/articles/041206/6main.htm
http://www.alternet.org/story/95375/meet_the_economist_who_thinks_we%27re_doomed/

Working-Class Protest $700 Billion Wall Street Welfare Program. Biggest Bank Failure in US History.

Today, people took to the streets to protest a proposed $700 Billion dollar bailout of the mortgage banking industry.

Congress still has not signed off on the bailout, despite threats from Treasury Secretary Hank Paulsen and later from President Bush, that failure to give a blank check this week would lead to a long recession. Neither Paulsen nor Bush seem very concerned with more than a million working-class people facing foreclosures and bankruptcies in the next year. Neither appears to be interested in reforming the system that created the panic. The Republican plan, in fact, calls for a two-year moratorium on capital gains taxes which would disproportionately help the rich.

In other news, today's demise of Washington Mutual (WaMu) was the largest bank failure in US history. JP Morgan Chase has bought WaMu's assets at a fire sale price while it is assumed that the people will absorb the mortgage banking losses. Rumors of additional corporate failures in the banking, insurance, and auto industries have been circulating the Internet for months.

The Neoliberal Business Cycle: Privatizing Profits and Socializing Losses

Fears of more business failures, mergers, and bailouts permeate the Internet today. Law professor Michael Greenberger presents one of the most cogent analyses of the current economic situation on NPR.

http://www.npr.org/templates/story/story.php?storyId=94686428

The Neoliberal Economic Empire

Today Lehman Brothers filed for the largest bankruptcy in US history. The investment firm had a 158-year existence, starting as a profiteer of US slavery (the Southern cotton trade). Lehman was heavily invested in Credit Default Swaps (see 4-1-08 post).

Bank of America, which earlier this year bought failing Countrywide mortgage, also purchased Merrill Lynch. The demise of Lehman Brothers and Merrill Lynch means an additional 50,000 financial workers may lose their jobs. Other US investment banks are said to be unstable.

AIG, the US' largest insurance company is also in financial turmoil, with its stock value decreasing by 68%. AIG was also highly invested in credit default swaps. The insurance company may be looking for help from the Federal Reserve Bank. The Fed has reportedly asked two investment banks, JP Morgan Chase and Goldman Sachs, to lend AIG $70 billion. [Update: Tonight the Federal Reserve bailed out AIG with an $85 Billion dollar loan while reportedly taking control of 80% of the company's assets.]

In lesser news for the neoliberals, more than 24,000 workers at Hewlitt Packard will lose their jobs after taking over EDS. The mass firing increased HP's value.

http://www.npr.org/templates/story/story.php?storyId=94617091
http://www.nytimes.com/2008/09/16/business/16aig.html?_r=1&hp&oref=slogin

The Employee Free Choice Act

http://www.americanrightsatwork.org/

The US Business Cycle: CEOs and "Short-Sellers" Get Millions as Businesses Fail

Fannie Mae and Freddie Mac CEOs Richard Mudd (L) and Richard Syron (R)


The US Treasury Department has taken over mortgage bundlers Fannie Mae and Freddie Mac. Though these corporations have been run into the ground by leadership incompetence and/or malfeasance, their CEOs leave with millions in compensation. China is also a winner, as these corporate bonds they hold are now secured. "Short-sellers," those betting for stocks to decline in value, have already profited from the failure, with working-class people again caught holding the bag. Marketwatch reports that more than $1 Trillion in credit default swaps will need to be settled. Forbes states that the taxpayer liability is unknown, but that it may reach $300 Billion.

http://www.answers.com/topic/short-position
http://latimesblogs.latimes.com/money_co/2008/09/today-is-a-huge.html
http://www.marketwatch.com/news/story/gse-bailout-triggers-over-1/story.aspx?guid={0BD9AF95-0034-4309-85FE-03A8B7B77B32}&dist=morenews_ts#comments
http://www.forbes.com/markets/2008/09/08/fannie-freddie-bailout-markets-equity_md_0908markets12.html

Democracy Should Be For Workers Too

Tens of millions of Americans would like to join a union. But the US government and big business have been in collusion for decades to undermine workers' interests. Corporations also often hire "union avoidance" firms to intimidate workers. With strong unions, and the right to vote union (the EFCA), workers have the ability to fight outsourcing, deskilling, and reductions in medical care.

Political Myth Making

Myths are not something of the past. They are embedded in our beliefs and visible in our culture, and without a critical education they are often taken for granted. One of the greatest myths in US culture has been that political conservatives favor small government. Except for a small but significant group of libertarians, this idea is patently false. Political conservatives may use the rhetoric of big government to disassemble social investments, but that does not stop them from desiring government largesse and social control.

As imperialists, conservative politicians have expanded government both in size and in social control. The US empire now has 730 bases in more than 50 nations. It also has some form of military presence in more than 140 countries. The US military budget exceeds $400 Billion per year and military costs, past and present, amount to more than half of all federal discretionary spending. More than 40% of all military spending occurs in the US (Russia and China spend about 6% apiece). The numbers are even more significant when one considers the number of corporations and workers who rely on government contracts and who have a vested interest in this empire.




Government surveillance, body searches and limitations on the right to assemble
are now a way of life in the US; many US citizens accept this intrusion as part of the post-911 environment. At the state level, conservative politicians push to fund prisons rather than public colleges. With more than 7 million people under criminal justice control at one time, the US is becoming a land of the guards and the guarded.

http://www.youtube.com/watch?v=4tI7MjK_IeE
http://www.democracynow.org/2008/9/3/amy_goodman_grills_st_paul_police
http://www.crocodyl.org/industries/war_disaster_profiteering

Constructing Greater Social Inequality

Ward Connerly, a highly-compensated spokesman for the so-called "Equal Rights" Agenda.


NPR reports that several elite colleges now cost $50,000 or more per year per student (200k for a four-year program). The yearly amount is more than the US median income for a family of four. Although these schools offer student aid, the report notes a shift from economic need to "merit." Unfortunately NPR didn't question the meaning of "merit," which is socially constructed by those with race and class privilege.

Is this merely news, or a sign of something much greater?

In 1996, California passed Proposition 209 which dismantled affirmative action in UC schools. As a result, scholarship programs for racial minorities were eliminated. Ten years later, Blacks comprised only 3% of the student body. In 2006, Latinos were 36.5% of the state high school graduates but made up only 16.3% of UC freshmen. Asian Americans however are overrepresented in UC schools, outnumbering Whites.

In 2003, California attempted to further dismantle affirmative action with Proposition 54. Ninety-five percent of the contributions to promote Proposition 54 came from seven individuals, all but one from outside the state:

John Moores, Sr., University of California Regents board member/owner San Diego Padres ($400,000)

Rupert Murdoch, head of the Fox News empire ($300,000)

Joseph Coors, Colorado beer baron ($250,000)

William J. Hume, head of the anti-labor Basic American Foods ($200,000)

Kansas City businessman John Uhlmann ($190,000)

Harlan Crow, Dallas financier ($140,000)

Peter Schaeffer, Texas-based investor ($62,703).


Big money from the Scaife Foundation and other neoconservative/neoliberal interests is also being used in 2008 to dismantle affirmative action in Arizona, Nebraska, and Colorado. While national elections are at the forefront, racist and classist initiatives like this can have dramatic effects for generations.

http://www.signonsandiego.com/uniontrib/20061127/news_1n27prop209.html
http://www.sajaforum.org/images/07asiangraphicpop.jpg
http://www.equaljusticesociety.org/research_bigmoney_connerly.html
http://www.pbs.org/now/shows/434/index.html
http://colorado.indymedia.org/node/460