It is a bit shocking to watch the Masters of the Universe become overwhelmed by their own system. Last week, to prevent an economic catastrophe, the Federal Reserve paid $85 billion for effective ownership of AIG. House Majority Leader Harry Reid defended Congress going on recess during a financial meltdown because “no one knows what to do.” Once again, the system is out of control, and all the painfully predictable jokes about “Wall Street socialism” will not be the worst of it.
Congress is preparing to pass a law allowing Treasury Secretary Henry Paulson to spend $700 billion to buy off banks’ rotten debt. The bailout is quite ironic coming from the U.S. government, which for years has preached self-reliance to the poor. Apparently, giving unemployed workers a handout is rewarding bad behavior, but propping up the yahoos who crashed the economy is not. Truly, the rich are different than you and me.
Although the banks are getting help, the credit crunch means that a recession is still to come. The question is who will pay for it. The Wall Street Journal is already praising the capitalists’ “impressive resilience,” noting “to the discomfort of workers — companies are quicker to adjust wages, hiring and work hours when the economy softens.” In English, that means companies are going to stick it to their workers.
There is another way to pay for the crisis. The Pentagon is spending $2 billion a week to pulverize Iraq. Stopping the war and slashing military spending would free up the money necessary to bail out homeowners who have defaulted on their mortgages. As for the banks, if they are ultimately backed by our taxes, there is no reason why they should not be publicly owned.
Sadly, neither political party would ever consider this option. The Democrats have made some noise about protecting “Main Street Americans” (heaven forbid a Democrat ever utter the words “working class”). If history is any guide, all this talk will mostly amount to election season posturing. To save our futures, we are going to need our own program for solving this crisis. Here’s a start: Stop the war. Tax the rich.
To understand how we got to this point, we have to see this crisis in the context of neoliberalism. For 30 years, the capitalist class has waged an economic attack on the working class. Deregulation, privatization and falling wages have been the hallmarks of the neoliberal era. Since 1973, the U.S. economy nearly tripled in size, but real wages fell. In other words, free-market policies created massive wealth but the working class did not see a dime.
One of the most fateful deregulation measures was the Gramm-Leach-Bliley Financial Services Modernization Act, signed by Bill Clinton, which unleashed the growth of the “shadow banking system.” One of the law’s architects is former Sen. Phil Gramm, erstwhile top economic advisor to the McCain campaign who resigned after calling America “a nation of whiners” and blaming the crisis he helped create on a “mental recession”. Former Treasury Secretary and current Obama advisor Robert Rubin lobbied for the law. This legislation allowed commercial banks to sell people’s mortgages to investment banks, which turned the debt into bonds and sold them to investors.
In the neoliberal era, one safeguard workers had against losing their standard of living was the rising value of their homes. Workers could refinance their mortgages at lower interest rates and use the savings to buy a car, a college education or health insurance. This is what conservative pundits mean when they refer to “Americans’ irresponsible borrowing.” It’s working Americans trying to stay out of poverty.
Low interest rates kept housing prices up until summer of 2006. When prices began falling, people who had taken out loans with the expectation of selling their house for a higher price were now stuck with insurmountable debt. The extent of the bad debt in the shadow bank system means that bonds thought to be worth trillions are worth much less. Moreover, now that home prices are falling, workers are cut off from a key supplement to their incomes, one that provided $800 billion a year to the working class from 2004 to mid-2007. The coming recession will squeeze a working class already suffering from 30 years of capitalist attack.
If your head is spinning from the absurdity of the situation, you’re not alone. What kind of system goes into crisis from building too many houses, when there are over a million homeless children in this country? What kind of system forces austerity on the working class but rewards traders for shuffling money around? What kind of system has billions for war and pennies for health care? Most importantly, is it any kind of system we want to live in?
Paul Pryse is a member of the UW-Madison branch of the International Socialist Organization.
