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September 2008. Insurance giant AIG is on the verge of collapse. Politicians, the Fed, economists and pundits flood the airwaves with apocalyptic visions of widespread financial calamity. As workers across the country lose their jobs and face foreclosures and evictions, taxpayers watch the federal government hand over $182 billion of their money to AIG.
And just how much did AIG’s multi-billion-dollar business partners sacrifice to keep the insurer afloat and help “save the economy”? Not a single penny.
In case of an AIG bankruptcy—which the taxpayer-funded bailout averted—Goldman Sachs and other financial firms with claims on AIG would likely have received only a small fraction of the billions AIG owed them. (The claims stemmed from insurance contracts, known as credit default swaps, AIG had written on mortgage-backed securities that had plummeted in value when the housing bubble burst.) But when Timothy Geithner, then president of the Federal Reserve Bank of New York, asked the big banks whether they would accept anything less than a dollar-for-dollar payment on their claims, their answer was simple: “No.”
Geithner dutifully complied. Details pertaining to the autumn 2008 federal bailout leaked to the public by a member of Congress Jan. 27 show that Geithner deliberately covered losses of major banks on their “toxic asset” holdings with taxpayer money, despite his denials that this was in effect a subsidy, by channeling the money through AIG.
A Congressional investigation turned up e-mails revealing the extent to which Geithner urged AIG executives and federal regulators to cover up the true nature of the payments. Goldman Sachs, for instance, received a full $14 billion for assets whose market value at the time was only $6 billion, essentially receiving an $8 billion taxpayer subsidy. After being bailed out directly and indirectly, Goldman Sachs posted a $1.3 billion profit for 2008 and awarded its executives with record-breaking bonuses. As of Sept. 30, 2009, mortgage-backed securities purchased by the federal government as part of the bailout were worth $30 billion less than it paid for them.
Geithner had previously claimed to have backed out of direct management of the New York Fed because he knew he was being nominated for his current position by the incoming Obama Administration. The intent was to keep embarrassing details of the bailout secret until 2018.
The big banks and corporations reap in immense profits in times of economic boom. But when the chaos of unbridled competition for profits leads to an inevitable crisis, workers bear the burden. Either way, the workers who produce the wealth of society are made to support the parasites in control of the economy.
The big banks and corporations cannot openly take billions of public dollars without facing an open revolt. Instead, they use their connections and dominant influence within the political and economic system to get their way. The pursuit of maximum profits has no moral boundaries; if overt legal means fall short, then corrupt backroom deals will do.
These latest revelations only go to show that the U.S. government is merely the administrative arm of the criminal capitalist state. It will always consider the interests of the rich first and last, at the expense of the interests of the workers.
An economic system whose engine is fueled by the profit motive cannot be reformed to prioritize people’s needs. It must be wholly replaced with an economic system that is not steered by a wealthy few, where planned production and distribution can meet in the interests of workers.
