By Fred Goldstein
Published Nov 20, 2008 10:38 PM

When Barack Obama first began his campaign back in 2006, he and his advisors and backers in the establishment had as a priority trying to deal with long-neglected aspects of U.S. capitalist society that were in decay and were endangering the world position of U.S. imperialism.

The festering issues of health care, global warming and energy, declining education, antiquated infrastructure, the global isolation of U.S. imperialism and many others were on the agenda for a future Obama administration, which was supposed to “reach across the aisle” and work out bipartisan solutions. But these were all policy issues, issues of capitalist decay arising during a period when bourgeois politics has been in a factional logjam, unable to resolve anything other than to hand the corporations whatever they asked for and attack the workers and the oppressed—during the Clinton as well as the Bush administrations.

Now, as Obama gets ready to take office, the policy issues he wanted to address all have to be subordinated to an acute systemic crisis that is global in scope and historical in proportion.

Some 1.2 million workers have lost their jobs so far this year. Unemployment has jumped from 6.1 percent to 6.5 percent and is projected to soon rise to over 7 percent. Consumer spending dropped a record 3 percent in October. Retailers are girding for the worst shopping season on record.

Citibank has just announced 10,000 new layoffs [two days after this speech, the number rose to 53,000—ed.]; Sun Microsystems has announced 6,000 new layoffs; Circuit City, the second-largest electronics retailer in the country, closed down 155 stores and is filing for bankruptcy; and the second-largest mall operator in the country, General Growth Properties, which operates 200 malls in 44 states, is on the verge of bankruptcy.

Intel, the largest microchip maker in the world, has suffered a major decline in revenue. Caterpillar, the largest construction equipment maker in the capitalist world, is planning for a downturn. GE, a giant multinational conglomerate, is planning to cut back investment and workers.

The auto industry is in crisis, with sales dropping and losses and layoffs rising. General Motors is hinting at bankruptcy in a public relations campaign to get a bailout from the Treasury—also a dangerous game of psychological warfare against the United Auto Workers, as the company is trying to set the stage to reopen contracts and get major concessions. GM recently announced it will end health care coverage for 100,000 white-collar retirees by the end of the year.

As the G-20 meet in Washington, the capitalist economies of Europe and Japan are in recession. This is the first time since World War II that the three major centers of imperialism—the U.S., Europe and Japan—have gone into recession within the same year. Japan, with the second-largest economy in the capitalist world, has had six consecutive months of contraction; Germany, the fourth-largest economy, has had six.

China, Brazil, Russia and India, the world’s most populous countries, have also had major declines in growth in the last quarter.

It is evident that there is a crisis of production and employment in the entire economic system.

The cause of the crisis can be reduced to two words: capitalist exploitation.

Why are all the toxic mortgages and other debt-backed securities going bad? Because they were based on collecting the future wages of the workers. Mortgage debt, credit card debt, school loan debt, auto loan debt, debt to pay medical bills, and all the other debts were bundled up and sold around the world. After 30 years of falling wages and a growing consumer credit system, the working class has become deeply indebted. African-American, Latin@, Asian and Native workers have suffered the most, especially single women.

Interest and fees on working-class debt have become a major source of profit for finance capital. The capitalist class, in its various forms as lenders, mortgage brokers, credit card companies, banks, auto finance companies and so on were taking advantage of the dire needs of workers in order to promote credit. These money grubbers turned around and resold the workers’ IOUs in bundles to make a quick profit.

Meanwhile, other sections of the capitalist class were intensifying the exploitation of workers on the job by busting unions, cutting wages and benefits, shortening hours, laying off and outsourcing to contract labor. The medical insurance industry, pharmaceuticals, hospitals, all raised costs to boost profits. Agribusiness and the oil barons raised the price of food and fuels, fueling inflation in the things workers need to live.

Sooner or later the whole debt structure had to collapse—and the cause was capitalist exploitation, i.e., the profit system.

The capitalist class has become more and more reliant upon debt as an artificial means of counteracting the growing problem of capitalist overproduction. As technology improves, the increased rate of exploitation and the worldwide wage competition drive wages down everywhere, making it harder for the capitalist system to generate a strong boom that can create jobs. This has become a long-term trend and signifies a new phase in the general crisis of capitalism.

Historically a capitalist recovery begins slowly as inventories are liquidated and then surges until there is another bust. Engels described the process of the classical capital bust-boom-bust cycle in his great work, “Socialism: Utopian and Scientific.”

His description still holds today, but with this modification. In the past several decades, the boom part of the cycle has become weaker and weaker. And it is this phase that creates a labor shortage, providing workers with jobs and putting them in a stronger position to bargain for higher wages.

The debt-fueled housing boom is an example of how U.S. capitalism has reached a stage of dependence upon debt to artificially stimulate the economy. The recovery from the last recession was a jobless recovery. From 2001 to 2004, after the dot-com collapse, profits were slowly recovering but jobs were still being lost. To pump up the economy and avoid a “double dip,” a lapse into a second recession, the Federal Reserve pumped billions of dollars of credit into the system by lowering borrowing costs for the banks. Much of the cheap money was used to finance the housing boom.

A housing boom is one of those areas, similar to auto, that ripples through the economy and multiplies jobs. It can help temporarily to push back a downturn. But the housing boom was all based on easy credit and speculation. It was bound to end. The price of housing went up. The supply went up. Soon there were more houses on the market than could be sold. A crisis of overproduction in housing ensued and the collapse followed, precipitating the credit crisis and the banking crisis that followed.

Without the housing boom, the economic crisis of overproduction might have come sooner.

If the present crisis were caused by financial manipulation alone, it could be cured by financial measures. But the Treasury under Secretary Henry Paulson and the Federal Reserve under Ben Bernanke have poured hundreds of billions into U.S. banks and are promising hundreds of billions more.

The German central bank has poured billions into their economy. The Bank of London has nationalized banks and also poured in hundreds of billions in bailout money. None of this has stopped the growing momentum of layoffs and short hours.

Why? Because this crisis is a crisis of overproduction. Bernanke can lower the interest rate to zero—Japan may do just that shortly. But even zero interest rates cannot produce lending if the workers are broke and there are no profits to be made in the marketplace. As they say on Wall Street, you can’t push a string.

Why would banks lend in an environment of economic crisis? It is not lack of funds or a matter of distrust that is keeping them from lending. Layoffs lead to lower spending which leads to lower profits and more layoffs. That is the classical capitalist cycle, but now it is gripping the entire capitalist world at once. There are no markets that are not shrinking. There is no haven in the world capitalist economy for investment and sales sufficient to pull them out of the crisis.

This is what globalization looks like in a period of contraction.

No one knows where this crisis is going. The Obama administration and the new regime of financial advisors may take measures to ease the foreclosure crisis and put some money into workers’ pockets. They may even try to create jobs building infrastructure. Of course, as a party, we support measures that will ease the suffering of the workers and the oppressed. But we also know that band-aids cannot overcome the contradictions of capitalism.

The beginning of a capitalist downturn hits the workers hard. The early phase of the struggle is defensive, to ward off the onslaught of layoffs and keep people in their homes. This was the course that the struggle took during the depression of the 1930s with the formation of the unemployed councils, and the move by working-class organizations to put hundreds of thousands of families back in their homes when they were evicted.

Our comrades in Detroit, Los Angeles, Boston and around the country are taking the initiative to begin those defensive struggles.

Later in the thirties came an offensive struggle with general strikes in San Francisco, Toledo and Minneapolis in 1934 and finally the great sit-down strikes of 1936 and 1937, which turned the tide in favor of the working class as a whole. We must be clear about what phase we are in, while retaining our revolutionary socialist perspective.

When the USSR and Eastern Europe collapsed, WWP chair Sam Marcy initiated a process of ideological rearmament—a study of Marxist and Leninist theory—in the anticipation that there would be a wholesale retreat from the revolutionary communist perspective.

From that period up until the onset of the present crisis, we have had to wage theoretical arguments to defend our position that the system of private property, in which a tiny group of millionaires and billionaires controls the means of life for billions of people around the globe, contains the seeds of crisis and disaster for the worldwide working class and the oppressed. With this current crisis, the question is no longer theoretical. The world capitalist crisis opens the door to struggle and to promoting socialism as the answer.

The workers need to own this vast, global system of production that they operate 24 hours a day and run society for human need and not for profit. This is the only way to abolish exploitation, racism, national oppression, sexism and patriarchy, oppression of LGBT people, imperialist war and intervention, and to tear down the walls of the prisons and their death houses.

Labels: bailout, capitalism, Caterpillar, Circuit City, Citibank, Citigroup, economic crisis, federal reserve, GE, Generlal Motors, layoffs, socialism, United Auto Workers, wall street

Sept. 17—With the $85-billion government bailout of insurance giant AIG, the Federal Reserve Board and the Treasury Department have made another desperate attempt to shore up a collapsing global financial structure.

This latest attempt to rescue a huge capitalist financial firm comes on top of the $200-billion-plus bailout of the two largest mortgage banks in the world, Fannie Mae and Freddie Mac, just 10 days ago.

Secret deals stick workers with the bill

President of the Federal Reserve Bank of New York, Timothy Geithner and Treasury Secretary Henry Paulson have been huddled in round-the-clock meetings, hammering out deals. It has been done in secrecy, behind the backs of the workers and the middle class, who will get stuck with the bill. They have been working out these deals with the same loan sharks of high finance whose orgies of speculation, gambling and deception in pursuit of profit led to the crisis in the first place.

Wall Street’s speculative binge has led to a truly formidable world crisis.

Over the last three days, AIG, the largest insurance company in the world with a TRILLION dollars in assets, came within hours of bankruptcy.

Lehman Brothers, a prestigious, 158-year-old investment bank with $639 billion in assets and $613 billion in debts, went under in the largest bankruptcy in U.S. history.

Merrill Lynch, another pillar of investment banking with another TRILLION dollars in assets, averted bankruptcy only after being swallowed up by Bank of America.

Washington Mutual, the largest savings and loan in the U.S., had its bond rating reduced to junk and is on the ropes.

As the bankruptcy crisis was developing on Thursday, Sept. 11, Paulson told the bankers that the government was through stepping in and that they would have to solve the problem among themselves. That was last week. Now the U.S. government has put up another $85 billion to bail out the banks. It is a sign of crisis and weakness.

While the bailout of Fannie Mae and Freddie Mac had given relief to the holders of trillions of dollars of debt owed them by the two mortgage banks, it also put an enormous strain on the financial system and was another sign of profound weakness and fragility. Further bailouts were ruled out, the government said. It was drawing a “line in the sand.”

But Paulson’s and Geithner’s declarations made no impact on the bankers. They all pursued their own immediate interests and stonewalled their own government. In the end, while Washington let Lehman Brothers fail, AIG was another story. The Federal Reserve Board and the Treasury made a humiliating about-face and stepped in at the last minute, “fearing a financial crisis worldwide.” (New York Times, Sept. 17)

The Fed bailout of AIG is instructive about the depth of the crisis. AIG is not even a bank. It is not regulated by the federal government. The Fed had to use emergency powers to intervene, which it deemed necessary not only because AIG issues insurance policies to millions of individuals and commercial enterprises but because it also has insured over $400 billion in mortgage-backed securities and other risky investments of gamblers and speculators all over the globe.

AIG has borrowed money from many of the big banks and gambled its assets in order to make bigger profits. As the mortgages began to fail and the holders of the mortgage-backed securities began to demand their insurance payoffs, AIG’s financial position was deteriorating on a daily and hourly basis.

It is a measure of the system’s financial recklessness that an insurance company, which is supposed to be regulated to keep it conservative, precisely because it is the custodian of funds that must be available to meet the emergency needs of the insured, was free to participate in the global casino.

AIG operates in over 100 countries, has 116,000 employees—62,000 in Asia—and has private banking facilities for wealthy people. It brokers deals in stocks, manages mutual funds, owns 900 planes for its leasing business, and in general has leveraged its insurance business into a globalized, speculative operation.

Crisis of workers and oppressed is ignored

The crisis of the bankers has made sensational headlines, with hour-by-hour accounts of the agony of a handful of millionaires and billionaires on Wall Street. But the capitalist media has sidelined the real drama of mass foreclosures and layoffs affecting the lives of millions of workers.

Hundreds of billions of dollars have been doled out to bankers who got into a crisis largely because of predatory mortgage lending and the reselling of those mortgages on the global capital market. No relief has been forthcoming for the victims of the mortgage banking industry.

Little attention was paid to the news that in August there were 303,879 foreclosure filings—a 12-percent increase from the previous month and a 27-percent increase from a year ago. One in every 416 households in the U.S. received a foreclosure notice in August. In California alone there were 101,714 filings, up 40 percent from the previous month and 75 percent over a year ago.

While shedding tears over the travails of bankers, the capitalist press had no headlines about a recent study entitled “State of the Dream: Foreclosed,” which showed that the foreclosure crisis has resulted in the greatest destruction of personal wealth in history in the African-American and Latin@ communities.

According to the study, African-American borrowers have lost between $71 billion and $92 billion because of loans taken out over the last eight years. The figure for the Latin@ population, which is even higher than the African-American population, shows losses of between $75 billion and $98 billion.

Alongside the financial crisis is the growing crisis of the capitalist economy overall, as overproduction results in mounting unemployment. More than 84,000 workers lost their jobs in August, bringing the yearly total up to 605,000. More than 2 million people have been added to the jobless in the past 12 months, bringing the official total to 9.4 million out of work. Long-term unemployment is also rising.

Unemployment for Black workers reached 10.6 percent, mainly due to job losses among Black women. Unemployment among single mothers and youth is also growing. And these government figures do not include millions of discouraged workers who have given up looking for jobs.

In the midst of the credit crisis, it was announced that industrial production, the basis of jobs and income, fell in August by the most in three years. There was a 1.1 decrease in output in factories, mines and utilities. Auto production went down by 12 percent, the most in a decade.

One thing is clear from the present crisis: Neither the capitalist class, which owns all the productive wealth, nor the capitalist government, which oversees the system, is in control of the economic or the financial situation.

Each measure they take to stem the credit crisis is followed by another outbreak of panic. Each time the stock market surges, it quickly loses all its gains and more. And no matter how much the pundits declare that there is no recession, the steady growth of unemployment and the decline in production continues, regardless of any so-called “economic stimulus.”

Shift in ruling class psychology

The intervention of the capitalist government in the banking crisis has brought about a sudden shift in the psychology of the ruling class as they watch their system spinning out of control. After the capitalist system got over the crisis of the 1930s, the bosses in the U.S. began to forget why President Roosevelt had taken unprecedented measures to rescue the economy. They began to scorn any government intervention in their affairs.

Of course, they have always been ready to take handouts in many forms—subsidies, military spending, special legislation, tax cuts, etc. But they have felt themselves to be the high and mighty corporate rulers of the world.

Government intervention, they said, was for Europe and for social democrats. The European ruling classes had been rocked by the workers and by class struggle, division and war. Because the European rulers were weak and needed to be propped up by the capitalist governments, they had to submit to state monitoring of their affairs. Such a course, however, was strongly rejected by Wall Street and the giant industrialists.

This latest crisis is a huge comedown for U.S. finance capital, which is used to lecturing the other capitalist governments on the evils of government intervention. Suddenly, however, the bankers and bosses are all united, from the right wing to the moderates and liberals, in applauding the Treasury and the Federal Reserve Board for their “timely” intervention. They are submitting, grudgingly but clearly, to government oversight and monitoring in the interests of saving their system from collapse.

With this crisis, the structure of U.S. capitalism is entering a new stage. The capitalist government has begun, on a piecemeal basis at first but perhaps more systematically in the future, to absorb the liabilities and bad debts of the gambling and speculating financial oligarchy. This can only deepen the crisis in the long run by driving it deeper into the organism of U.S. capitalism.

This is bound to have not only economic but political repercussions around the world as rival imperialists see the vulnerability of the rulers in the U.S. It is bound to weaken U.S. imperialism and at the same time make it more dangerous as it seeks to get out of its crisis.

It is no accident that the Wall Street Journal on Sept. 16, in the midst of in-depth reporting on the financial crisis, ran an article entitled “Keeping Their Powder Dry: Draft Boards Hang On, Just in Case.” The Journal does not necessarily speak for the whole ruling class, nor for the Pentagon at the moment. But one reflex emerging in the midst of the crisis from some section of the ruling class is beginning to think about an expanded war drive as a solution.

With the “New World Order” stoking conflict with Russia in Georgia, invading Pakistan and escalating the war against Afghanistan, the possibility of a new military adventure should never be ruled out.

Capitalism’s basic contradiction

The Democrats want to blame things on Bush and call for more regulation. Of course the financiers have gotten the government to overturn most of the regulations, dating back to the Depression, putting restraints on their gambling operations. This deregulation started with the Reagan administration and reached a high point in the Clinton Administration. At the instigation of Citicorp and Robert Rubin, who left Goldman Sachs to become Secretary of the Treasury, the Glass-Steagall Act was repealed in 1998, under the sponsorship of now McCain economic adviser Phil Gramm. The law forbids commercial banks from becoming involved in investment banking, underwriting stocks and stock market operations, underwriting and other activities that facilitated widespread hyper-speculation of the type that preceded the Depression.

And of course the Bush administration undermined all attempts to inhibit the predatory mortgage lenders and gave a complete free hand to all manner of unregulated speculation in trillions of dollars worth of speculative gambling, which increased the overall risk in the global financial system. But, Democratic Party demagogy notwithstanding, the Bush administration is not the cause of the crisis.

Government intervention, stronger regulation of the monopolies and more “prudent” practices cannot overcome the fundamental contradiction of capitalism: private ownership of the globalized, social means of production.

It is an irreconcilable contradiction that a tiny minority control the production of the world’s wealth for their own profit. It is an irreconcilable contradiction that this global apparatus stops functioning when there is a crisis of profitability for the bosses. And such a crisis always arises, sooner or later, because of the anarchy of capitalist production.

No capitalist knows where what is produced can be sold. But in the rush for “market share” for the highest profit, each capitalist grouping is compelled to expand production.

Simultaneously, the laws of capitalism compel each capitalist to reduce the wages of the workers as much as possible. In the last three decades, the capitalist class has created a low-wage capitalist system that pits workers against each other on a global basis. This just aggravates and accelerates the contradiction of the profit system.

Under capitalism production is anarchic and eventually expands to a point where the workers cannot buy what has been produced at a price that will bring the bosses a profit. This anarchy of production is being reflected in the anarchy of the financial system in the present crisis.

In the present crisis, billionaires at the top of capitalist society may be losing part of their wealth, which really existed only on paper, but they are keeping their mansions, servants, limousines and Lear jets. It is the workers who are bearing the brunt of the economic crisis.

The only way out is the way of resistance—like the movement to stop foreclosures, which is gathering steam around the country.

---

Articles copyright 1995-2008 Workers World. Verbatim copying and distribution of this entire article is permitted in any medium without royalty provided this notice is preserved.

Labels: aig, bailout, Fannie Mae, federal reserve, foreclosures, Freddie Mac, Lehman Brothers, Merrill Lynch, Paulson, wall street, Washington Mutual