Workers Vanguard No. 922
10 October 2008
Democrats, Republicans Fleece Working People
Financial Crisis: Bankruptcy of Capitalism
Those Who Labor Must Rule!
OCTOBER 6—In the biggest bailout in U.S. history, the House of Representatives voted to allocate some $700 billion to buy out the “toxic assets” of banks and other major financial institutions. Aptly dubbed “cash for trash” by international bankers, under the bailout deal the government will pay a premium for “trash” on bank ledgers, centrally mortgage-backed securities that high-rolling financiers bought en masse in speculative schemes to cash in on the U.S. housing market. When that bubble burst, bankers began to sharply cut back lending to businesses, consumers and even to each other, threatening to trigger an even deeper economic crisis. While cynically decrying Wall Street “greed,” the Republicans and Democrats came to the rescue with their near-trillion dollar subsidy in tax dollars to compensate for the losses of the banking and financial looters. The deal gives virtually unlimited authority for doling out billions to Wall Street fat cats to Treasury Secretary Henry Paulson, who made close to a half-billion dollars during the boom times in housing in his former capacity as head of Goldman Sachs!
Raising the spectre of the Great Depression, bourgeois economists and media pundits insisted that the Wall Street bailout was the price that everyone had to pay for restoring stability. But no one really believes that the bailout will do much for the economy; the stock market continues to plunge as credit tightens even further. You don’t have to watch The Sopranos to know extortion when you see it.
The working class, poor and oppressed have plenty to fear as this crisis is being played out on their backs. Mortgage foreclosures are sweeping the country at a rate not seen since the 1930s Depression. The wholesale destruction of pension programs now means that many are also seeing the retirement monies that they invested in stock market and other accounts go up in smoke. An article in the New York Times (30 September) suggested that people facing retirement consider working a few years longer to let the “magic of the market place” work its supposed wonders. A few days later, it was announced that September saw the biggest monthly job loss—159,000—in five years, coming on top of some 600,000 jobs that have been lost since the beginning of this year alone. Some 6.1 million people are working part-time because their hours were cut or they couldn’t find a full-time job. And for those who still have a job, it’s another day older and deeper in debt trying to make ends meet—paying the rent or mortgage, groceries, credit cards and other debts, gas and car payments.
Across the country, working people are enraged at seeing their tax dollars going to line the pockets of those responsible for their ruin. Populist appeals to this anger came less from the Democrats, who generally posture as the “friends” of the “little guy,” than from Republicans in Congress. The Republicans’ votes initially meant the defeat of the bailout package, leading to the largest one-day point drop in the Dow Jones stock index in history. The Republican rants against “big government” have long been the code word in this country for slashing any and all known social programs benefiting the working class, black people, immigrants, the poor, the sick and the aged.
Since the counterrevolutionary destruction of the Soviet Union in 1991-92, America’s rulers have reveled in the supposed “death of communism” as they increasingly savaged the unions, drove up the rate of exploitation of the working class and made life unlivable for the poor, particularly the masses of dispossessed black people in the inner cities. Now Republican Congressmen present the government bailout of those who massively enriched themselves on the backs of the working class and poor as, in the words of Texas Republican Jeb Hensarling, “the slippery slope to socialism”!
The current financial crisis is a compelling argument for a thoroughgoing socialist revolution in this country to seize the banks, the factories, mines, mills and other means of production from the hands of the capitalists who have appropriated and squandered the wealth produced by the working class. Contrary to social-democratic reformists, like the International Socialist Organization (ISO), whose call to nationalize the banks is its own version of a government bailout, we’re not talking about compensating those who have driven this country to ruin. The ISO bleats, “What’s really required in this crisis is an entirely different kind of government intervention” (Socialist Worker online, 1 October). What’s really needed is an entirely different kind of government, a government by and for the working class. Capitalism cannot be defeated short of the proletarian seizure of state power, which will abolish the private ownership of the means of production and institute a planned socialist economy. Only then will the wealth and productive capacity of society be used to serve the needs of the majority, not the profits of the few.
The working class is the only objectively revolutionary class in capitalist society; with its hands on the means of production, it has the social power and interest in sweeping away this deeply inhumane system through socialist revolution. The fundamental problem, though, is political consciousness. It is commonplace for American workers to identify themselves as “middle class.” This false consciousness is transmitted to the working class by the pro-capitalist trade-union bureaucracy and reinforced by the reformist left, which either openly or backhandedly gives support to “lesser evil” capitalist politicians. Working people need their own party, a revolutionary workers party to give conscious leadership to the struggles of the working class not only to improve its present conditions but to do away with the entire system of capitalist wage slavery. We are opposed on principle to any political support to any capitalist politician—Barack Obama, John McCain or Cynthia McKinney—Democrat, Republican, Green or “Independent.” Break with the Democrats! For a workers party!
The Shackles of Class Collaboration
Declaring that “Congress must absolutely insure that the administration’s plan is not just bailing out Wall Street, but also responds to the real pain on Main Street,” a September 19 press release by AFL-CIO president John Sweeney argued that “permanent solutions can be found in the economic program of Barack Obama.” The trade-union bureaucracy’s support to the Democratic Party is a central expression of their loyalty to American capitalism. It has long served to sap the fighting power of organized labor by shackling the unions to a party, which no less than the Republicans, represents the interests of the capitalist class enemy. The cost of this policy is not simply, or even mainly, the millions that are shelled out to the Democrats at election time, but the savage attacks on the living standards of the working class, the wholesale destruction of unionized jobs, the slashing of health care, the misery of the ghettos and massive incarceration of blacks, the racist roundups and deportations of immigrants.
Speaking from the Senate floor where he joined in voting up the bailout package, Obama appealed for a reconciliation of the exploited and the exploiters in the face of the financial meltdown:
“We are all going to need to sacrifice. We’re all going to need to pull our weight, because now, more than ever, we are all in this together. That’s part of what this crisis has taught us. But in the end of the day, there’s no real separation between Wall Street and Main Street. There’s only the road we’re traveling on as Americans.”
Obama is the first black candidate with a real shot at being elected the Commander-in-Chief of U.S. imperialism, a prospect heretofore virtually unthinkable in this deeply racist country where the forcible subjugation of the majority of the black population at the bottom of society has been and remains a central foundation stone of American capitalism. And his chances of winning might well have been given a big boost by the Wall Street crisis. The Democratic Party’s facade of being the “friend” of labor and blacks has historically made it the preferred party of the American bourgeoisie to rule in times of crisis either in mobilizing for war or in appeals for belt-tightening for the “good of the nation.” This has been additionally fueled by increasing antipathy among the bourgeoisie for the deranged fundamentalists of the Republican Party, whether in the White House or out. An article in the New York Times (3 October) noted: “In this campaign cycle, Republicans have continued to lose ground in voters’ party affiliation, especially among upper-income voters and those who identify themselves as professionals and managers. Even more than in 2006, business contributions are favoring Democrats.”
Obama outpaces McCain in contributions from hedge fund operators, securities and investment houses and commercial bank financiers—i.e., the same filthy rich speculators whose failed gambling debts on the housing market are now being paid off by taxpayers. They are speculating, and not unreasonably, that a Democratic Party administration would be more adept at keeping a lid on social discontent by putting a nicer face on the same grinding oppression and exploitation that the Republicans openly revel in enforcing. Some hark back to the 1932 elections—in the midst of the Great Depression—which brought Democrat Franklin Delano Roosevelt to power. But these days, the Democrats aren’t talking about a “New Deal.” All that’s being offered now is a “raw deal” for the working class, making the exploited and oppressed pay for the crimes of capitalism.
In any case, it is simply a liberal myth that FDR’s “New Deal” pulled the U.S. out of the 1930s Depression. The American economy did not recover its pre-1929 level until the imperialist slaughter of World War II set the war industries running in high gear. The New Deal was, however, successful in heading off a proletarian socialist movement. During the 1930s, American workers waged hard-fought class battles to organize for the first time in mass industrial unions. However, thanks in large part to the Stalinists and social democrats at the head of these unions, the incipient radicalization of labor was diverted into FDR’s Democratic Party.
Today, the price of the trade-union tops’ fealty to the Democrats is witnessed in the devastation of many of the industrial unions that were forged in the battles of the 1930s. The loss of millions of manufacturing jobs since the beginning of the deindustrialization of America some 30 years ago has fallen hardest on the black population. The loss of manufacturing jobs has been paralleled by an increase in the prison population, with black and Latino youth overwhelmingly rounded up and incarcerated in the racist “war on drugs.” Once a reserve army of labor for American capitalism, the populations of the ghettos are increasingly deemed a surplus population not “worth” even the most miserable social welfare by the capitalist rulers who no longer needed their labor power.
It was Democratic president Bill Clinton who ended “welfare as we know it,” condemning single mothers and their children to unspeakable poverty and starvation. Now Obama continues the refrain of condemning young black men as “deadbeat dads” who need to pull themselves up by their nonexistent bootstraps. Official unemployment for blacks is 11.4 percent, but according to some economists the actual jobless rate for all blacks of working age in this country is an astounding 42 percent! In some largely black and Latino neighborhoods in South Chicago, as well as across the Detroit metropolitan area, one out of every 20 households has been or is in the process of being foreclosed. The response of Democrats and Republicans alike is to condemn those who were preyed upon with subprime mortgages and other credit scams for “living beyond their means.”
Enough! The situation desperately cries out for class struggle against the capitalist rulers’ onslaughts. Labor needs a fighting leadership that will unleash the power of the multiracial working class in struggle not only for its own interests but also for black rights and in defense of immigrants. First and foremost that means breaking the chains forged by the present labor misleaders, which have shackled the working class to its exploiters.
Democratic Party “lesser evilism” has served to perpetuate the racist hellhole that is capitalist America, where the increasingly raw exploitation of labor is stoked by fomenting racial and ethnic divisions. While Obama has left room for few illusions that his election will in any way improve conditions of life for blacks in this country, many nonetheless have illusions that a black president might at least change the patina of race relations in this country. But one need look no further than the numerous black Democrats who were elected as mayors in major urban areas. Their job was to keep working people and blacks down, a role embodied in the statement by former New York City mayor David Dinkins: “They’ll take it from me.” Obama simply seeks to become the overseer for the whole plantation.
Black workers are a significant component of organized labor, integrated into strategic sections of the working class. The road to black freedom and the emancipation of the working class as a whole can only be realized in the destruction of American capitalism in which black oppression is rooted. Only when the working class has ripped the economy out of the hands of the capitalist exploiters and reorganized it on a socialist basis will the material basis be laid for the full equality and integration of black people. For a class-struggle leadership of the unions! For black liberation through socialist revolution! Those who labor must rule!
The Myth of “Regulation”
It has now become conventional wisdom, especially in liberal circles, to blame the meltdown on Wall Street on inadequate government regulation and then to blame inadequate regulation on the Republicans’ supposed belief in “free market fundamentalism.” An editorial in the New York Times (20 September) asserted:
“This crisis is the result of a willful and systematic failure by the government to regulate and monitor the activities of bankers, lenders, hedge funds, insurers and other market players. All were playing high-stakes poker with the financial system, but without adequate transparency, oversight or supervision.”
Similarly, Obama went after his Republican rival in their September 26 debate, railing, “this is a final verdict on eight years of failed economic policies promoted by George Bush, supported by Senator McCain—the theory that basically says that we can shred regulations.”
In reality, speculative binges that inevitably crash are endemic to capitalism. An example is the 1720 South Sea Bubble in England, where rampant speculation in the stocks of the South Sea Company led to a financial collapse whose impact was felt internationally. (David Liss’s 2000 novel, A Conspiracy of Paper, is a good read on the subject.) One need only look back to the last major financial crisis in this country, the collapse of the dot-com stock market boom in 2000-2001. In that case, the preceding speculative bubble took place under the Democratic Clinton administration, not a Republican White House. The wild inflation of financial assets—what Marx called fictitious capital—was centered on corporate shares rather than newfangled, exotic securities like CDOs (collateralized debt obligations) and CDSs (credit default swaps).
Stock market transactions were and are highly regulated by the Securities and Exchange Commission. Nonetheless, at the height of the bubble in 2000, the shares of companies listed on the S&P 500 Index were trading at 36 times their average earnings over the previous five years. The so-called price-earnings ratio was at the highest level in over a century. When the crash came, it wiped out more than a third of the stock market’s paper wealth. And then came a recession as corporate spending on new plants and equipment plunged and employment fell for three straight years.
In all modern capitalist countries, the overall supply of money and availability of credit is regulated through the operations of the central bank. No sustained speculative bubble, whether centering on corporate shares or mortgage-backed securities, can occur behind the back of the central bank. And the Federal Reserve, the U.S. central bank, helped fuel first the stock market boom and then the housing-price bubble through its “easy money” policy. When the former went bust, the Fed flooded financial markets with money. It cut the interest charged on short-term loans to member banks from 6.5 to 1 percent by 2003, the lowest rate in half a century. During most of this period, the so-called federal funds rate was less than the going rate of inflation. In effect, the government was giving away money for free—and as much as they wanted—to Wall Street financiers. No wonder the latter then spent with reckless abandon.
In late 2004, the London Economist warned that America’s “easy money policy has spilled beyond its borders” and “has flowed into share prices and houses around the world, inflating a series of asset-price bubbles.” Almost all European countries were infected with speculative bubbles regardless of the political and ideological character of their governments or the particular laws and practices regulating their financial markets. Countries like Spain, which have been governed by social-democratic parties, experienced an even more extreme inflation of housing prices than did the U.S.
Now these and other European countries are also facing the day of reckoning. Last fall, a large British bank, Northern Rock, which specialized in mortgage loans, went bust and had to be taken over by the government. Within the past few weeks the French, Belgian and Dutch governments have been involved in “rescue” operations for two major banks, Dexia and Fortis. The Union Bank of Switzerland—one of the largest in the world—has been hit by heavy losses and there is now talk of a bailout for this global titan. The German government has announced that it will guarantee all private savings, to the tune of more than $700 billion, after a group of banks pulled out of a deal to provide more than $48 billion to rescue the large German mortgage lender, Hypo Real Estate. Thomas Mayer, chief economist for Germany’s Deutsche Bank, bemoaned: “In this day and age, a bank run spreads around the world, not around the block.” To maintain that the current international financial crisis could have been prevented by more regulation and better oversight by Washington is like arguing that the destruction caused by a 100-foot-high tidal wave could have been prevented by adding a few feet to a six-foot-high jetty.
At the political level, the West European imperialist ruling classes are conflicted between worrying about the fallout from the Wall Street crash and gloating over the sudden weakening of their American imperialist rival. A recent study by the German economics ministry points to a “noticeably worsened external economic environment.” On the gloating side (which didn’t last too long) is a lengthy piece in the leading German bourgeois journal Der Spiegel online (30 September) titled, “The End of Arrogance: America Loses Its Dominant Economic Role”:
“With its rule of three of cheap money, free markets and double-digit profit margins, American turbo-capitalism has set economic standards worldwide for the past quarter century. Now it is proving to be nothing but a giant snowball system, upsetting the US’s global political status as it comes crashing down.”
The current economic meltdown demolishes the notion peddled by various liberal and radical ideologues of a new era of “globalization,” positing that capitalist rule had transcended the nation state and that agencies like the World Bank and the International Monetary Fund had become some kind of world capitalist government. Currently the national bourgeoisies of various countries, including those in the European Union consortium, are scrambling to shore up their own economic interests. The recent move by Ireland to guarantee the debts and deposits of its six largest banks provoked the ire of the British New Labour government, which feared a loss of depositors in its banks as people headed for greener pastures.
Noting that the “lack of a unified regulatory structure and a co-ordinated European response has led some governments to act unilaterally to protect their banks, even at the risk of infuriating their neighbours,” an article on the Web site of the Financial Times (3 October) quoted Willem Buiter, a professor at the London School of Economics, writing in his Financial Times blog: “The Irish guarantee is the most ‘in-your-face’ beggar-thy-neighbour provocation since medieval armies catapulted bubonic-plague-ridden corpses into the cities they were besieging.” Meanwhile, the Dutch government ripped up its part of the deal with Belgium to bail out Fortis, declaring that it would now spend this money to take full control of the bank’s operations in the Netherlands alone.
The “globalization” myth was premised on the liberal-pacifist notion that the capitalists don’t need state power—i.e., armed bodies of men—to defend their interests both against the exploited at home and against rival capitalists in other countries. As the world today is once again riven by an economic crisis, rivalries among competing imperialist powers that have led to two world conflagrations are once again heating up. The deadly chauvinism of the trade-union misleaders of “defending American jobs” against foreign competition, including against the Chinese deformed workers state, where capitalist rule was overthrown by the 1949 Revolution, is itself a defense of the interests of America’s imperialist rulers against the working class both at home and abroad. The defense of the class interests of the proletariat must be imbued with the program of international solidarity and struggle that Karl Marx and Friedrich Engels inscribed on the banner of the communist movement more than 160 years ago: “Workers of the world, unite.”
Reform vs. Revolution
In an editorial asking “Why not a bailout for the rest of us?” (Socialist Worker online, 1 October), the International Socialist Organization calls to “ban the Wall Street casino for high-stakes gambling.” One is reminded of the gendarme in Casablanca who declares that he is “shocked” to find gambling going on in Rick’s casino. But this is merely an expression of the ISO’s promotion of the supposed inherent democracy of capitalist class rule, which under sufficient pressure from the “people” can be made to serve the interests of the working class and oppressed.
Just in case anyone might mistake the editorial’s call to nationalize the banking system as any challenge to bourgeois rule, the ISO is quick to add: “Nationalized banks are nothing new. For much of the second half of the 20th century, they were the norm in Western Europe—and they remained capitalist institutions to boot.” No kidding! In the mouths of mass reformist parties in Europe, like the old Labour Party in Britain, calls for nationalization were typically nothing other than a prescription for bailing out bankrupt enterprises and financial institutions. By these lights, even the ISO allows, “It’s hard to describe the federal government’s recent adventures in the banking industry as something other than nationalization.”
To avoid confusion between what they are calling for and what the U.S. government has already done with its $700 billion bailout package, the ISO argues, “An economic bailout on pro-worker terms would include much more than nationalizing the banks.” What follows is a wish list of beneficial programs such as a moratorium on home foreclosures, job creation, public works to rebuild schools and housing in the inner cities and so on. This is echoed by Workers World Party (WWP) in its article, “Handout to the Rich Ignites People’s Anger” (Workers World, 1 October), which calls for “a freeze on all workplace closings and job layoffs...and a rollback in gas, food and utility prices” and lots of other good things. According to the ISO and WWP’s pipe dream, all of these demands can and will somehow be legislated by the capitalist state. As V.I. Lenin, leader of the 1917 Bolshevik Revolution, wrote nearly a century ago, the working people “never decide important questions under bourgeois democracy, which are decided by the stock exchange and the banks.”
WWP even advises that “from a strictly capitalist point of view, aid to homeowners would transform bad debts into debts that are payable. It would actually ease the financial crisis of the system.” Nonetheless, unlike the ISO editorial, WWP is at least capable of mouthing the words that the current crisis is a product of the capitalist system of production for profit and even calls for “struggle” as the “only way that real, profound change takes place.” But for the working class, black people and the poor to get their hands on the money that will provide jobs, education and health care requires breaking the power of the bourgeoisie, which has its hands on the wealth, taken from the labor of those who produced it.
In the Transitional Program, the founding document of the Fourth International, written on the eve of World War II, Bolshevik leader Leon Trotsky put forward a series of demands aimed at bridging the struggles of the working class to the understanding of the need to overthrow the decaying and anarchic capitalist profit system. To unmask the exploitation, robbery and fraud of the capitalist owners and the swindles of the banks, he argued that the workers should demand that the capitalists open their books “to reveal to all members of society that unconscionable squandering of human labor which is the result of capitalist anarchy and the naked pursuit of profit.” Pointing out that “imperialism means the domination of finance capital,” he raised the call for the expropriation of the banks while arguing that this would produce “favorable results only if the state power itself passes completely from the hands of the exploiters into the hands of the toilers.” In the face of mass unemployment, he called for working-class struggle for a shorter workweek with no loss in pay to spread the available work, for a massive program of public works and for wages to rise with prices to guard against the ravages of inflation.
In opposition to the capitalists and their reformist agents, Trotsky argued:
“Property owners and their lawyers will prove the ‘unrealizability’ of these demands. Smaller, especially ruined capitalists, in addition will refer to their account ledgers. The workers categorically denounce such conclusions and references. The question is not one of a ‘normal’ collision between opposing material interests. The question is one of guarding the proletariat from decay, demoralization and ruin. The question is one of life or death of the only creative and progressive class, and by that token of the future of mankind. If capitalism is incapable of satisfying the demands inevitably arising from the calamities generated by itself, then let it perish. ‘Realizability’ or ‘unrealizability’ is in the given instance a question of the relationship of forces, which can be decided only by the struggle. By means of this struggle, no matter what its immediate practical successes may be, the workers will best come to understand the necessity of liquidating capitalist slavery.”