The economic situation in the United States today reveals a huge and ever-increasing gap in wealth distribution. At one pole are untold riches like no other time in history. At the other pole are record foreclosures, rapidly increasing unemployment and spreading homelessness.
 5,000 protest American Banking Association in Chicago on Oct. 27 |
In the third quarter of this year, finance behemoths JPMorgan Chase and Goldman Sachs reported $3.6 billion and $3.2 billion in profits, respectively. The Wall Street Journal reports that major U.S. banks and securities firms will pay their employees a record high $140 billion this year. Goldman Sachs alone will pay a staggering $23 billion in bonuses, just a year after tax-payer funds kept it from going under.
Meanwhile, for average working people in the United States an entirely different set of circumstances exists. Nearly 940,000 homes received default notices or were repossessed by banks in the third quarter, up 11 percent from the second quarter and 23 percent from a year earlier. In the same period, foreclosure filings climbed to a record high. Economists project the official unemployment rate will soon top 10 percent, with the real figure close to double that.
One of the fundamental factors behind this obscene chasm between a tiny wealthy minority and the rest of us is the domination of the government by the big banks and other corporate giants.
Wall Street: fox in the Washington hen house
Despite President Obama coming into office with wide-reaching popular support, a brief look at some of his cabinet members’ backgrounds reveals the true intentions of his administration.
Top economic advisor Lawrence Summers has overseen the transfer of trillions of dollars in loans, loan guarantees and cash infusions to the Wall Street firms he formerly represented, including Merrill Lynch, Lehman Brothers and the major hedge fund D.E. Shaw. Treasury Secretary Timothy Geithner has presided over hundreds of billions in government bailouts to the biggest financial institutions and protected the criminally large executive salaries and bonuses.
Summers and Geithner both worked behind the scenes to allow payment by AIG of $165 million to executives after receiving $170 billion in bailout money, saying they had no right to interfere with the company’s “contractual obligations.”
Most recently, the administration appointed former Goldman Sachs executive Adam Storch to a newly created post in the Securities and Exchange Commission, a federal agency whose charter is to oversee the financial markets.
Congress has an equally compromised relationship with Wall Street. From 2000 to 2005, the number of lobbyists on Capitol Hill more than doubled, to over 34,750, nearly 70 per Congress person. (Washington Post, June 22, 2005) Such enormous influence peddling by Wall Street makes it unthinkable for elected representatives to even contemplate prioritizing the interests of average citizens over the banks and corporations.
Since the financial meltdown in 2008, Congress has taken only symbolic steps toward “regulating” the finance industry. The moves will have no serious impact due to the multi-billions spent by the banking and finance industries to thwart anything other than the most minimal reform.
Last month, the Financial Crisis Inquiry Commission was initiated on Capitol Hill. Its stated purpose is to investigate the causes of the ongoing financial crisis. However, the commission can only subpoena witnesses if large majorities in both houses of Congress agree to do so. The likelihood of this occurring is next to nil due to the risk of further exposing insider relations between Washington and Wall Street and jeopardizing future campaign contributions.
Meanwhile, the Supreme Court is currently poised to strike down the few campaign finance reforms that restrict corporate contributions, likely unleashing still more corporate money to buy off members of Congress.
Former insider exposes government-banking connections
In an Oct. 15 interview on Democracy Now!, William Black, a former bank regulator at the Federal Savings and Loan Insurance Corporation, described the current economic crisis as the result of “horrific, endemic fraud” on the part of the finance industry with the aid of virtually all sectors of government.
“… Reform efforts on derivatives, for example, are a scandal,” said Black. The so-called reforms are designed to exempt “virtually all of the problem derivatives.” (Derivatives are contracts that derive their value from the market value of securities to which they are linked and are used to gamble on market fluctuations or insure against loss.)
Black went on to say that foreclosures, while at record highs, are in fact quite low relative to delinquent payments. There are many more delinquencies not categorized as foreclosures to avoid recognizing losses. The combination of understated losses and overstated gains enabled by fraudulent accounting have resulted in unprecedented executive bonuses.
According to Black, all this means that the banks involved may be deeply insolvent and continuing to lose money. Yet Washington intervenes in no substantive manner. The situation foretells of even more financial crises when the current round of finance sector fraud eventually implodes as interest rates rebound, which they inevitably will.
Broad and lasting financial reform is not possible under capitalism
Since the Great Depression, repeated attempts at reforming U.S. capitalism have always been subject to being reversed, because the capitalist class has remained in power and the profit motive has remained the driving force of production.
Geniune financial reform that can ease some suffering for the working class can only be won through struggle.
During the New Deal era, the Senate set up the Pecora Commission to investigate the Wall Street crash of 1929. The commission exposed a wide range of high-level criminal activity and led to significant reforms, including the Glass-Steagall Act of 1933. The act’s purpose was to protect depositors from high-risk speculation by separating commercial banks from investment banks.
After more than 20 years and $300 million in lobbying by the finance industry, however, the Clinton administration repealed Glass-Steagall in 1999, ushering in yet another era of unregulated speculation.
Fifty years after the Depression, in the savings and loan crisis, it was exposed that unregulated accounting scams had enabled the banks to fraudulently claim unprecedented annual rates of growth of over 50 percent. Investors predictably flooded areas of high returns with capital and created a massive bubble, which inevitably burst. The end result was the failure of over 1,000 banks at the cost of $124.6 billion in taxpayer money.
Today, we are faced with yet another—and much more devastating—economic crisis, due directly to the continued insider relations of Washington and Wall Street in defense of capitalist profiteering.
If we, the working class, want real solutions to the recurring crises of capitalism, we must overturn the dictatorship of banking and finance capital and replace the profit motive with the meeting of human needs as the motor force and regulator of production. The banks should be the property of the whole people and subject to the needs of the people, not Wall Street billionaires and their accomplices.
