Some Talking Points on the Financial Crisis

SOME TALKING POINTS ON THE FINANCIAL CRISIS

By Kate Griffiths and Isaac Steiner
  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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!

  6. 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.

  7. 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.

  8. 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?

  1. 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.

  2. 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.

  3. 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.

  4. 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.

    Please contribute to this list!

    Although I hope this is useful, it is clearly not the end-all "talking points of the financial crisis." If there are points that are off, or you have something to add on the omissions (more on the oil crisis, immigration, the wars/global politics...), and especially SHORT TERM DEMANDS, please add them!

    Cynthia McKinney and Ralph Nader both have good 10-point plans: http://votetruth08.com/index.php/learn/mckinney-messages/263-seizethetime

    http://www.votenader.org/media/2008/09/16/meltdown/

    foreclosures & the financial crisis

    I live in Detroit, which is suffering from one of the country's highest foreclosure rates at 16% (the national rate is 4.8%). It's essential to keep people in their homes. Once there is a foreclosure, not only does the household suffer, but the immediate community undergoes traumatic shock as well.

    So the #1 solution has nothing to do with bailing out the fat cats, but stopping foreclosures, ending predatory lending and renegotiating reasonable, affordable rates.

    Where can the money come from to turn this situation around? Start with those in the best position to pay--the wealthy who have benefited from Bush's tax reduction policies. The Institute for Policy Studies calculated that a securities transaction tax of a penny for every $4 invested would add $100 billion a year to the U.S. Treasury. A wealth surcharge of 3% on households worth more than $10 million would add up to another $300 million.

    A few thoughts...

    Hi Kate & Isaac,

    I've just read your excellent talking points and wanted to make three quick comments/raise three quick questions which I hope will spark further discussion:

    1. Re: Point #2 -- Beginning during the 1970s, manufacturing stalled, while government and investors focused on the financial sector: banks, real estate, and insurance.

    To what extent did "strong unions, and victories of the Black freedom movement" actually begin "to limit the profits made by US corporations and threaten the power of the ruling class"? Was it the victories of these left forces -- the unions and the Black freedom movement -- which limited profits and brought on economic crisis in the 1970s, or the internal logic of capitalism itself? As I see it, the more important peice, which you also reference, is competition: increased competition among capitalists in a lucrative sector of the market -- automobile production, for example -- inevitably leads to a declining rate of profits, regardless of the strength of unions or the victories of the social movements. Seen from this angle, then, the offshoring of production in the last half-century was intended by corporations to allow them to evade unions and labor standards in the US, but also to increase their competitiveness vis-a-vis both unionized and non-unionized rivals. In other words, even in the absence of strong unions and powerful social movements, the logic of competition and the market -- the logic of capitalism itself -- would ultimately have impelled corporations to off-shore their production. Anyway, this is just food for thought -- it's a question which I find particularly interesting and your talking points got me thinking about it.

    2. Re: Point #4 -- Deregulation and corporate greed made a bad situation worse.

    Were Fannie Mae and Freddy Mac always privately-owned? I thought they had been public until the last several years. Wikipedia, admittedly not the most reliable source, says the following of Fannie Mae:

    "Fannie Mae was founded as a government agency in 1938 as part of Franklin Delano Roosevelt's New Deal to provide liquidity to the mortgage market. For the next thirty years, Fannie Mae held a virtual monopoly on the secondary mortgage market in the United States.

    In 1968, to remove the activity of Fannie Mae from the annual balance sheet of the federal budget, it was converted into a private corporation."

    3. Re: Point #8 -- Capitalism will not collapse - it has to be overthrown.

    In this point you reference the Great Depression as an example of a situation in which capitalism narrowly escaped total self-destruction. You then write:

    "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."

    I might explicitly link this latter statement to the earlier reference to the Depression. After all, it was not FDR's New Deal which saved capitalism, but the transition in the United States and across the globe to war production and, ultimately, the destruction wrought by the Second World War in Europe. The New Deal served to ameliorate the hardship faced by workers and others in the early 30s, but it was a
    stop-gap measure: after several years of recovery, a second recession struck in 1938, demonstrating that FDR's reforms were akin to a band-aid placed on a gaping chest wound. War production, however, jump-started the economy; and the destruction in Europe allowed for the rise of US capital as a dominant world force because said destruction reduced the number of competitors in the global economy
    and also necesitated the rebuilding of an entire continent. In sum, then, the Depression, which you reference, is itself a great illustration of your subsequent statement -- why not link them explicitly?

    Sorry for rambling -- it's a slow day at work and I really did find your talking points thought-provoking. I'd love to hear your thoughts on these comments! :)

    -Micah

    Housing as a commodity

    Enough about the Banks.

    I think we should talk about the consequences of housing as a commodity.
    Granted, the derivative driven bubble in the housing market could have happened to any commodity - that's endemic to capitalism and the business cycle.

    But housing is a human need. Instead of people purchasing homes as a need, even working class people were encouraged to look at housing as an investment; as something to purchase and then sell to another working class person at a profit. This was the rational behind a lot of the over leveraged mortgages. It's also the market mechanism - ie, result of human choice - that causes gentrification. Targeting people of color with adjustable rate mortgages was not only tragedy but an irony.

    Of course, like everything else in capitalism it was a pyramid scheme. The national foreclosure rate in August was 4.4 percent.

    Now, some of that number is doubtless the loss of second homes, or seventh house if you're like the McCains. But an astounding number of those foreclosures mean tremendous loss and hardship. While Lehman brothers board members got their parachute, working class people get put out on the street.

    Because housing isn't a right but an "investment." Something to gamble on. Who wants to live in a roulette wheel? Who can?

    As the damage from finance, the collapse of the housing industry itself spreads and even more adjustable rate mortgages blow up, foreclosures will rise even farther. As people lose jobs, we will be faced with the injustice of increasing numbers of vacant homes and increasing numbers of homeless.

    I read that in Detroit people are already proposing concrete steps to fight this, as opposed to propaganda marches (not a bad thing in and of itself but what next?)

    A brief check at Google news shows only a few protests at evictions. And nowhere is the Depression era bed time story of moving people back in to their homes.

    There might be a way to participate, support these struggles and make a point about capitalism at the same time: Community Land Trusts. Land trusts, like Homestead Community Land Trust in Seattle, own the land that a homeowner buys a house on. The homeowner does own their home, but has a covenant with the trust to restrict the future selling price. That home and land is now 'off the market' and a check on gentrification of the neighborhood. The land trust itself is a community organization of the home owners, united in common interest to shepherd their homes.

    Could a movement be strong enough to just squat vacant homes into land trusts to save neighborhoods from becoming ghost towns of boarded up buildings?
    Could a struggle persuade banks to take a writeoff, donate a portion of the mortgage to the nonprofit trust, allowing the home owner to continue purchasing the house, but at a rate approaching sanity?
    Could socialists work with community activists and people with housing trouble to meet human needs and build organizations that can be part of a movement?

    Jon H Seattle

    thanks for the links

    It is useful to spread the word about any ongoing ani-forclosure, anti-eviction and pro-housing struggles.

    what capitalism?

    the already weak form of capitalism has been continually chipped away throughout the last 100 years or so. it took a huge hit with the introduction of the federal reserve act, which instituted a central bank; one of the planks of the Communist Manifesto. we have nothing close to capitalism or a free market in this country, and that is precisely why this economic crisis occurred.

    all these attempts by our government to nationalize banks, and bailout this and that, will only prolong this needed correction. the government forced this crisis upon us, likely through good intentions, and now there is no simple way to get out of the mess other than liquidation. but they are not allowing this. they are setting us up for an even worse crisis.

    the dollar will eventually collapse, and people will erroneously blame it on the free-market without looking at the big picture. there is no free market. our money is 100% fiat, controlled by the government.

    these arguments sound like those of McCain and Obama.

    correction

    Quick correction regarding talking point 3: Can you show us any data that shows either the Prime Rate or the Federal Funds rate (the two important ones) at 0%? You can't, because this has not been the case. I'm not trying to be contrary, but you can't be making claims that aren't true, especially ones that are so easy to know the correct answer to and that are so obviously not the case. Again, thanks for the talking points, there will be a lot of people (I HOPE) out there this weekend voicing the facts. Good luck to everyone

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