In the Notes from the Editors for the September issue of Monthly Review (written in late July) we asked why, with the United States bailing out the financial sector of the economy to the tune of hundreds of billions of dollars, there was no public outrage. As we observed at that time, “In the end there seems to be no satisfactory explanation for lack of popular protest over a series of ad hoc grants showering hundreds of billions of dollars of public money on the masters of finance, collectively the richest group of capitalists on the planet. And that raises the question: Is this outrage present nonetheless, growing underground, unheard and unseen? Will it suddenly burst forth, like some old mole, unforeseen and in ways unimagined?” The collapse of Lehman Brothers on September 15, the resulting freezing up of credit markets, U.S. Secretary of Treasury Henry Paulson’s emergency plan for a $700 billion bailout of financial firms, offering “cash for trash,” i.e., proposing to buy up the toxic waste of virtually worthless mortgage-backed securities at taxpayer expense—quickly answered our question. When the U.S. Treasury got into the act with its bailout proposal, requiring Congressional authorization (previously the Federal Reserve had led the way in bailouts, to the point that treasury securities had sunk to just over half of the Fed’s assets, as we explained in September), all hell finally broke loose. Suddenly, the public outrage that had been growing beneath the surface burst forth. The U.S. capitalist class was abruptly confronted with a major political as well as economic crisis.
The visible anger of the population over the bailout plan did not stop the Treasury Department, the Congressional leadership, the president, and the two presidential candidates—together with financial capital—from going ahead and patching together a deal based largely on the original Paulson proposal. What was completely unexpected, however, was the revolt in the House of Representatives on September 29 with 133 Republicans and 95 Democrats voting down the $700 billion bailout package, leading to the largest one-day point drop in U.S. stock market history. To be sure, the powers that be soon had their way, and a version of the Treasury Department proposal, with added elements designed to provide political cover for representatives who switched their votes, was soon passed. But the initial revolt in the House forever changed the nature of the worst financial crisis since the Great Depression, making it overtly politicalfor the first time, and leaving a legacy of popular dissent. The politicization of the bailout issue and the increasingly desperate economic conditions guarantee that the longer-term consequences for U.S. capitalism will be immense.
No one has a crystal ball to look into the future, and the nature of this crisis makes it impossible to predict what will happen next. But a few things seem obvious. First, the bailout to be carried out by the Treasury Department, though massive, will at best only stop an immediate meltdown. It will not bring the financial crisis to a close. The genie of financialization is out of the bottle and it is going to take time to get it back in again. The crisis of housing and mortgage lending has not in any way abated. The Federal Reserve and other agents of the federal government had already poured more than the $700 billion bailout package (including home mortgage rescues) into the financial system over the previous year in the form of loans, guarantees, swaps, giveaways, and takeovers (“A Tally of Federal Rescues,” New York Times, September 28, 2008; “Treasury and Fed Looking at Options,” New York Times, September 29, 2008). Moving rapidly from a lender of last resort to an investor of last resort, the federal government has enormously stretched its resources—already under strain due to the Iraq and Afghanistan wars.
Second, the rapid decline in U.S. economic hegemony is now obvious to the entire world and is likely to impair the willingness of foreign investors and governments to take dollars—necessary to finance the growing U.S. debt. International pressure is growing to prevent Washington from exporting its crisis abroad. Brazilian President Luiz Inácio Lula da Silva has demanded that Latin American, African, and Asian states not be made into “victims of the casino erected by the American economy” (“U.S. Crisis Deepens Divisions in S. America,” Washington Post, October 1, 2008). Indeed, U.S. imperialism is visibly weakening everywhere—despite $1 trillion of actual U.S. military expenditures in 2007 alone (see “The U.S. Imperial Triangle and Military Spending,” Monthly Review, October 2008).
Third, the real problem is still not being addressed: the stagnation of the U.S. (and advanced capitalist) economy. This is not so much an effect of financial crisis, as commonly supposed, as the cause of the vast growth of the financial superstructure in the first place—and why the bursting of the financial bubble is such an immense and currently insurmountable disaster (see “The Financialization of Capital and the Crisis,” MR, April 2008). The stagnation of production, symbolized by the recent $25 billion in federal loan guarantees to the big automakers, has received relatively little attention in the face of the astronomical financial crisis, but remains at the heart of the economic malaise.
Finally, it is now sinking deep into the public consciousness in the United States that the most important question in the end is: Who will pay? The bailout deal skirted the issue by leaving it up to the next president to come up with a way to compensate the public for losses from the Treasury’s buying up of financial toxic waste. What this means is that the real political battle has only just begun.
If these are the main dimensions of the problem, what should U.S. leftists do at this point? This is not an easy question to answer. It is not our job to fix their system. Nor in fact is it fixable. As Harry Magdoff and Paul Sweezy argued in 1988 in the aftermath of the 1987 stock market crisis, this is, judged from the longer-view, an Irreversible Crisis. There are therefore no visible solutions. Under these circumstances the emphasis should be on reducing inequality, strengthening the position of workers, providing decent jobs for people doing the work for which they are equipped, and guaranteeing such social essentials as: adequate health care, nutrition, housing, education, Social Security, retirement pensions, and environmental protection. Military spending should be cut drastically and used to fund needed social programs. A tax on securities trading and ideally a wealth tax should be imposed. Such things can only be achieved, however, if the population rises up and demands control over the political economy. Again, we should not pretend for a moment that any of this would repair what is wrong with the capitalist system. It would not. But some such set of measures is necessary to create a better life for the vast majority of the population, and as a step away from capitalism and toward a better socioeconomic alternative.
Certainly, there is something to be said for the view of U.S. Representative Peter DeFazio (D-OR) when he wrote in response to the Paulson bailout(“Wall Street Bailout Won’t Help Main Street,” Eugene Register-Guard, September 29, 2008): “In President Franklin Roosevelt’s Works Progress Administration, we invested in building roads, bridges, hydroelectric dams and other public works projects to rebuild our nation’s broken economy.” DeFazio went on to argue that if a bailout plan was to be adopted it should be paid for by a securities transfer tax, such as actually existed in the United States from 1914 to 1966. Senator Bernie Sanders of Vermont has proposed a five year, 10 percent surtax on individuals with incomes of more than $500,000 a year and of households with incomes of more than $1 million a year. None of this would solve the core contradictions of the system. But such actions would represent a start in the right direction. It is high time that in the relentless class war that has been waged by the capitalist class against the working class since the early 1970s, the U.S. populace at last begins to fight back en masse, insisting that their needs be met. In much of the rest of the world of course the continued existence of the U.S. dominated order of monopoly-finance capital, commonly identified as neoliberalism, is already—or soon will be—under challenge.
These problems will be discussed more fully in the December Review of the Month and in a book by John Bellamy Foster and Fred Magdoff, The Great Financial Crisis: Causes and Consequences,to be published by Monthly Review Press in January.
We need not remind MR readers that the present economic disaster is only part of a more general failure of the capitalist system, and that there are other equally pressing reasons for revolt: most notably, the growing catastrophes of war and environmental destruction. What we are facing quite clearly is a new historical moment, in which a genuinely radical politics may once again be possible—in the United States itself.
—October 3, 2008
This number of Monthly Review is a second issue focusing on the environmental problem, following our July-August special issue, “Ecology: The Moment of Truth.” Like the previous one it is coedited by John Bellamy Foster, Brett Clark, and Richard York. Here the theme is: “Beyond Capitalist Ecology.”
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