Posted September 30, 2008
SOME TALKING POINTS ON THE FINANCIAL CRISIS
By Kate Griffiths and Isaac Steiner
The era of the United States as a “the world’s only superpower” is ending.
The United States economy has not been this bad since the Great Depression. The rulers of the US hoped to retain global power militarily, through the wars in Iraq and Afghanistan, as the country’s raw economic superiority slipped. But these wars cannot be won: opposition among the occupied populations, and growing dissent within the military, prevent any victory on US terms even as the death toll climbs.
Beginning during the 1970s, manufacturing stalled, while government and investors focused on the financial sector: banks, real estate, and insurance.
Increasing competition, strong unions, and victories of the Black freedom movement had begun to limit the profits made by US corporations and threaten the power of the ruling class. In response, employers shifted good-paying manufacturing jobs overseas and to nonunionized areas of the USA. As wages stagnated, and workers’ purchasing power declined, workers maintained a precarious hold on our livelihood through working longer hours, sending more household members to work, and buying extensively on credit. The globalization of US capitalism and growth of credit both fueled the financial sector, which provided fluid economic resources that could be quickly moved and re-invested – unlike a physical investment such as a factory or railroad.
In 2008, years of government policies favoring the rich provoked instability and sparked collapse of major Wall Street institutions.
As the cost of the basic necessities went up, and wages failed to cover them, workers’ inability to buy, buy, buy became a major problem for investors. To counter this, the Federal Reserve (through which the government regulates availability of credit) set interest rates at 0% for several years in a row, encouraging large amounts of debt-financed spending at by poor and rich alike. Much of this easy credit was poured into new homes, which many mistakenly saw as ‘safe’ or ‘foolproof.’ The hyped-up demand for houses drove their price far beyond the actual value anyone would realistically pay for them. Holders of expensive and sometimes outright fraudulent sub-prime mortgages quickly found themselves unable to meet the payments, and defaulted on their loans. Communities targeted for deceptive, manipulative “sub-prime” mortgages – especially African Americans – were hit hardest with historic losses of wealth.
Deregulation and corporate greed made a bad situation worse.
The collapse in the housing market bankrupted the massive mortgage lenders Fannie Mae and Freddy Mac. The companies were charted by congress as privately owned banks with special access to credit through the United States Treasury; they were developed under FDR’s administration in part to address the housing crisis of the Great Depression and provide access to affordable housing for some Americans. The collapse and government take-over of these institutions shows us just how serious this current crisis has become. That Great Depression of the 1930s was produced by dynamics similar to those operating today, and ended partially through government regulation of investment. But these regulations were stripped away in the 1980s and 90s to buy big corporations more time during those decades’ economic scares. Freed from oversight, investment bankers created new ways of cheating the market and spread the risk of this “safe” mortgage debt throughout the global economy. As uncertainty spread, banks and firms operating with high levels of debt were suddenly unable to borrow the amounts they needed to stay afloat. At the most basic level, banks collapsed by lending money they didn’t really have.
Wall Street’s collapse reveals not only corruption and shortsightedness, but problems that are a basic part of the capitalist system.
Corrupt bankers and bad government policy didn’t create this crisis; they just handled it in the worst possible way. The capitalist system requires permanent growth in profits to stay afloat. But low-paid and unemployed workers cannot buy enough to keep companies profitable. Of course, from the other end, a highly paid, fully employed work force also saps profits. The president’s recent speech to the nation addressing the crisis showed the bind that investors and the politicians that work for them are in; first he praised an economic policy that allowed Americans to “get easy credit” and purchase homes “sometimes for the first time,” and then lamented the “domino effect” this created throughout the economy. Of course Bush and congressional Democrats and Republicans alike have always favored the same thing, whether they call it “smaller government” or “privatization.” Each of these policies really represent the transfer of public assets and funds– which belong to all of us–directly into the hands of corporations and investors in their constant (and just as constantly failing) attempt to increase their own wealth. Bush, long devoted to “free enterprise” and “smaller government” now calls for “dramatic government action” in the form of the largest direct transfer of tax-payer dollars into private hands in history. Because this crisis was ultimately caused by the market, no market-based “solution” – whether “Buy American” or “support small business” or “stronger regulation” can provide a long term fix to the real problem!
There is no money for schools, housing, health care, Katrina relief, or public works jobs – but when the rich are in trouble, $700 billion appears.
A spokeswoman for the US Treasury admitted that $700 billion was simply a made up figure, to signal that the government had the bankers’ backs – on behalf of taxpayers. This bank robbery in reverse shows once again that the resources for government assistance exist. But assistance for whom? We must be clear that, far from right-wing cries of “socialism,” this sudden intervention is really indented to temporarily stabilize the whole corporate profit system. A government controlled by corporations will never willingly bail out those who really need assistance. This $700 billion could provide completely free health care for all, paid parental leave for overworked parents, free quality childcare and education, clean and safe city parks and communities of subsidized housing, job training and infrastructure for rural areas screwed by vanishing mines, factories and farms, and countless other “utopian” needs that are ignored as congress feeds the fire on Wall Street with our money.
We need strong social movements that fight for a relief and a clear vision of ending capitalism altogether.
As we protest the bailout, demands to address the immediate needs of women, workers, communities of color, young people and students, LGBTQ people, and the environment must be put on the table. Individuals, households and communities already marginalized by the system will face even greater downward pressures. Identifying the real links between these types of oppression and exploitation in order to rebuild a grassroots “movement of movements” is urgent. As we build these movements, we have to be ready to point out the incompatibility of capitalism and human needs. Activists in different social justice movements, community organizations, or revolutionary groups who already share a post-capitalist vision must work together to get these views their broadest possible hearing.
Capitalism will not collapse – it has to be overthrown.
From previous crises, like the Great Depression, we see that capitalism constantly strangles itself – but it also has an amazing flexibility for recovery (especially by engineering a government rescue plan!) The system will not end itself; on the contrary, like weeds growing after a forest fire, destructive crises and war just open up space for new capitalist growth and bigger upward transfers of wealth. But for the sake of humanity and the planet, society cannot continue to be based on profit. The bursting of the “miracle” financial system shows the continued relevance of real, productive work in society. Imagining a world without pinstripe suited men shifting around large numbers on a computer screen is easy – but who can imagine a world without people working to produce food, clothes, shelter and other necessities; to teach and provide health care; to transport things from one place to another? Revolutionary socialists, including those in Solidarity, see the possibility of a different kind of world because of this basic contradiction. The majority of people in society have no stake in continuing the status quo – and also, if united, have the power to overthrow the small minority that profits off our backs.WHAT DOES THIS MEAN FOR ME?
Fuel and food prices will continue to rise.
Protests against rising food prices have already broken out in countries around the world, as millions are pushed further into poverty and hunger.
Previously low energy prices and favorable exchange rates for the dollar made it cheap to import food into the US. Now, rising fuel costs seem likely to continue as American global power declines; not only will food prices increase even more, our car culture and suburban geography, with spread-out single family homes and miles of highway is becoming too expensive to maintain. Gas prices are making all that driving–and even heating our homes–increasingly unaffordable.
What about the housing market for renters?
Renters also face uncertainty as some rental properties are foreclosed on. Meanwhile, rent in the cities most impacted by soaring housing prices also increased dramatically over the last decade, and so far, have failed to return to pre-bubble rates.If the credit system freezes up, businesses will have difficulty expanding, causing unemployment and uncertainty to climb.
At the same time regular people will also have decreased access to credit, forcing us to live off of wages that are quickly shrinking relative to the cost of the things we need to get by.
This economic turmoil will likely decrease the already sharply declining value of the dollar.
This is due to both the government bailout, which introduces much more dollars into the economy, decreasing their value, as well as the falling confidence in the economic strength of the United States globally. The United States is has trillions of dollars of debt to Japan, China, Russia, Saudi Arabia, and Brazil. Any government bailout will be financed by even more credit from other governments.