Commentary on economic crisis: “Capitalist Pigs”
Yes, I haven’t heard, much less said “capitalist pig” for more than 30 years. But I couldn’t help thinking it when I heard that Goldman Sachs, Morgan Stanley and Merrill Lynch (three former Wall Street investment banks; Merrill Lynch has been taken over by Bank of America) are planning to pay $20 billion in bonuses. To make matters worse, Goldman Sachs and Morgan Stanley are receiving $10 billion each in bank bailout money, while Bank of America will receive $25 billion.
But big bonuses aren’t the only way bankers are going to spend with government help. PNC bank is taking over struggling National City Bank for $5 billion after getting $7 billion from the government bailout. The government refused to give National City, which needs the money, any help, while giving to stronger banks such as PNC. The bailout is speeding up the process of consolidation in the banking industry, for example in my community (San Jose, California) three big banks (Wells Fargo, Bank of America and JP Morgan Chase) have 58% of all bank deposits. Consumers are paying for this concentration, as studies have shown that the bigger the bank, the higher the fees they charge. This also means more bailouts in the future as these banks are considered ‘too big to fail.’
But worst of all is the fact that banks are not short of cash, they are simply hoarding more and more money while individuals and small businesses suffer from a lack of credit. The latest statistics from the Federal Reserve show that U.S. banks are sitting on almost $300 billion in cash. These are so-called ‘excess reserves’ that banks could loan out, but are not willing to. A year ago these excess reserves were only $1.5 billion.
The Federal Reserve has loaned banks over $100 billion in cash, and another $250 billion in U.S. government bonds that banks could turn into cash. Despite this $350 billion injection of credit from the Fed and another $250 billion that the Treasury is planning to give to banks under the bailout program, banks are not lending. Mortgage interest rates are higher than they were a year ago and banks are continuing to cut credit to households and small businesses.
The problem is that big banks are not really in the business of lending. They, like other capitalist corporations, are in the business of making a profit. They don’t see a profit in making more loans, so the economy tanks. This is the irrationality of capitalism: We have banks with hundreds of billions of dollars that they are not willing to lend as people lose their jobs, their homes and their businesses because of lack of credit. We have millions of empty houses while more and more people are being foreclosed on or evicted and have to scramble to find new housing, live with relatives or end up on the street. More and more, those who look can see the need for a socialist economy, one where people’s needs, not corporate profits, are in charge