As summer turned to autumn and the U.S. housing crisis erupted into a full-fledged economic disaster, the capitalist U.S. government moved to prop up the remaining institutions of big capital. Bankrupt or merged were major investment banks Bear Stearns, Lehman Brothers and Merrill Lynch; effectively nationalized were the mortgage-holding Fannie Mae and Freddie Mac; and teetering at the brink of bankruptcy was insurance giant American International Group.
But of those who survived, many were given or are set to receive enormous injections of capital from the government at the expense of taxpayers, including the now-infamous $700 billion bailout package. The government’s stated goal was to loosen the twin vises of “uncertainty and mistrust” that had frozen credit markets and threatened to drag large-scale economic activity to a standstill. The public was told that the move would allow beneficiary institutions to smooth out issues of liquidity and resume lending to one another the money necessary to conduct short-term business.
Instead, the major players used the money to benefit themselves rather than the sinking national and international economies.
Compensation and consolidation
Despite massive losses in stock value and capital base following the onset of the housing crisis, Goldman Sachs, one of the major beneficiaries of the U.S. government’s largesse, will compensate its staff with a pool of roughly $12.4 billion, or nearly $420,000 per person. In the face of criticism for refusing to cut bonuses despite so much failure, CEO Lloyd Blankfein has remained reticent.
His attitude is not an outlier: Major Wall Street banks and firms have all affirmed that they will continue their compensation practices simply because they can—the government provided the money they need to continue making themselves rich.
Additionally, bailout recipients have declared their intent to use the funds not to unfreeze the credit market but to enlarge themselves at smaller banks’ expense. JP Morgan Chase, BB&T and Zions Bancorporation have all made such statements; Citigroup announced Nov. 13 that it is in negotiations to acquire D.C.-regional Chevy Chase Bank.
Here is the true nature of the bailout’s intent laid bare: providing funds to stave off collapse of favored, “too big to fail” financial monopolies and enable them to grow even bigger. However, with so much paper wealth lost in the economic convulsions of the capitalist crisis, and with the federal budget already deep in the red, those funds could only come from stepped-up government borrowing, made easier by the continued dominance of U.S. imperialism.
As happened during the currency crises of 1997-98, which hit first in Asia and then spread to Russia and elsewhere, the dollar has once again benefited from an international “flight to safety” into U.S. Treasury securites.
The developing world pays yet again
After the fall of the Soviet Union, worldwide capitalist hegemony was established according to what is known as the “Washington Consensus.” Trade relations were liberalized, devastating the economies of many oppressed countries. In those countries, workers’ organizations were weakened or destroyed, wages and living standards depressed and labor and resources increasingly exploited for the benefit of the international bourgeoisie in a modern-day version of colonialism.
As the current economic crisis—which began in the United States—surges around the world to engulf even the least-connected countries, capitalist investors looking for some stability and reliable returns are removing their money from countries such as Brazil and Russia and buying U.S. treasuries. These dollar-denominated holdings represent safe havens as compared to so-called emerging economies now wracked by shrinking export markets and crashing prices.
This flight to safety has been one of the factors wreaking havoc on currencies around the world: India, considered to be among the key emerging economic powers by bourgeois economists, has seen the value of its rupee decrease 25 percent against the dollar since January; Ukraine’s hryvnia has lost 20 percent.
Countries such as Venezuela and Russia that have been funding domestic development through the sale of oil now face the frightening prospect of a drastic drop in revenue. From a July high of $147 per barrel, the price of oil has plummeted to the mid-50s with no floor in sight.
To gauge the effects of the economic crisis on export markets, which are predominant among developing nations, one need only look to the Baltic Dry Index, a measure of shipping activity computed daily by the London-based Baltic Exchange. From all-time highs in May, the BDI has dropped 93 percent—and it is still falling.
Invitation to capitalist vultures
The economic crisis has spread around the world like an epidemic. Iceland was literally bankrupted by its banks’ involvement in the financial meltdown and had to seek outside assistance, including that of the notorious International Monetary Fund.
Long a lever for prying countries open to super-exploitation by foreign capital, the IMF is an international lending facility that allows nations access to large loans at often-usurious interest rates and with the conditions of “structural adjustments.” The so-called adjustments include large cuts in government spending, removing protection of domestic industry and agriculture and anti-labor measures. IMF funds are provided by member nations, primarily the United States, Japan and the European Union—the major centers of global capitalism.
Iceland’s fate is yet to be decided, but its vulnerability despite being considered a developed economy has proven indicative of nations’ potential for disaster. Ukraine, Hungary, Pakistan, Belarus and Serbia have all appealed to the IMF for emergency funds, and the U.S. Federal Reserve has approved steps for easy loan approval for Brazil, Mexico, South Korea and Singapore. Turkey is believed to be next.
Much like the U.S. bailout, IMF aid may provide some limited buoyancy to recipient nations’ economies, but only for the benefit of the bourgeoisie and at the expense of workers facing layoffs, rising commodity prices and loss of government-provided benefits.
