Bailout can't save capitalism from its own gravediggers

As news spread that Treasury Secretary Henry Paulson was asking the government for $700 billion to buy "toxic" assets to save Wall Street banks, Congress was inundated with a flood of angry opposition in letters, e-mails and calls from ordinary working people. The tidal wave of communications--99 to 1 against--didn't subside even after threats that failure to act might mean the collapse of the capitalist system. There were also spontaneous public demonstrations throughout the country. On Sept. 25 alone there were 251 rallies in 41 states against this humongous bailout. On Sept. 27 thousands joined the California Nurses Association marching across the Golden Gate Bridge in San Francisco against the bailout and for universal single-payer health care.

Events leading up to this public outrage began on Sept. 18 when Paulson, a former Wall Street investment banker, and Ben Bernanke, Chairman of the Federal Reserve Bank, visited President Bush, and then the leaders of the Democratic Party-controlled Congress. They requested immediate action to raise the national debt ceiling to $11.3 trillion, give Paulson a whopping $700 billion and unfettered authority to buy up Wall Street's bad debt, mostly mortgage-backed securities and credit default swaps (CDS) that insure those securities. This, they said, was the only chance to avoid a total meltdown of credit markets and another Great Depression.

This "mother of all bailouts" was preceded just ten days earlier with a $200 billion Fed takeover of Fannie Mae and Freddie Mac, which together own $5 trillion or half of the entire U.S. mortgage market. When Wall Street investment bank Lehman Bros., also previously designated as "too big to fail," came calling, the Fed let it go bankrupt. Credit markets locked up, including money market funds, which banks and companies use to finance daily operations. There was widespread lack of confidence that any given bank could repay their loans. There was even the beginning of an old-fashioned run on the bank between banks themselves and by ordinary depositors, withdrawing uninsured money market funds.

Then came the impending collapse of AIG, the world's largest insurance company holding half a trillion dollars in CDS and employing 116,000 in 130 countries. A single bank--Goldman Sachs, the unregulated Wall Street investment bank Secretary Paulson headed until 2006--was liable to lose up to $20 billion if AIG could no longer pay its CDS claims. The Fed turned again 180 degrees and gave AIG an $85 billion loan and, in effect, nationalized this corporate giant by demanding nearly 80% ownership in exchange.

IDEOLOGY AND REALITY

By the time of the $700 billion offer-you-can't-refuse, politicians and bankers alike were in a giddy-whirl of free-market ideology and nearly simultaneous embrace of direct state control of vast corporations and sections of global finance. Liberal economist Paul Krugman, who supported the bailout eventually passed by the Congress, shared his half-joking first reaction: "Commissar Paulson has just seized the means of production." The only thing new in these ideological poles--statism vs. free market--revealing themselves as identical, was how that identity made so many political ideologues look like deer caught in the headlights.

In spite of the public outrage, both presidential campaigns, the extremely lame duck President Bush, and leaders of both political parties in Congress lined up behind passing a bailout in the name of saving the "real" economy or "Main Street" from Wall Street's excesses.

Presidential candidate John McCain, a long-time fervent backer of banking deregulation, who, a day earlier, was telling the Fed to get out of the business of bailouts, lined up behind the super bailout even as he repeated that the underlying economy was fundamentally strong. This was so out of touch with the reality of workers increasingly faced with losing their homes, jobs and health care, McCain suddenly lost ground in the polls after he had pulled ahead of Barack Obama through an ad campaign of blatant lies and appeals to racism. Obama gave cautious support for the Treasury Secretary's power grab, appearing with a line of his own financial experts, including Clinton's Treasury Secretary Robert Rubin, also a former Goldman Sachs Co-Chairman, and former Fed Chairman Paul Volcker.

Feeling the heat from their constituents, the House failed to pass the bill by 12 votes. Four days later, the Senate, where only a third are up for re-election, passed a new bill adding another $110 billion in spending and tax cuts, which then made it through the House and was immediately signed by President Bush.

NATIONAL DEBT IS WORKERS' DEBT

This colossal sum, on the scale of the cost of the Iraq War, will be added to the already exploding annual budget deficits now running over $500 billion. At the birth of capitalism Karl Marx noted that the national debt is the only part of the national wealth truly owned by the workers. The national debt has been a pivotal instrument of state-capitalism's despotism over workers, especially over the last two and a half decades. President Reagan started exploding the deficit through military spending in order to starve the gains in the social safety net workers had won after WWII. Obama has already intimated that the bailout will necessitate scaling back some of his spending plans.

In the U.S., workers have been falling further and further behind with a concentration of wealth at the top in the last three decades of globalization and restructuring comparable to the era of robber barons of the 19th century. Under deregulation, demanded by Wall Street bankers like Paulson, the share of profits flowing to the financial sector of the economy increased from 10% to 40%. In 2006 Wall Street bankers gave themselves $62 billion just in bonuses.

The American consumer was then continuously hailed as the reliable "hero" of the world economy, but that was at the cost of going deeper in debt. The U.S. savings rate is now effectively zero, the lowest among developed nations. When the Fed turned on the cheap money spigot to keep the economy up through a real estate bubble, mortgage debt exploded under the sales pitch that home prices would always rise. Many workers used their biggest asset--the homes in which they live--to survive, to pay today's exorbitant education costs and medical emergencies. It all collapsed when home prices retreated. The foreclosure crisis, now at 10,000 per day, continues unabated. Vacant foreclosed houses blight whole neighborhoods along with modern day "Hoovervilles," tent cities set up by the new homeless, which are springing up throughout the U.S. For those workers a new Depression has already begun.

Capitalists have learned from the 1930s to keep the system of global finance capital flowing at all cost. What is so crucial about finance capital, and why now does it require an economic czar with unprecedented state power to save it from its own implosion? As our April-May editorial put it after the then-unprecedented $30 billion bailout of "too big to fail" Bear Stearns:

"Finance capitalism, 'uncoupled' from production, feeds the illusion that profit can come from speculative bubbles. At the moment of reckoning, the truth asserts itself: that profit only comes from extracting ever more surplus value or unpaid hours of labor from workers. The real vital function of the system of finance is divvying up the loot from all the sweated, alienated labor extracted in labor-intensive manufacturing locales like India, China and Vietnam, as well as what remains in the U.S."

CRISIS DEEPER THAN LIQUIDITY

This financial crisis brings into sharp relief the U.S.'s status as the world's largest debtor nation. The tremendous loss of paper profits brings new tension between different centers of capital when they divvy up the shrinking pot of loot extracted from workers. The Chinese government, which could still teach U.S. capitalists a thing or two about combining authoritarian state control and a free market, quietly dropped a bombshell in a state newspaper in the face of what they called a "financial tsunami" emanating from Wall Street. The Chinese state-capitalists, who for now continue to buy much of the U.S. debt, are looking for a way to move away from the U.S. dollar as a global currency and for a global "financial order no longer dependent on the United States."

A crucial function of state-capitalism in a globalized economy is to discipline workers according to the needs of free-moving global capital. In one country after another, world financial bodies to which those countries have been indebted have been forced into structural adjustments that have cut social spending. The U.S.'s colossal indebtedness and the failure of the dollar to hold its value against other currencies threaten its privileged position in the global system of finance capital. This will bring even more pressure to bear against any expansion of social benefits in the U.S.

The Fed may have learned from the banking mistakes of the 1930s to immediately address liquidity problems, but the intractable problem of unemployment in the Great Depression, reflected also in today's global unemployed army, has much deeper roots than liquidity. Marx's prediction that the rate of profit tends to fall because of unemployment--a failure of capitalism to reproduce its source of value, alienated labor--comes alive at different crisis points.

Great Depression economists had to confront the need to couple the economy with employment. However, New Deal programs, which ameliorated severe hardship, never really succeeded in bringing the economy out of the Depression. It was the global human disaster of WWII, which also destroyed a vast amount of global capital, that was the basis for restarting the process of accumulation with a relatively unscathed U.S. as its center.

By the mid-1970s, after Europe and Japan rebuilt their economies with the then latest technology, there was a global recession and an era of low growth. Once again, economists rediscovered Marx's prediction of a falling rate of profit.[1] Capital's remedy was massive restructuring of the global economy, moving manufacturing to low cost nineteenth century conditions of labor. This restructuring has run into its own internal barrier with the present crisis as a watershed.

TIME FOR DOING AND THINKING

The U.S. economy has eliminated over 760,000 jobs in the last nine months. In February the unemployment rate was 4.8%. It steadily climbed to 6.1% by August. Many more U.S. workers will join the global ranks of an unemployed army who are already "ill-housed, ill-clad, and ill-nourished" and rebellious. (see "World Food Crisis stirs revolt," June/July, N&L). With its failure to reproduce alienated labor, Marx said, capitalism produces its own gravediggers.

However, labor doesn't move with the kind of expeditious class solidarity capitalist rulers have shown in this crisis. There is always a lot of thinking and struggle before labor presents its own collective response in what appears to be mass spontaneity. There are a lot of small strikes against capital's continuous demand for takebacks like the recent three month strike of 3,650 workers at American Axle that ended in a UAW sellout. Nurses and other health care workers continue to strike over working conditions that diminish quality care and for universal health care. Immigrant labor, now under near police state repression, showed its vitality and crucial place in the U.S. economy in a massive strike in May 2006.

Trying to stir opposition in their own direction, nearly all politicians expressed their "outrage" while claiming there is no alternative to saving capitalism and showing "bipartisan" solidarity with capitalists when the whole economy is at risk. This crisis revealed how rapidly objective events can call the whole capitalist system into question and generate a lot of action and new thinking about what is possible. Past failures surely show that the opposite of alienated labor is not to be found in statist intervention, political parties or trade unions, all of which broker on capitalist ground. At this crucial moment of capital's reorganization, it is important to engage that rethinking with Marx's concept of what it would take for humanity to break with being organized under the rule of capitalist production's alienated labor.

NOTES:

1. See "Today's Epigones Who Try to Truncate Marx's Capital," Sept. 21, 1977, in Marx's Capital and Today's Global Crisis by Raya Dunayevskaya.

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