Even More Welfare for the Rich

Capital One Finance, infamous for its predatory lending practices, is selling $3.55 Billion of its stock to the US Treasury as part of the bank bailout. While Capital One may use the money to buy other banks, its working-class debtors, however, are subject to survival of the fittest.

According to CNN Money:

"In a note to clients, Piper Jaffray analyst Robert Napoli said he believes Capital One may use the investment to acquire another depository institution."

"We view this positively for Capital One as this is cheap capital and suggests the government views Capital One as a survivor," Napoli wrote. "In the near term, we don't expect this to lead to an acceleration in lending, though it certainly positions the company very well from a capital perspective."

Capital One made $374 million in profits last quarter, below estimates.1


Senator Henry Waxman has stated concern that bank bailout money may be used for executive compensation and bonuses. A survey by eFinancialCareers reports that two-thirds of Wall Street professionals expect a bonus this year, and 36% are anticipating a larger bonus than in 2007.2

1. http://www.aol.in/news-story/capital-one-to-sell-$3-55b-in-stock-to-governmentdollar/2008102709150001548403

2. http://www.washingtonpost.com/wp-dyn/content/story/2008/10/29/ST2008102900989.html

Neoliberal Icon Feigns Ignorance of Capitalism

Former Fed Chairman Alan Greenspan was called into Congress today to explain what went wrong with the flagging economic system. Greenspan admitted that his deregulatory philosophy "did break down". He added that he had been "shocked" by the crisis and that "I still do not fully understand why it happened."1 The Former Fed Chief admitted that "additional regulatory changes" were required "to return to stability, particularly in the areas of fraud, settlement, and securitization."

A recent article Newsweek article by Michael Hirsh explains that Greenspan's inaction, his failing to write rules for subprime lending, had a major effect on this economic environment. Hirsh's article adds that the so-called regulators, the Office of Comptroller of Currency and the Office of Thrift Supervision were sponsored by the industry rather than the government.2 OTS customers have included IndyMac, Washington Mutual, Countrywide, and Merrill Lynch.

The US Labor Department reports that the U.S. economy has now lost jobs for nine consecutive months, with more losses expected in October. The Department reports that 760,000 people in the US have lost work this year.

In other news, The NY Times reports that as a consequence of this economic downturn, more people are reducing their medications.3 The US currently spends $2.26 trillion per year on medical care, the highest costs in the world, although health outcomes are worse than several other nations.


1. http://www.marketwatch.com/news/story/Regulators-say-they-made-fateful/story.aspx?guid={7299997D-15B2-4DF5-AA87-DDE94260DD8E}

2. http://www.newsweek.com/id/159346?tid=relatedcl

3. http://www.nytimes.com/2008/10/22/business/22drug.html?scp=1&sq=medications&st=cse

A Trillion Plus...

According to Congressional testimony by officials from Moody's and Standard and Poor's, conflicts of interest were responsible for these credit rating agencies failing to accurately rate mortgage-backed securities. Although the information is not new, these admissions continue the narrative of corporate malfeasance and its role in the economic crisis.

Hedge funds (semi-secret financial organizations with trillions in investments, yet almost no oversight) are facing massive losses and possible bankruptcies. Although the effect of these future losses is presently unknown to the public, it is known that retirement plans have significant investments in them.

Responding to the working-class sentiment of this crisis, Rod Starz and G1 (part of the group Rebel Diaz) do their rap "A Trillion."

Yet Another Plan

The International Labour Organization predicts that another 20 million people will face unemployment in 2009. The ILO also reports that an additional 40,000,000 to 100,000,000 people face poverty of less than $2 a day next year. Meanwhile, Fed Chairman Ben Bernanke is proposing another economic stimulus package for the ailing US economy. Bernanke has refused to say that the US is in a recession.

In other news, two major retailers, Mervyns (149 stores) and Linens and Things (587 stores--17,500 employees last year), are closing their doors. Circuit City, a major electronics retailer, is declaring bankruptcy, and is considering closing 150 stores. This is the second wave of retail closings (see 8-4-08 post). GM and Chrysler are also engaged in merger talks which are likely to result in more working-class people losing their jobs.
http://afp.google.com/article/ALeqM5hF0bLPADTV6u8A59E07oBbyW1naQ

Plan B: Government Bails Out Failing Banks as More People Lose Homes

As part of the US government bailout,the US Treasury plans to buy up more than $125 Billion in stock of nine poorly performing oligopolistic US banks. Three of the enterprises, Goldman Sachs, Merrill Lynch, and Morgan Stanley were, until recently, investment banks who gambled billions in credit default swaps. Another $125 Billion will go to other banks and thrifts. While politicians have made assurances that something will be done to reduce mortgage foreclosures, hundreds of thousands of working-class people still face losing their homes and their futures. Measures to ensure corporate transparency and accountability have also largely been ignored.

Citigroup $25 Billion
J.P. Morgan $25 Billion
Wells Fargo $25 Billion
Bank of America $12.5 Billion
Merrill Lynch $12.5 Billion
Goldman Sachs $10 Billion
Morgan Stanley $10 Billion
State Street Bank $3 Billion
Bank of New York $3 Billion

The Bailout So Far: Even Greater Than Imagined

Jennifer Barry (Marketoracle.com) presents a gloomy picture of the economic crisis. With Fed activity included, the total bailout has now exceeded $2.1 Trillion. The number includes Term Auction Facilities (see 4-8-08 post). An additional $37 B+ have been added to $85 bill to shore up insurance giant AIG. In other news, CNN reported that almost 60% of US people surveyed thought an economic depression was very likely or somewhat likely.

Explaining the Economic "Crisis" and Debunking Racist Scapegoating

In a classical case of racist scapegoating, so-called conservatives are blaming "minorities" and the 1977 Community Reinvestment Act (CRA) for the recent financial crisis. The law was created to reduce redlining and and to let working-class people buy houses in lieu of living wages. Unfortunately, lenders took advantage of the situation, offering predatory adjustable rate/subprime mortgages that could not be paid. Here's an example of how the scam worked:



Siding with the predatory businesses, the conservatives allege that people of color took advantage of the law and bought houses they couldn't afford, and that this was the reason that the financial industry failed. Zenitha Prince (Afro.com) explains, in detail, that the Act had nothing to do with the crisis. About 80% percent of the lender institutions (finance companies, bank subsidiaries, and thrifts) did not have to comply with CRA standards. Fifty-eight percent of the subprime loans were taken out by Whites. It wasn't government meddling, in this case, that effected the crisis; it was corporate greed. However, this won't stop propagandists from perpetuating this disinformation.

http://www.afro.com/tabid/456/itemid/1739/Conservatives-Blame-People-of-Color-for-Wall-Stree.aspx

The Credit Default Swaps market faces another difficult week as hundreds of billions of dollars in Fannie Mae, Freddie Mac, and Lehman Brothers swaps go up for auction.

http://www.marketwatch.com/news/story/trouble-ahead-massive-credit-default/story.aspx?guid={9F86B14D-12F4-46DD-8C9E-FB4610D8817F}&dist=hppr

60 Minutes Steve Kroft does a fair job, albeit belatedly, at explaining the incompetence and greed on Wall Street that led to the crisis.





Editor's Note: See the link to "Reverse Redlining" which explains that people of color were targeted for subprime loans even though many were eligible for conventional loans.

Progressive Proposals Call for Relief from Subprime Predatory Lending Instead of Another Corporate Bailout

Listening only to the mainstream media, one might believe there were no reasonable alternatives to the $700 Billion (now $810-850 Billion) bailout. Progressives and radicals (see URLs below) have presented reasonable alternatives that would not increase the pace of class inequality in the US. These alternatives would include relief for the working class, accountability for corporate executives, and transparency in business transactions.

http://www.democracynow.org/2008/9/30/bridge_loan_to_nowhere_house_rejects
http://www.truthout.org/article/howard-zinn-from-empire-democracy
http://www.zmag.org/znet/viewArticle/19000
http://www.votenader.org/media/2008/09/24/meltdownbailout/