Monday, September 29, 2008

Financial Crisis Brings Historic Opportunity…

Wow, what a difference a few weeks can make. Less than a month ago, every mainstream mass media outlet, U.S. politician, economic analyst, and probably the majority of average citizens would still have been singing the praises of the unfettered free market. Regulation was still a dirty word and privatization was still equated with efficiency and prosperity. Granted, the sand had already begun to shift under this ideological edifice of 30+ years. The sub-prime mortgage crisis and the bursting of the housing bubble had seriously shaken the confidence of some in the system. I had mentioned repeatedly on Labor Express Radio over the Summer the glaring contrast between the soaring gas prices we experienced here in the laissez-faire fuel market of the U.S. as compared to the low and stable prices maintained by the state oil company of our neighbor to the south. But none of that seemed to really change the mainstream belief in this country that free markets solve all problems and that private ownership always trumps public.

Then in early September came the government’s takeover of Fannie Mae and Freddie Mac, the once fully public home mortgage lending institutions whose 40-year foray into the private marketplace ended in disaster due to the massive spike in foreclosures in the past year. Of course as private companies with a special relationship to the federal government, free marketeers could still spin the notion that it was the public, government-regulated side of these institutions that lead to their failure. But then came Lehman Brothers Chapter 11 bankruptcy filing on Sept. 15th, the largest in U.S. history. Lehmann Brothers wasn’t the first financial services firm to go belly up this year however. That honor goes to Bear Sterns, whose collapse last spring lead the federal government to step in and provide J.P. Morgan Chase billons of dollars in poorly secured loans in order to allow Chase to acquire Bear Sterns and prevent Bear Sterns filing for bankruptcy. This amounted to the first of this year’s massive, multi-billon dollar bailouts of private corporations.

But that turned out to be just the beginning; the real fun was right around the corner. AIG (American International Group), another financial services corporation, and another Frankenstein’s monster born of the Gramm-Leach-Bliley Act **, faced imminent demise. The solution – NATIONALIZATION. Let me repeat that – NATIONALIZATION. A term that the neo-liberal ideologues rank right up there with George Carlin’s big seven. Last week the Fed loaned AIG $85 billon in exchange for 80% of its stock. Congratulations to everyone out there, we are now the new proud owners of a failing financial services company. Something tells me that this won’t inspire quite the pride that PEMEX inspires in the Mexican people. But the story doesn’t end there either. That news was followed by treasury secretary Henry "Hank" Paulson’s announcement that the entire financial services industry would need to be bailed out by the state to the tune of about 700 billion dollars (a number that they later admitted was basically made up and a number many said was a low-ball figure)!

Now Paulson’s words resemble a cross between the lies of Dick Cheney preceding the invasion of Iraq and the dire predications of Chicken Little (Paulson’s wall street friends playing the fox of course). Indeed the denouement in all this absurdity was Paulson’s request that we hand him 700 billion dollars and guarantee him that he can do as he wills with our money with absolutely zero oversight or ability to hold him accountable afterwards. But regardless, almost everyone seems to agree on the reality of the crisis facing us. Once again, the ruling class, the economic elite, have gotten filthy rich through a wild orgy of rampant speculation and bad investment decisions that promised quick financial gain regardless of the long-term outcome. During that time they demanded that they be completely free to engage in their debauchery with absolutely zero limitations and zero supervision. It was like the frat party to end all frat parties. Now that the party is over, and a massive hangover sets in, they turn to us, the working class, through that reviled institution the federal government, and demand we rescue their asses or else. And that “or else” is pretty damn threatening – an economic depression that could rival the 1930’s.

So where is the “opportunity” that I refer to in the title of this blog entry? Well let’s take a look at what the last Great Depression ultimately resulted in – Social Security, FDIC, the WPA, the FHA, the SEC, the TVA, and let’s not forget the 8 hour day and the 5 day work week. All the stuff that the ruling class has sought to dismantle in the last 3 decades. The period of the New Deal rescued capitalism (maybe not the best outcome for the working class) by at least for a time, shifting power relationships away from the complete dominance of private capital, toward a level of shared power with the state and with labor. The resulting form of state capitalism, though certainly no utopia for workers, created a period of comparatively broad prosperity that lasted through the 1960’s. I don’t want to over glamorize this period, during which many workers, especially people of color, continued to struggle for basic survival. I also don’t want to make the mistake made by far too many on the left of equating state ownership or state management (state bureaucracy that is) with workers control (economic democracy or socialism). These issues will require another much longer discussion. But the reality remains, workers in this country fared better under the mildly mixed economy born of the New Deal than they have during the post-Reagan period, which some have referred to as McKinley without tariffs.

What is more important, however, than any small, incremental gains made by the working class in the 30’s and 40’s, is the ideological ground upon which these gains were made. The Great Depression had laid bare for everyone the reality that capitalism is an economic system in which crisis is inherent in it’s nature. Lassiez Faire capitalism was declared a completely failed notion. Almost everyone, the capitalists included, grudgingly accepted the need for limitations and regulations, some of which (limits on the working day, minimum wages, the right to unionize) were of clear benefit to workers and changed the power balance. Other outcomes like direct state intervention in the economy and public ownership, the institutions of a mixed economy, did not represent a direct challenge to capitalism, but they did at least offer alternative possibilities of how to organize the economy. All of this was meant to modify and dampen the boom and bust cycles that had wreaked havoc on the majority of the population since the early 1800’s. It is this history, these lessons, that neo-liberals have worked so hard to erase from our memory since the 1970’s. The unbridled greed unleashed by their successful campaign to completely de-regulate every aspect of the economy is the primary cause of the crisis we now face. And their over-three- decade effort to de-fund and cripple state institutions so that their claims that government is inept became a self-fulfilling prophecy, has left us with as little defense against the coming storm as New Orleans had against the flood waters of Hurricane Katrina.

So now their lies are clear to all. NEO-LIBERALISM IS DEAD! We must repeat this everywhere and anywhere. It has to permeate all our discussions. The neo-liberal mantras that the ideologues deafened us with for decades finally ring hollow for nearly everyone. We must take the ideological offensive at this moment of crisis/opportunity. Because - beware – the neoliberal spin machine is already hard at work fashioning twisted logic to maintain their lock on the minds of many Americans. Take for instance the announcement today of a rejection of the most recent version of the bailout plan, being attributed primarily to conservative Republicans. Only in America, could the economic elite who have robbed us blind and created the crisis, then come off looking like populist Robin Hoods, rejecting billions for a “greedy few” on Wall Street. And what do they demand as their alternative to the Paulson plan – MORE DE-REGULATION AND TAX CUTS FOR CORPORATIONS AND THE EXTREMELY WEALTHY! It is time to end the surreal madness of U.S. politics.

But a crisis of ideology is merely an opening. Taking advantage of that opening requires organization. We have to follow the lead of the Latin Americans who for almost a decade now, have rejected neo-liberalism, not only at the ballot box, but in the streets. Our current situation is akin in many ways to the Argentine financial crisis of 2001. After years of being the neo-liberal darling of South America, the collapse of their banking system and their economy, opened the eyes of nearly every Argentine to the reality of this bankrupt economic philosophy. The people of Argentina took to the streets, throwing out of power their entire political class and creating new institutions like worker-controlled factories and neighborhood assemblies. Though much of this movement has since been co-opted by new political opportunists, Argentines refuse to go back to the bad old days of completely unfettered and un-regulated capitalism. They are joined in this conviction, to a greater or lesser degree, by their brothers and sisters in Venezuela, Bolivia, Brazil, Ecuador, Paraguay, Uruguay, Chile, and Nicaragua. Sadly, the state of the U.S. labor movement at this moment does not fill one with hope that we will see the working class mobilized in the streets. But let’s go back once again to our reflections on the New Deal. In the 1920’s, the labor movement was similarly at a low ebb. The economic dislocations of that period combined with the devastating effects of the first red scare, had severely diminished the power of organized labor. Yet it was mass action even more than the generosity of the newly enlightened ruling class lead by FDR, that won us the previously-mentioned gains of the 30’s and 40’s. The CIO organized millions in the midst of the great depression. The sit-down strikers in Flint, Michigan did more for the American working class than any progressive Democrat in the Congress. Citywide general strikes in which workers took the class struggle into the streets, like in Minneapolis (started by truck drivers) and in San Francisco (started by dock workers) in 1934, changed the entire political landscape in the country. Ideas like social security, originally born out of the political platform of the Socialist Party, were forced upon the economic elite fearful of the power of the working class organized. Only similar such mass organization today can produce, out of this crisis, an outcome that is favorable to the working class majority.

In the meantime, we must act quickly. We must reject the Paulson/Bush Wall Street bailout and force our politicians to enact an economic reconstruction plan instead. Aspects of this plan should include…

1. Financial services companies should be forced to endure the bulk of the losses, with government stepping in and using taxpayer dollars in a measured and limited fashion to prevent the collapse of the entire credit system.

2. Ownership stock for any funds provided to these companies.

3. Relief for homeowners facing foreclosure including renegotiated mortgages and the ability to stay in their homes either as an owner or renter.

4. Full re-nationalization of Fannie Mae & Freddie Mac and nationalization of other credit institutions.

5. Increased regulation and government oversight of the financial services industry.

6. Caps on CEO salaries.

7. Reform of bankruptcy laws in favor of working people rather than corporations.

8. Repeal of the Bush tax cuts, and tax increases on corporations and the wealthiest Americans – the working class should not pay the costs of this bailout.

9. Tax cuts for working class Americans and a new economic stimulus package aimed at working class families.

10. Massive investment in the creation of new affordable housing.

11. Promotion of more democratic and sustainable banking institutions like credit unions, publicly-owned banks and community development banks.

12. Massive investment in the nation’s infrastructure – including new public works programs.

13. Strengthening and extending provisions of the Community Reinvestment Act (CRA).

14. Passage of the Employee Free Choice Act (EFCA).

15. Pension law reform and strengthening of the Pension Benefit Guarantee Corporation.

16. A universal, single payer, non-profit national health care program.

17. Raise the minimum wage to a living wage.

Of course, I am no economist. Hell, I barely understand this finance mumbo-jumbo. So for more insightful analysis than I can provide, I offer the links below. AND I ALSO ENCOURAGE YOUR COMMENTS AND FEEDBACK!

BUT MOST OFF ALL – WE NEED TO ACT NOW!!! Please see my previous blog post with the call from Jobs with Justice.
Call your congressional representatives today and demand – NO TO A WALL STREET BAILOUT – YES TO AN ECONOMIC RECONSTRUCTION PLAN!

For audio of last night’s Labor Express Radio program in which I discussed the financial crisis with the Executive Director of the Labor Research Association, Jonathan Tasini and with Fran Tobin, Midwest Field Organizer for Jobs with Justice, click here…

Economic Policy Institute (EPI) position statement on the bailout plan…

Center for Economic and Policy Research (CEPR) position statement on the bailout…

Dean Baker of CEPR talks about how a bad bailout is worse than no bailout…

Jonathan Tasini continues to provide excellent, almost daily coverage of the bailout shenanigans…

The AFL-CIO on the bailout…

Change to Win on the bailout…

Green Party’s position statement on the financial crisis…

Both Democrats and Republican’s to blame for banking de-regulation…

** The Gramm-Leach-Bliley Act of 1999 is one of the most important banking de-regulation bills past by congress, and is directly behind the current crisis. For more check out the following Wikipedia article…

Another example of the de-regulation of the financial services industry that lead to the current crisis is the Commodity Futures Modernization Act of 2000…



  1. Excellent post, Jerry. I listened to the live stream last night. Your interviews were very informative.

    Keep up the good work.

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  3. Love the cartoon! It's really amazing how we are being told that if this bailout doesn't happen then our economy is going to fall into a pit of despair, yet no one seems to be able to explain satisfactorily how this got so far out of control or how it will be prevented from happening again.

    This whole thing really stinks like a Nigerian scam, where all Paulson needs is the account numbers to our Treasury and all our money will be returned with interest when the economy stabilizes.

  4. And just after reading this, I found this: Mayor Daley announced plans today to privatize Midway Airport in return for $2.521 billion from investors.

  5. Thanks, Jerry. This is absolutely the best overview and analysis of the issues I have seen anywhere.

  6. Thank you Doug, Patrick & Bob for your comments. I will try to have an anaylsis of whatever bill passes in Congress this weekend up on pilsenprole by Sunday. Sunday's Labor Express Radio program will include interviews with economists anaylzing whatever passes as well.

  7. I noticed that there was a metion of "Chicken Little" in your article. It is an interesting note that in the beginning of this crisis, we went from "Oh, we're a long way from Recession", to "Wow, what's going on with the financial sector?", to "How long is it going to take to get out of this allegorical 'the sky is falling' situation?" The G20 is meeting in November to discuss how we can overcome this crisis...I can't wait to see the outcome...after all, look what they've done for world hunger, AIDS, and all of the other "good will" fortune to underdeveloped countries. I'm not holding my breath. They should take the advice of Michael Laitman. He offers some great points to solutions that will solve this unraveling situation.