One year since the US bank bailout

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One year since the US bank bailout
3 October 2009

One year ago today, the United States Congress passed the Emergency
Economic Stabilization Act of 2008, establishing the Troubled Asset
Relief Program (TARP) and authorizing the use of $700 billion in
Treasury—i.e., taxpayer—funds to bail out the banking and finance
industry.

The creation of TARP inaugurated the greatest plundering of the public
treasury and transfer of wealth from the working class to the
financial elite in history.

One year later, the analysis of the World Socialist Web Site that the
bank bailout was part of a fundamental and permanent restructuring of
American capitalism, whose central aim was the impoverishment of the
working class, has been richly vindicated.

While the Obama administration points to an astonishing rally on the
stock market and a revival of bank profits to proclaim an end to the
recession, the working class is being devastated by near-double-digit
unemployment, falling wages, pensions and health benefits, the
collapse of family savings, record home foreclosures and a precipitous
growth of homelessness and hunger. Even as they tout the “recovery,”
government officials warn that unemployment will remain at the highest
levels since the 1930s for years to come.

The passage of the TARP legislation was the culmination of three weeks
of closed-door crisis meetings between government officials and Wall
Street bankers, combined with a public propaganda campaign depicting
the bailout as the only alternative to an immediate descent into
another Great Depression.

On September 7, the Bush administration announced the government
takeover, at a cost of $200 billion, of the mortgage finance giants
Fannie Mae and Freddie Mac. The following weekend, after
round-the-clock meetings with Wall Street CEOs led by Treasury
Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and
then-President of the Federal Reserve Bank of New York (now Treasury
Secretary) Timothy Geithner, the government refused to provide
emergency funds to Lehman Brothers, allowing the Wall Street icon to
collapse.

No credible explanation for the decision to deny funds to Lehman while
rescuing Merrill Lynch and the insurance giant American International
Group (AIG) has ever been offered. It is now clear, however, that this
move reflected the conclusion that nothing short of a massive
diversion of public funds to cover the bad debts of the banks could
protect the wealth of the financial oligarchy. To create the political
conditions for such an unprecedented action it was necessary to
deliberately stoke up an atmosphere of panic and fear.

Lehman, the smallest of the Wall Street investment firms, was
sacrificed for the greater good of the financial aristocracy. Not
coincidentally, the chief beneficiary of the disappearance of Lehman
and Merrill Lynch was the largest investment bank, Goldman Sachs,
which Paulson had headed prior to entering the Bush administration. As
for the rescue of AIG, Goldman, its largest trading partner, stood to
lose at least $20 billion if the world’s largest insurer of bank
assets went down.

The following weekend, once again in talks conducted behind the backs
of the American people, Paulson handed congressional leaders a
four-page blueprint for a $700 billion bailout of the banking system
and demanded that they immediately enact it into law. On the evening
of September 24, Bush went on national television and, in apocalyptic
terms, insisted that if Congress did not quickly pass Paulson’s plan
“America would slip into a financial panic.”

The official line was that the bank bailout was being undertaken with
the greatest reluctance and for the benefit of “Main Street,” not Wall
Street. Barack Obama, then the Democratic presidential candidate,
immediately declared his support for the bailout, and Democratic
leaders in Congress were its most vociferous backers.

The eruption of the financial crisis and the rush to enact TARP
coincided with a remarkable improvement in Obama’s electoral
prospects. Prior to the crisis, Obama’s campaign was foundering. His
lead in the polls over his Republican opponent, John McCain, had
evaporated and his campaign was in visible disarray.

But with the events of early September came a sharp shift in the media
in his favor. A political decision had been taken at the highest
levels of the ruling elite that the implementation of a massive
bailout of Wall Street combined with sharp attacks on workers’ jobs
and wages and an offensive against basic social programs would be
politically more difficult under a McCain administration than an Obama
White House.

Obama’s relative youth, his ethnic background and his Democratic brand
could be utilized to confuse and disorient a public that would
overwhelmingly view a McCain administration as the continuation of the
policies of the hated and despised Bush. A clear consensus emerged
within the ruling class to push for the election of the tribune of
“change you can believe in.”

They could count, moreover, on the Obama enthusiasts within the middle
class liberal and ex-radical milieu to provide much needed political
cover for a right-wing Democratic administration.

On September 22, 2008, the World Socialist Web Site published a
statement of the Socialist Equality Party (US) National Committee
entitled “No to Wall Street bailout! The socialist answer to the
financial crisis.” The statement declared:

Both the plan itself and the manner in which it is being imposed are
deeply undemocratic. Exploiting the breakdown in US and global
financial markets, the financial aristocracy, which is responsible for
the crisis, is exercising its control over the government, both
political parties, and the media to implement policies of the most
far-reaching character without any genuine debate or discussion. As in
the aftermath of 9/11, it is seeking to utilize the crisis to push
through policies that would otherwise be considered entirely unacceptable…

Make no mistake: The working people, who are the victims of the
financial parasitism of the ruling elite, will foot the bill to bail
out those who have enriched themselves by plundering the social
wealth. The massive expansion of budget deficits and the national debt
as a result of this plan will be used to justify a brutal assault on
basic social programs, education, housing and the wages, jobs,
pensions, and health benefits of the working class.

Not a word of this citation needs to be changed in light of subsequent
developments.

The stock market continued to fall sharply in the first weeks of the
new administration, reaching its low-point on March 6. This in part
reflected a degree of uncertainty within the financial elite over how
resolute the Obama administration would be in protecting its
interests. Such doubts were largely dispelled in the course of March,
when the administration emphatically demonstrated its obeisance to
Wall Street.

In rapid fire, Obama intervened to scuttle a bill passed by the House
of Representatives, in response to public outrage over tens of
millions in bonuses awarded by AIG, which would have imposed limits on
the pay of bank executives; his treasury secretary, Timothy Geithner,
announced a plan to offload the banks’ “toxic assets” at public
expense; and Obama rejected the turnaround plans submitted by General
Motors and Chrysler, demanding deeper cuts in jobs, wages and benefits
and driving the firms into bankruptcy in order to carry through an
unprecedented attack on auto workers.

The markets reacted enthusiastically, setting off an extraordinary
stock market rally that has thus far continued, despite the growth of
unemployment and trillions of dollars in “toxic assets” that remain on
the banks’ balance sheets.

The forced bankruptcy of General Motors, in particular, shored up
Obama’s credentials on Wall Street. It demonstrated, first, that his
industrial policy would remain completely subordinated to the
interests of finance capital and, second, that he would pursue a
policy of intensifying the exploitation of the working class, using
mass unemployment as a bludgeon to impose wage cuts and speedup.

Since then, Obama’s domestic economic policy has been focused on the
drive to slash health care costs at the expense of the working class,
which he himself has presented as the spearhead of a campaign to cut
spending for basic entitlement programs, such as Medicare, and
permanently reduce domestic consumption (of the working class, of
course, not the financial aristocracy).

The balance sheet one year since the bank bailout constitutes the most
telling proof of the reactionary character of the Obama
administration, the class interests it serves, and the need for the
working class to initiate an independent struggle for a socialist
alternative to the bankrupt capitalist system.

Barry Grey

The author also recommends:

No to Wall Street bailout! The socialist answer to the financial crisis
[22 September, 2008]

Copyright © 1998-2009 World Socialist Web Site - All rights reserved

http://www.wsws.org/articles/2009/oct2009/pers-o03.shtml

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