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Wall Street Leads the Socialist Revolution
September 21, 2008
Sometimes being able to say, “I told you so.” doesn’t feel good at all. As long ago as three years ago I along with a few financial experts (namely economists Nouriel Roubini of New York University and Paul Krugman) were predicting this financial meltdown, based on the arcane and convoluted treatment of debt instruments as commodities. Unlike these scholars, I didn’t even get it through the esoteric study of economics; I read it day in and day out in the New York Times, the Wall Street Journal and a variety of internet sites. Not exactly a secret if you were paying attention, yet most of the pundits exclaim shock and surprise at what Krugman predicted as the “great unraveling.” The deregulation of a financial system based on greed took on full speed as the Bush administration did away with the safeguards implemented by Franklin Roosevelt after Wall Street robbed the public with delusional greed leading to the great depression. After 9-11 hit the economy hard, the Bush administration loosened regulation and pumped billions into the economy (essentially printing money) to prop up the economy and avoid a needed correction, further exacerbating the problem.The financial elites sent lobbyists with bushels of money to influence congress to lower taxes on the rich, create higher debt with fees and usury level interest rates for average borrowers. They grabbed worker savings by shoving employees out of traditional retirement plans and creating new forms of indentured servitude by tightening bankruptcy laws. The result was the greatest “redistribution of wealth” in the history of this country.This was supposed to result in massive capital infusion by the investment class in research, production, more jobs and all the wonderful benefits trickle down economics was supposed to yield. Unfortunately as history points out, when the very rich get even more money then they need, they are just like everyone else. Excess income is treated as gambling money, speculative investment that will bring higher returns because you already have so much you won’t miss it if you loose it. This initially caused too much money to pursue to few “high return” investment products creating an ever inflating market bubble. The market was inflated further by fed policy that lowered interest rates to big banks, encouraging rich investors to basically double down on their bets, borrowing heavily to finance even bigger bets on the arcane financial instruments they were creating. The CEO’s, board members and top management used this artificial boom to pocket millions in salaries and stock options.Now that the delusion of creating wealth out of paper shuffling is over, the thieves on Wall Street point to the victim’s bad judgment in taking their offers as the culprit. Workers who were achieving the highest level of productivity in the history of the planet were subjected to falling wages while corporate profits reached record levels. Cold calling, emails and letters coaxed consumers with more offers then a military recruiter to a high school senior, all done with government blessing. Squeezed consumers, faced with the most sophisticated onslaught of advertising and enticement ever conceived, went into debt creating a negative savings rate. The debt was then packaged and sold as an amazing new array of “innovative financial products”.The great masquerade of the “free market economy” was no such thing. It was a strategic and purposeful tilting of the rules towards the rich and powerful and away from the common welfare. It was in fact the much feared redistribution of wealth, only upwards. Now that the chickens have come home to roost, the same folks who were robbed in the process will now get to pay the tab for those who robbed them. Somewhat akin to making the victim of a robbery paying restitution to the robber because he gambled away the money he stole.
What will happen to those who created this mess, the get rewarded of course. Daniel H. Mudd, the departing head of Fannie Mae, will get $9.3 million in severance pay, retirement benefits and deferred compensation not counting the $12.4 million he has already pocketed since becoming CEO in 2004. Richard F. Syron, the departing chief executive of Freddie Mac, will get $14.1 million, on top of the $17.1 million in pay and stock option gains since 2003. Ya gotta love such a system if you’re at the top.
Republicans Demand Socialist Intervention
What currently hides behind the label of the free enterprise system is actually a merger of corporate power and government. The argument that any assistance to workers and small business would be socialism is the most laughable argument on the face of the earth while nationalizing (socialism for the rich) the debt of American corporations.
The reality is that state communism and corporate fascism are not different except in name only. In state communism the state is the corporation, in fascism the corporation is the state. The opposite of both “pure” Communism and Capitalism is a mixed economy that provides a safety net and educational tools for workers and small business while allowing true free market principles that reward productivity and punish foolish speculation.
Instead what is proposed by Henry Paulson, our Treasury Secretary, is a get out of jail free card for the robbers including his former employer Goldman Sachs. What would be more productive is to fine the thieves the amount of their pocketed loot, send them to jail and invest the two trillion in tax dollars in education, healthcare, disability, retirement and infrastructure.
Killing the wounded
How do the Republicans promise to fix the situation? They want to streamline the financial system (i.e. more deregulation), lower corporate tax rates (2/3rds of the corporations don’t pay any taxes now, no matter what the rate is.) and take the bad debt off the books of the criminal companies and give them to the taxpayer. In other words nationalizing the debt, who thought the Republicans, would lead the charge in a socialist revolution? Of course the relief is only for members of the state capitalist party (Corporate Democrats & Republicans).
While they compare it to the Resolution Trust Corporation that dealt with the Savings & Loan Crises (you might want to look up John McCain and the Keating five) it is not comparable. First the amount of debt is staggering (at least TWO TRILLION DOLLARS) when compared to the S&L crises.
Second, instead of taking over the institutions and selling off their assets to pay the debt, this time we are going to take just the debt. Every man, woman and child in the country will shoulder a minimum of an extra $2,000 of national debt. Like the old centralized government of the Soviet Union, the party members keep the assets and tell the working class you will now have to work harder for the good of the state, the corporate state that is.
If workers lose enough to take to the street against this unprecedented theft by the privileged class they will use the fear of “chaos and anarchy” in the streets to justify authoritarian repression to control those rebellious ones who object to being robbed with a pen.
Meanwhile the economic pundits are telling average Americans to have faith, buy while stocks are low and that the government will make a big profit of their purchase of the bad debt. If that’s true why aren’t private investors buying it up like ice after a hurricane?
Killing the Messengers
While Paulson and the other corporate hacks talk about the problem being based in the mortgage market, other experts who predicted right caution that is just the tip of the iceberg. In addition to the mortgage based securities, the junk bonds issued by the leveraged buyout specialists, credit derivatives (like those issued by AIG) and inflated values of commodities will undermine the whole American economic system.
As the true costs of the bail out rises for the unknown government commitment to take on the debt of those “to big to fail”, federal debt will skyrocket over the $9 trillion Bush has already stacked up. The increased debt will be paid by printing more dollars which allows repayment with dollars worth less than borrowed but creating inflation because of its lost value to purchase goods and services. Decreasing production, falling wages and inflation equals stagflation.
To hide the fact that they couldn’t even see the bottom of the abyss Paulson and the wizards of Wall Street came up with a plan to rescue themselves, hide how worthless these stocks, derivatives and junk bonds really are. You prohibit short selling. Telling the public those who bet on stocks falling were the cause of the problem, they were blamed the short sellers for “crashing companies”.
The truth is short sellers provide an indicator of a products real worth, which they bet is much lower then advertised. Borrowing the stock they actually buy it when it drops to the price they predicted, pocketing the difference. The positive side of short selling is they must purchase the product at that lower price they predicted. The forced buying of the product many times prevents the value from going even lower, putting the brakes on a sell off.
Many traders are now saying there is nothing to indicate what the market will do; trading is purely a speculation on what the government does next not the market value of any product. Those complex financial products now being akin to the old fake missiles the Soviet Union used to put around to convince the Americans they were really powerful, Paulson and friends hide the true amount they’ve dumped on the American public.
The best part of being rich and powerful is you don’t have to pay for your mistake. The government plan gives them the incentive of continuing their bad behavior, much like bailing the alcoholic out of jail and dropping him off at the nearest bar. Meanwhile millions of working taxpayers will lose their homes, jobs, healthcare, businesses, retirement funds and any chance for higher education. The simple fact is that corporatists in both parties took a federal surplus and turned it into the greatest public debt in history and took a vibrant national economy and bankrupted it. John McCain promises more of the same.
How bad could it get? We could end up a third world country where a very few control most of the wealth while the rest are pitted against each other for survival. Stephen Mihm of the New York Times quoted economist Roubini referring only to the bad mortgage debt when it was estimated to be $600 billion, as saying, “Even if it’s closer to a trillion, we’re not even a third of the way there. We have a subprime financial system, not a subprime mortgage market."
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