• People who have already lost their homes would supposedly be compensated $3.75 billion. It might sound like a lot but it is peanuts. If the banks really had to pay up for predatory lending, about $1 trillion in homeowner compensation would be a good start.

• In return for this puny cost-of-doing-business expense, the government will end efforts to hold lenders responsible for paperwork abuses like improper accounting of payments and excessive fees.

• The money would go to reduce payments for people who could then stay in their homes. That is, banks will reduce a few mortgages and avoid foreclosure losses. It is a write-off of money the banks would lose anyway. This way the banks get to keep something. The ‘settlement’ is only the latest bank bailout in disguise.

• The ‘settlement’ will end a review of 4 million mortgages ordered in 2011 by the Office of the Comptroller of the Currency, a division of the Treasury Department. The banks paid the expenses of the review, which meant they could do things their own way. Now the review is ending because the banks say it is too expensive.

The lesson, as so many times before, is that distressed homeowners must join together to find their own solutions. They must end their personal isolation. The Coalition to Save Our Homes, the People’s Organization for Progress, and many other community and labor organizations have worked with distressed homeowners. We have marched and protested at bank locations, exposing the real culprits in the mortgage bubble. We demand a hearing for homeowners by the New Jersey Attorney General. We demand a federal criminal investigation of Wall Street's wrongdoing in the mortgage bubble.

Last year many people banded together and stopped a foreclosure eviction in Orange of Susie Johnson, forcing mighty JP Morgan Chase to admit it held no financial interest in her home. We recently brought a strong turnout to a New Jersey Appeals Court hearing of a case that highlights everything that is wrong with the judicial process in foreclosure.

United struggle is the right path for distressed homeowners to follow, not dependence on treacherous government programs. The power of the people is not just a fine-sounding ideal. It is a real force in the world, the only one the vast majority of the people can depend on.

#NewarkNJ #WallStreet #HousingStruggles #bankBailout #CoalitionToSaveOurHomes #HomeForeclosures

San José, CA – On June 9, Spain and the European Union made an agreement to bail out Spain’s troubled banking sector. This agreement means Spain is the fourth country (along with Portugal, Ireland and Greece) in the eurozone to have to take a bailout.

The agreement will provide up to 100 billion euros ($125 billion) in loans to Spain’s bank bail-out fund, the FROB (Fund for Orderly Bank Restructuring). The agreement with the European Union was triggered by Spain’s third largest bank, Bankia SA, which needed a 19 billion Euro ($24 billion) bailout. But the FROB had only 9 billion euros, after three earlier rounds of bailouts of Spanish banks. The Spanish government, which would normally sell bonds to borrow money to bail out banks, was having a harder and harder time selling its own bonds.

Spain’s banks have billions of euros of bad real estate loans because of the boom and bust in the Spanish housing market. Spain’s housing boom was almost twice as large as the one in the United States, with construction spending accounting for about 10% of Spain’s Gross Domestic Product (GDP, the total spending on goods and service made in Spain), vs. 6% in the U.S.

Here in the U.S., big businesses have been able to bounce back from the financial crisis caused by the boom and bust in U.S. housing. This was aided by the U.S. central bank, the Federal Reserve, which printed some $2 trillion in money to buy financial assets, while the U.S. government spent another $800 billion on a bank bailout.

But Spain does not have the power to print money since it adopted the euro; rather this power lies with the European Central Bank or ECB. Spain’s government is also limited in its ability to borrow and spend money since its government bonds are not backed by the ECB.

As a result, while unemployment in the U.S. peaked at 10% and has since dropped to almost 8%, the unemployment rate in Spain has increased to almost 25% and is still rising. Over half the young people in Spain do not have jobs.

Spain actually had a small federal government budget surplus during its housing boom (with tax revenues greater than spending by 0.3% of GDP from 2000-2007). However the government budget deficit swelled to 12% of Spanish GDP in the aftermath of the 2008 financial crisis and deep recession in Europe that went hand-in-hand with Spain’s housing bust.

The Spanish government, first led by the social-democratic Spanish Socialist Workers Party (PSOE), and now by the conservative People’s Party, has instituted deep spending cuts and tax increases that have reduced the budget deficit from 12% to 9% of Spanish GDP. But this austerity has also led Spain into another deep recession, even before it had recovered from the 2008-2009 economic downturn.

These back-to-back recessions have dragged down the Spanish housing market, leading to even more losses at Spanish banks, which made a lot of loans during the boom times. Then in December of 2011, and again in February of this year, the European Central Bank made one trillion Euros (about $1.3 trillion) of long-term (three year) loans to Spanish and other European banks. But Spanish banks have already burned through almost all of this money in order to pay depositors withdrawing their money, and the rest, almost 40%, going to buy Spanish government bonds.

As the Spanish government had a harder time borrowing, the price of Spanish government bonds fell, causing even more losses among Spanish banks. Thus there is a need for another round of bank bailouts, to be paid for by the 100 billion euro E.U. loan.

While the bailout does put off an immediate Spanish banking crisis, it adds more European supervision to Spanish banks. This could worsen the Spanish depression if Spanish banks are forced to limit loans or even shut down to make the remaining banks more profitable. Spain’s unemployment rate is already close to 25%, the highest in the Euro-zone, and even higher than Greece’s unemployment rate. Industrial production (the goods produced by factories, mines, and refineries) in Spain has fallen 8.3% over the past year.

While the Spanish bailout does not have the severe austerity measures of tax increases and government spending cuts that have been imposed on the Greek, Irish and Portuguese people, it will make it harder for the Spanish government to borrow in the future. The EU bailout loan will be ‘senior’ to other Spanish government debts, meaning that the EU must be paid back before other owners of Spanish government bonds. This will make it harder for the Spanish government to sell bonds in the future.

On June 11, prices for Spanish bonds fell and their interest rate rose to more than 6.4% on a ten-year bond (in contrast, U.S. government ten-year bonds had an interest rate of only 1.6% on June 11). This increases the odds that the Spanish government itself may need a bailout or end up being forced out of the eurozone.

#SanJoséCA #Unemployment #Depression #Europe #capitalistCrisis #bankBailout #EuropeanUnion #Spain

Chicago, IL – The American Bankers Association met here the week of Oct. 26, in luxury hotels, spending millions for their comfort. Outside, 2500 working people marched and chanted, “You got bailed out, we got sold out!”

Rosemary Williams, who fought eviction from her home in Minneapolis, Minnesota, was in the march and said, “We need a moratorium on foreclosures.” She spoke at a breakfast for Jobs With Justice to kick off the day of protest. Her message to anyone facing foreclosure is to fight. “If the bank comes for your home, don't go quietly in the night. Get people together and fight back.”

#ChicagoIL #RosemaryWilliams #bankBailout #ArmandoRobles #AmericanBankersAssociation

San José, CA – On March 18, the Federal Reserve announced that it would inject an additional $1.15 trillion into credit markets. With short-term interest rates already close to zero percent, the Federal Reserve will try to lower long-term interest rates in an effort to boost the economy. The Fed will buy another $750 billion in bonds backed by mortgages guaranteed by Fannie Mae and Freddie Mac, $300 billion in long-term U.S. government treasury bonds and another $100 billion in bonds issued by Fannie Mae and Freddie Mac.

Following the outbreak of the financial crisis last year, the Federal Reserve bought almost $50 billion in bonds issued by Fannie and Freddie, and $225 billion in mortgage-backed bonds. But mortgage interest rates barely budged and the housing market continued to tank. So the Fed will buy three times as many more bonds in the hope that this will increase the price of bonds, which should lower mortgage interest rates. The Fed hopes that this will help more people to buy homes, stabilize houses prices and limit the growing tide of foreclosures.

The Fed is also buying longer-term U.S. government, or Treasury, bonds for the first time since the early 1960s. The huge U.S. government budget deficit this year, which will be around $1.5 trillion, means a huge number of bonds must be sold to borrow the money. This has started to drive up interest rates, which the Fed hopes to reverse by buying more bonds. The Federal Reserve was following the example of the Bank of England, the Fed’s counterpart in Britain, which has begun to buy government bonds, forcing down interest rates.

The Federal Reserve will create money through its electronic printing press to buy all of these bonds. With the supply of money already rising at a 24% rate the last six months, the latest Fed action further raises the danger of inflation in the future. Already inflation is on the rise this year after prices fell late last year. But the Fed seems to feel that it has no choice, as it no longer sees an economic recovery happening this year. While the Fed is right to fear the deflation, or falling prices, that helped ravage the economy in the 1930s, it may be laying the basis for a return to stagflation, or inflation and recession, common in the 1970s.

#SanJoseCA #Analysis #capitalistCrisis #bankBailout #theFed

Freedom Road Socialist Organization (FRSO) opposes ‘nationalization’ of banks by the present government. We stand with the majority of the American people who oppose more bank bailouts.

Let’s start with the government takeover of American International Group (AIG), one of the world’s largest insurance companies, last September. It began with an $80 billion bailout and takeover by the government. Then there was a second bailout, then a third, and now a fourth, adding up to more than $150 billion, with no end in sight. Even worse than the ever-rising cost is the fact that the government was not bailing out those who had bought insurance from AIG. The insurance part of AIG was regulated and there are enough assets to pay claims. The government is bailing out the wealthy investors and big banks that made loans to AIG, which were used to make big financial bets, known as derivatives. At least $50 billion of the AIG bailout has gone to big banks to pay off these bets. Why should the government spend money to bail out big gamblers when these are the very same people who helped to cause today’s crisis that has thrown millions of people out of their jobs?

This is what the bank bailouts are about: Not helping working people or small businesses, but saving the big investors and bankers. Look at the Troubled Asset Relief Program or TARP. The $300 billion spent on TARP has not gone to banks, it has gone to the holding companies that own the banks. And what have they used the TARP money for? To buy other banks, to pay billions of dollars in bonuses to executives and traders and billions more in dividends to stockowners. ‘Nationalization’ of the banks will be just another bailout of the bankers.

And where will the billions more in government aid that AIG and other big banks will be asking for come from? Not the rest of the world, which has been lending the U.S. government enough to cover almost all of the federal budget deficit and is also being dragged down by the economic crisis. These countries are trying to spend on their own economies; they are not out to save the United States. Trying to borrow the money in the United States would mean even higher interest rates, which would hurt the economy. The U.S. government may be forced to print the money, which could lead to more inflation and lower the purchasing power of workers’ wages. Or the federal government could try to cut spending on Social Security, Medicare or other social programs.

FRSO is a socialist organization. We believe that government ownership of the big banks and big corporations could help to create an economy that is based on peoples’ needs, not private profit. But this would require a government for and of working people. Today’s government is a far cry from that. Most politicians at the federal level are bought by Wall Street and big business and cater to their needs. The revolving door between the federal government and big business guarantees ‘good’ (that is pro-business) behavior by politicians, government administrators and top military brass. What we need is not bank ‘nationalization’ but a stronger and more militant people’s movement that can make the rich pay and protect the interests of poor and working people.

#UnitedStates #Commentary #Socialism #Editorials #capitalistCrisis #bankBailout #nationalization

The U.S. Treasury, under former Goldman Sachs CEO Henry Paulson, borrowed $900 billion, increasing the U.S. government’s total debt from $9.6 to $10.5 trillion between Sept. 18 and Nov. 5. In contrast, the Treasury only borrowed $80 billion in the same period a year ago. The Treasury then went on to lend the money to the Federal Reserve, who used it to lend to banks, money market funds (mutual funds making short term loans to businesses) and other financial institutions. This allowed the Federal Reserve to increase their lending by a trillion dollars.

Unlike the Treasury’s bank bailout plan that was later passed by Congress, there is no oversight or accounting for the Federal Reserve lending. The Federal Reserve was established to be ‘independent’ from the government, meaning that it can operate in secret and without any say-so by elected officials. The five current board members of the Federal Reserve include two former economic advisors to Bush, two former financial industry executives and a career economist at the Fed.

While the Democrats have been telling the people that they are a party of “change” their congressional leadership has gone along with the Treasury/Federal Reserve covert bailout plan. The House of Representatives Financial Services Committee chair, Massachusetts Democrat Barney Frank, has said that the Federal Reserve should not make public more details about their lending, but would not say why. This is the same policy that leading House Democrats had about the war in Iraq, saying that they opposed it and then voting for every funding increase that the Bush administration sent them.

The bottom line is that both the Democrats and the Republicans serve Wall Street. If they can’t get what Wall Street wants in public, they are more than willing to go behind the backs of the people.

#SanJoseCA #Analysis #capitalistCrisis #bankBailout #TrillionDollarBailout

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

#UnitedStates #Commentary #capitalistCrisis #bankBailout #bonuses

At each stage of the crisis the U.S. government and central bank have had to take bigger and bigger actions to try to stabilize the crisis. The Federal Reserve has loaned out about $500 billion to banks and other institutions, while the U.S. government has committed another $300 billion in loans. Now the Bush administration is planning to commit up to $700 billion more to buy up bad mortgages to try to aid struggling banks. The Federal Reserve will start to provide loans to businesses in addition to banks. Each of the past ‘rescues’ have failed to stabilize the economy and there is no good reason to think the latest plan will either.

The Bush administration wants to ‘avoid finger pointing’ when all the fingers are pointing at the free-trade and deregulatory policies of the Bush years that contributed to the free-wheeling and fraudulent mortgage mess. Nor can former Federal Reserve chairperson Alan Greenspan escape responsibility for the low interest rates and lack of enforcement that contributed to the housing boom and bust.

But the roots of the crisis go much deeper than just the laissez-faire (free-market) policies of Bush and Greenspan. The economic system of monopoly capitalism itself is the cause of the current crisis. Today giant multinational corporations that can produce more than they can sell dominate the world economy. Even with advertising that invades every corner of our lives and easy credit, these corporations can produce more cars, steel, airplanes etc. than can be sold.

U.S. businesses have been on an anti-union drive for 25 years, making it easier to cut wages and benefits. Their lobbying in Congress has led to cuts in welfare, the minimum wage and unemployment benefits, forcing more and more workers to take low-paying jobs. They shamelessly exploit millions of new immigrants, even children, and call the ICE if the immigrant workers try to fight back. Corporations send their work to other countries, eliminating better paying jobs here in the United States. At the same time the workers in Asia and Latin America earn just a fraction of what the jobs were paying in the United States.

While this leads to ever-greater profits for a handful of super-wealthy, it means that the masses of working people cannot afford to buy back what it produced. This is not just a result of greedy CEOs (although there is no lack of them). This is a result of drive for profit that is part and parcel of capitalism. Under a capitalist economic system, production is social, with tens of millions of workers contributing to the production, distribution and sale of goods and services, while the means of production (factories, transport and stores) are privately owned, with the profits flowing to a small capitalist class. This contradiction is at the root of economic crisis under capitalism.

With a lack of investment opportunities in the production of goods and services, profits have flowed into a financial sector that has been growing like a cancer the last 30 years. Today there are more than $600 trillion of financial derivatives such as Mortgage-Backed Securities (MBS), Collateralized Debt Obligations (CDOs) Credit Default Swaps (CDS), etc. whose value is 40 times the entire U.S. economy.

The deregulation of the 1980s and the growth of basically unregulated financial institutions was not just a policy of the Reagan era, but an outgrowth of the need for capital to have new places to invest. Today the pendulum is swinging back, with many billionaires, politicians and mainstream economists abandoning their free-market rhetoric and calling for more regulation and government monies to help shore up the financial system. Billionaires and their armies of lawyers are masters of corporate manipulation and it is beyond a doubt that they will skim hundreds of millions and even billions of dollars off of these government rescue plans – just look at what the military contractors have done for years.

Of course, as socialists, we have no problem in principle with government intervention in the economy. But we have to point out the hypocrisy of the Bush administration, which opposed spending a few billion more for health care for low-income children, opposed extending unemployment insurance for laid off workers and which was not willing to spend one dime on millions of households losing their homes to foreclosures. But when the big banks and insurance companies are in trouble, all of a sudden hundreds of billions of dollars are available.

Another danger is that right-wingers will call for even more cuts in government spending, saying that there is no money. Of course, there is a grain of truth to this, as the Bush administration has cut taxes for the rich and spent almost $700 billion on wars in Iraq and Afghanistan. But this crisis should help expose the Bush-McCain program to privatize Social Security and Medicare and put our retirement and health care in the hands of private insurers like AIG, which only avoided bankruptcy through a government takeover.

This crisis has made it painfully clear how much the U.S. relies on foreign capital to keep the economy running. The government takeover of Fannie Mae and Freddie Mac was in part to calm the fears of other countries, which have lent Fannie and Freddie more than a $1.5 trillion. In the second quarter of 2008 (April through June), foreign investors sold $150 billion of Fannie and Freddie debt, the largest outflow ever. Just before the government takeover, the Secretary of the Treasury was meeting with foreign investors to calm their fears.

In the past, the U.S.-dominated International Monetary Fund and World Bank have inflicted painful austerity plans involving cuts in government spending, privatization of government services and higher interest rates in return for loans to developing economies in financial distress. Some foreign investors may well ask why the U.S. should not have to take the same painful medicine if U.S. businesses need capital now.

In the face of growing cuts at the state and now federal level, our focus needs to be building a grassroots movement that can fight for the people’s needs: to fund our schools, to provide health care for all, to provide jobs for laid-off workers and to stop the wave of foreclosures. The struggle to protect our schools, clinics, jobs and homes needs to unite with peace and justice movements to end the wars in Iraq and Afghanistan and to stop the wave of raids and deportations targeting Latino communities. Only such movement can put the heat on any new administration to meet the people’s needs.

Our slogan needs to be: Make the rich pay! Taxes need to be raised on the rich, starting with making the Social Security payroll tax apply to all income and restoring the top income tax rates on high-income households. We need jobs or income for unemployed workers! We need a universal health care system that will eliminate costly insurance companies and tell the big drug companies to lower their prices – or else. We need an extension on unemployment benefits and the social safety net must be extended.

The crisis has made it even clearer for all to see that both the Republicans and Democrats are parties of big business. Both parties’ leadership and presidential candidates supported the $700 billion bailout for bankers and billionaires. Having said that, the defeat of the Republicans would be a repudiation of their leadership on deregulating the economy into crisis at home and charging into war abroad. But only a massive people’s movement can force Democrats in power to win more reforms that benefit working people and at the same time show more and more people that Democrats are not for real change; only socialism can bring that about.

#UnitedStates #Editorial #Socialism #capitalistCrisis #IncomeDisparity #bankBailout #mortgageCrisis

While the official unemployment rate in September was reported to be the same as in August (6.1%), this was only because hundreds of thousands of people gave up looking for jobs while others had their hours cut, but were not laid off. If these so-called ‘discouraged workers’ and those working part-time because of poor economic conditions are included, the unemployment rate would be 11%.

Friday’s report on the labor market also showed that workers were out of work for longer periods of time, as the average length of unemployment rose by a week to more than 18 weeks. A fifth of all officially unemployed, or almost 2 million people, have been out of work for more than six months. It is no wonder that the number of people receiving unemployment insurance benefits is now over 3.5 million, up almost 50% from over a year ago. Still this is barely one-third of all unemployed, in part because many have run out of their benefits.

African Americans were again the hardest hit, as their official unemployment rate rose by almost a full percentage point in September, to 11.4%. If those who dropped out of the official labor force were counted as unemployed, the unemployment rate for Black workers would have been almost 13% in September.

To add insult to injury, the bailout bill was loaded with tax breaks for businesses, including one for makers of wooden arrows. There was relief from the Alternative Minimum Tax (AMT), where the biggest benefit goes to households earning $200,000 to $500,000. There was an expansion of federal deposit insurance from $100,000 to $250,000. This list could go on and on, but the bottom line is that there was nothing for the unemployed.

#SanJoseCA #Analysis #Unemployment #crisisOfCapitalism #bankBailout

Commentary by the editor of Fight Back!

President Bush and big business were dealt a stunning defeat Monday, Sept. 29, when in a 228 to 205 vote, the House of Representatives rejected the $700 billion bailout bill for Wall Street. This is a tremendous victory for the American people.

The massive giveaway to the biggest banks and corporations has aroused real anger among the working class and others. And rightfully so. There is absolutely no good reason why working people should pay even one cent for a mess that the biggest banks and investors created.

This is the core reason why the bill was defeated. Over the next few days media pundits will wax about ideological Republicans and partisan infighting in their attempt to explain the bill's defeat. Really, all credit should go to tens of millions of people who told Congress that they were not going to put up with a bailout for billionaires. The offices of every politician in Congress were flooded with calls and emails demanding a rejection of the bailout.

The big capitalists on Wall Street were counting on tax dollars to get them out of a crisis – a crisis that was fueled by their greed and created by the system that brought them their ill-gotten wealth: capitalism. These are the same people who oppose any assistance to the millions who are facing the foreclosures of their homes. The wealthy love to talk about how great the ‘free market’ works, but when it doesn’t work for them, they want still more money from the pockets of the working class.

The House of Representatives is scheduled to reconvene on Oct. 2. There is little doubt that the advocates for the richest of the rich will advance another plan to bail out the elite who run this country. Everyone needs to raise their voices and let Congress know – the bailout of Wall Street is unacceptable.

No bailouts for Wall Street!

Make the rich pay for their crisis!

#UnitedStates #Commentary #Editorials #capitalistCrisis #bankBailout

President Bush is driving a $700 billion bailout of the billionaires and multi-millionaires who sit atop the largest financial crisis in history. This rewards criminals and gangsters who need to be taken away and punished. It is outrageous that the rich guys, the kings of capital who are responsible for the crisis, are going to be given a free pass and then line their pockets with taxpayers’ money. The bankers and CEOs should be forced to declare bankruptcy and then imprisoned for their crimes of spreading poverty and throwing people out of their homes. Things are so decrepit that billionaire Warren Buffet bought $5 billion worth of Goldman Sachs stocks, 20% of its value, because he is counting on Bush’s bailout to make himself a pile of money. Warren Buffet does not need a bailout! We say, “No bailouts for billionaires!”

How did the billionaires get from the economic boom to the severest crisis ever? The bosses are certainly greedy when it comes to profits and stingy when it comes to workers’ pay, but this alone does not explain it. The Wall Street investors take risks with other people’s money, but this does not explain it either. Wall Street bounced right back at the end of the week, while foreclosures and bankruptcies continue to stalk many Americans.

The real problem is the system. The problem is capitalism. It concentrates wealth and power into fewer and fewer hands, driving down wages at home, while attempting to dominate and exploit other countries. Capitalism is based on profit. Profit is what the capitalists, as a class, skim from the working class who produce all the goods and services in society. Eventually the system has a big crisis; a big bust follows the economic boom. There is a crisis of overproduction where the many cannot buy what they need even though it is for sale right in front of us. Bush, who did everything he could to promote the housing and financing boom, said in his national speech, “Eventually, the number of new houses exceeded the number of people willing to buy them.”

That line was buried amongst 12 minutes of lies. In the same speech he blamed the collapse of the financial system on the folks down the street who can’t pay their mortgage. As usual, Bush thinks people are too stupid to understand that the real sources of the crisis are his friends on Wall Street mixing mortgages in foreclosure with mortgages that are fine, to create financial instruments that they could buy, sell and trade like compulsive gamblers in Las Vegas. He blamed working people for taking out mortgages they couldn't afford. The problem is the companies who made the mortgages – knowing the people who took them could not afford them – in order to profit from the closing costs. It is all about making more and more profit without any work.

This $700 billion crisis is, in part, shaped by Reaganomics. For 30 years, Reaganomics has meant slashing regulations and systematically transferring wealth to the rich while destroying unions and the standard of living for working people. The ruling class, Democrats and Republicans, are likely to ‘come together’ to bail out the big companies. If they do it will mean even more pain for working people. Most likely the Treasury will print money to cover the bailout. That will mean that every dollar we have is worth even less than it is now – inflation. With inflation comes even higher gas and food prices, more foreclosures as people are squeezed to their limit and unemployment.

Every CEO, banker, and big business tycoon is united about one thing – the Bailout. The politicians of both parties are saying the American taxpayer should bail out the rich guys. John McCain argues for a bailout with more oversight from less regulators. Sounds strange because it is strange. Obama is arguing for the bailout too, only adding that ordinary people need ‘relief’ and small tax cuts so they can spend the money and stimulate the economy. Sure, everyone wants an extra check, but only the rich people will get really big ones and everyone else will get small ones. The problem is neither argument addresses the fact that the system does not work. Those taxes will be taken back from workers by hook or by crook. It is a system of the rich, by the rich, and for the rich. We work for the system, the system does not work for us!

There is already talk from conservative pundits and the media about socialism. It is meant to confuse people. A few far-right politicians are saying the proposed bailouts are ‘socialism.’ This is wrong. Socialism is not a rescue package for bankers so capitalism can continue to ruin people’s lives. Socialism is a system that puts people first and it will replace capitalism upon the success of a revolution. Under socialism, the capitalist class – made up of billionaires and millionaires – is stripped of its wealth, its land, factories and big businesses. The rich are no longer in charge. Socialism requires the working class and their allies to be in power and to rule society for the interests of working people. This crisis will cause thoughtful people to start considering the alternative to capitalism, which is actual socialism.

The policies of the Bush administration helped to speed the crisis along. People will remember Bush for the disaster in Iraq, his criminal inaction during Hurricane Katrina and now for his attempt to bail out of the bankers. Bush started office with a $200 billion surplus, but is now $400 billion in the hole. When the $700 billion (that the government does not have) is subtracted, the deficit will be $1.1 trillion.

Besides tax cuts for the rich, roads and bridges to nowhere, subsidies for corporate farming and other freebies to big business, Bush spent $600 billion on the occupation of Iraq – killing, maiming and ruining the lives of millions. Everyone knows that the wealthy were enthusiastic about invading Iraq to topple a powerful and independent government, seize Iraqi oil and dominate the Middle East. The Iraqi resistance, supported by the Iraqi people, foiled their plans. The rich are responsible for the disaster in Iraq and the rich are responsible for the disaster at home. Iraqis and Americans are united in the face of the same enemy. While Iraqis are defending their homes, Americans are fending off sheriffs with foreclosure notices.

Instead of throwing good money after bad, we want more government assistance to low-income people and demand a moratorium on home foreclosures . Let the bankers move into modest homes and live with the daily pressures and harassment from bill collectors that every reader of this article faces. Why are working people held responsible for the failure of the system while the rich go free?

We are united with the rest of the world in putting an end to the Republican agenda of war, corruption and repression. The rich people, the monopoly capitalist class, need to be defeated at every turn. They are incompetent and criminal. The rich have no right to rule this country.

No to the Bailout!

#UnitedStates #Editorial #Socialism #Editorials #PeoplesStruggles #capitalistCrisis #bankBailout

San Jose, CA – The year-old financial crisis entered a new stage in September as the U.S. financial system suffered its worst setbacks since the Great Depression of the 1930s. Over the weekend of Sept. 6-7, Fannie Mae and Freddie Mac, two large mortgage companies that were financing three-quarters of U.S. mortgages, were taken over by the government due to their growing mortgage losses. Then a week later the 158-year old investment bank Lehman Brothers failed to find a buyer and had to declare bankruptcy. The following Tuesday, Sept. 16, the giant insurance firm American International Group (AIG), with more than $1 trillion (1,000 billion) in assets, failed to get an emergency loan and was taken over by U.S. government in exchange for an $85 billion dollar loan. The next day the Putnam money market fund had to close down as investors pulled billions of dollars out following a big loss at a smaller money market fund that had made a big loan to Lehman Brothers.

U.S. money market funds had almost $3.5 trillion (3,500 billion) in deposits that were loaned to banks, businesses and the government for one to three months. Money market funds are almost as large as total checking and savings accounts held by banks and are part of the lightly regulated ‘nonbank’ financial system. Unlike bank accounts, money market funds do not have to hold reserves (cash) nor are their deposits insured (the FDIC covers bank accounts up to $100,000). The emerging run on money market funds would have cut off loans to thousands of businesses and banks, slamming the brakes on an already weak economy. With the specter of the Great Depression bank runs that closed thousands of banks and led to millions of lost deposits, the government felt forced to act.

At each stage of the crisis the U.S. government and central bank have had to make bigger and bigger actions to try to stabilize the crisis. In August of last year, the U.S. central bank, the Federal Reserve, began making hundreds of billions of dollars in loans to banks. Then in February of 2008, the Federal Reserve chipped in $30 billion to get the investment bank Morgan Stanley take over Bear Stearns and began to make loans to investment banks, which have no deposits. The take-over of Fannie Mae and Freddie Mac involved a $200 billion line of credit. The takeover of AIG involved an $85 billion loan. After the run on money market funds began, the government announced that a $50 billion fund used to stabilize the international value of the U.S. dollar would be used to guarantee deposits at these funds. Last but not least, the Bush administration announced a plan to buy up $700 billion dollars of bad mortgages and mortgage backed bonds from banks.

The crisis has also exposed the growing dependence of the U.S. economy on a continued inflow of foreign capital. In 2007 many foreign investors from Asia, Europe and the Middle East saw the growing financial crisis as a chance to buy into U.S. financial institutions on the cheap. But after putting billions of dollars into U.S. banks, mortgage lenders and other financial firms, losses of 50% to 100% have led foreign capital to pull back. At the same time, the Federal Reserve, which had almost $1 trillion of U.S. government bonds at the beginning of 2007, has been forced to loan out more than half to ailing financial businesses. With the Federal Reserve running of resources and foreign lenders nowhere in sight, the U.S. government has had to take actions the like of which has not been seen since the 1930s.

After plunging on Monday and Wednesday following the news of Lehman Brothers and AIG, the stock market rallied on Thursday and Friday following the news of the government’s plan to buy up bad mortgages. Unlike the takeovers of Fannie Mae, Freddie Mac and AIG where the government took over large companies in exchange for emergency loans, the latest plan would exchange taxpayer monies for potentially worthless mortgages, which could give banks, mortgage lenders and other investors a huge windfall.

While the latest plan has relieved the fears on Wall Street, the economy’s condition continues to worsen. Almost lost in the midst of the financial crisis was news that record numbers of mortgages are going bad and housing starts had slipped to the lowest level in 17 years. Even worse, a measure of future housing construction, building permits for single-family homes, fell to levels not seen since the 1981-1982 recession. With the housing market still in decline, the gaping hole that is sucking down the banks, mortgage lenders and insurance companies is getting even bigger.

The world economy is also slowing, with a number of countries in Asia and Europe either in or on the verge of recession. As their economies slow, other countries will buy fewer goods from the United States, cutting into our exports, which has been almost the lone bright spot in the economy.

The trillion-dollar question is where is the U.S. government going to get the funds to bail out the financial system? The Bush administration’s tax cuts and wars in Iraq and Afghanistan have turned a $200 billion budget surplus into a $400 billion deficit, not counting the costs to rescue the financial system. Foreign investors have been buying 75 to 100% of the U.S. government bonds used to pay for the budget deficit; are they willing to buy hundreds of billions more to rescue the U.S. financial system? If foreigners are not willing to lend more, then the U.S. government would be forced to raise interest rates to attract more funds, or just start to print money, which could lead to more inflation.

While some Democrats are pushing to aid provisions to the government mortgage bailout plan that would help homeowners or the unemployed, the Bush administration wants a ‘clean’ bill that only will aid banks and investors. Even worse, Republicans who oppose government services, and some Democrats who want to balance the budget at all costs will use the crisis to try to impose draconian cuts to Medicare and further their agenda to privatize Social Security. Presidential candidate John McCain has reiterated his support for starting to privatize Social Security and said that he wants to deregulate health care like the banking industry.

With millions of Americans now more worried than ever about their retirement savings, and millions more going without health insurance, this shows the danger of four more years of Republican rule. Where would the country be now if Bush and McCain were able to privatize Social Security and put our retirement solely in the hands of Wall Street? The Republicans have already started a program to divert some Medicare monies to private insurance firms, which has proven even more costly than the government program. The insurance firm AIG that the government had to bail out is a provider of annuities, mutual funds and private health insurance. Is this who we want to entrust our retirement and health care to? This is a fundamental question when we go to the ballot box in November.

#SanJoseCA #Analysis #capitalistCrisis #recession #bankBailout

Adding to economic woes are continued problems in the banking industry. The same Friday as the new unemployment report came out, the Federal Deposit Insurance Corporation (FDIC), which guarantees deposits at banks, shut down the Nevada-based Silver State Bank and will have to pay an estimated $500 million to cover the banks losses. This is the eleventh bank closed by the FDIC so far this year, more than the total number of bank closings in the last five years. In addition, on Sunday, Sept. 7, the U.S. Treasury Department announced that it was placing the Fannie Mae and Freddie Mac under government conservatorship due to growing mortgage losses. These two corporations help to fund about half the country’s mortgages.

In addition there are growing state and local government budget deficits. Most states are having budget problems as the recession cuts into tax revenues even as demand for government services rises. Here in California, Republican legislators have blocked passage of a state budget for over two months. Short of money due to a $15 billion shortfall in tax revenues, the state has begun to cut off payments to nursing homes and board and care facilities for MediCal patients (MediCal is California’s health care program for low-income people that is half funded by the federal Medicaid program), childcare centers, mental health programs and state aid for college students.

In the last recession in 2001, the Federal Reserve Bank was able to slash its key interest rate to get households to borrow and spend more, leading to a burst of consumer spending that helped to lift the economy out of a recession. Car companies were able to offer zero interest loans, boosting car sales. Banks were able to lower interest rates on mortgages, leading to more home sales and housing construction.

Over the last year the Federal Reserve cut its key interest rate, the Federal Funds rate, from 5.25% to only 2%. But banks and mortgage companies, reeling from the mortgage crisis and downturn in home sales and prices, have not been able to lower mortgage interest rates, with the standard 30-year, fixed interest rate mortgage having the same interest rate as a year ago. At the same time, car-makers, caught between declining sales due to higher gas prices and a credit crunch stemming from the mortgage mess, have not been able to stimulate car sales.

With the Federal Reserve’s monetary (interest rate) policy unable to revive the economy, Congress voted for $100 billion of tax rebates sent to households and $50 billion more in tax breaks for businesses. Household income and spending did take a big jump in May, and held up in June, only to sag in July as the tax rebates ran out (the business tax cuts are more longer term). Higher prices wore down purchases as the purchasing power of workers’ wages fell by more than 3% from a year earlier as inflation outran paychecks in the month of July.

The Democrats are arguing for a second stimulus package which would include $65 billion more tax rebates and $50 billion for government infrastructure and to help out state and local governments with growing budget crisis. While the tax rebates are likely to only have a temporary impact on the underlying economic crisis (if $100 billion only boosted the economy for two months, how long will $65 billion last), the aid to state and local governments could help to prevent big cuts in health and education spending.

Even worse, the McCain campaign is questioning the need for more spending by the government for individuals, local governments and infrastructure. They want to further cut business taxes and make Bush’s tax cuts for the wealthy permanent. At the same time the McCain campaign promises to balance the budget, which can only mean massive cuts in Medicare and Social Security as military spending (the other large federal program) can only grow with McCain’s foreign policy views. McCain also wants to virtually eliminate employer health care and instead have people buy private insurance with government subsidies, which would lead to even more profits for health insurance corporations while leaving more with less or no health insurance. The McCain campaign promises to strengthen the U.S. dollar (without saying how), which they claim will solve the country’s economic woes. This view echoes former President Herbert Hoover who tried to fight the great depression by trying to increase business confidence. McCain and the Republicans want to 'stay the course' with the Bush administration’s economic policies that have led the economy and the lives of working people in particular to the current mess.

The defeat of McCain and the Republican right has to be priority number one to defend the standard of living of working people in the United States. But a new Democratic administration is likely to follow a pro-business course given its backing by sectors of Wall Street and billionaires, much like Franklin Delano Roosevelt’s policies during his first two years in office at the depth of the Great Depression. In the 1930s it was the organization and militancy of working people that led to reforms such as Social Security and unemployment insurance in 1935 (which McCain wants to 'reform' or privatize). Only by a growing militant fight back in the workplace and community and on campus, can working people put the burden of the crisis on the rich and defend our livelihoods homes and education.

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San José, CA – On Friday, March 14, the fifth largest investment bank in the United States, Bear Stearns, failed. Over the weekend the Federal Reserve took over the riskiest mortgage-related investments worth $30 billion and arranged for J.P. Morgan Chase, the third largest U.S. bank (after Citigroup and Bank of America), to buy the rest of Bear Stearns for $2 a share, or 4% of its price on Thursday. The failure of Bear Stearns brings the growing financial crisis full circle, as it was the failure of two Bear Stearns hedge funds that invested in home mortgages that marked the beginning of the crisis last August.

In addition to arranging the take-over of Bear Stearns, the Federal Reserve used its emergency powers to begin lending money to investment banks, which don’t take deposits. The Federal Reserve also widened the types of collateral it would accept on loans and lengthened the loan period from 30 to 90 days. The Federal Reserve cut the interest rates on its loans to banks over the weekend, and then on Tuesday, March 18, it cut interest rates another three-quarters of one percent. The benchmark Federal Funds Rate, which the Federal Reserve controls, has now been cut from 5.25% to 2.25% over the last seven months.

The Federal Reserve is furiously trying to prevent a repeat of the Great Depression in the 1930s, where three waves of bank failures pounded the economy for a four-year decline, from which there was no real recovery until World War II. The Federal Reserve was worried that the bankruptcy of Bear Stearns would cause the bank to dump their investments, forcing down asset prices and causing more losses at other banks, leading to more failures.

While each of the Federal Reserve actions since August have been met with cheers of relief from stock market investors, the nation’s central bank has not been able to overcome the ongoing crisis in the credit markets. Interest rates on mortgages and many other kinds of loans are rising as banks cut back on lending due to their losses. Many banks are canceling home-equity lines of credit and making it harder for households and businesses to borrow. The mortgage crisis is having ripple effects on other credit markets such as auto loans, credit cards, municipal bonds, student loans and even loans between banks.

The Federal Reserve actions and the financial crisis have led to a dramatic fall in the value of the U.S. dollar, as foreign investors lose interest in buying U.S. assets. The dollar’s fall has fueled inflation, as the dollar price of goods traded on international markets, such as food and oil, go up. In addition many speculators are buying up oil and other commodities as a hedge against inflation and an alternative to falling stock markets. Rising inflation has driven a wedge between the Federal Reserve and other central banks, such as the European Central Bank, and is also leading to differences within the Federal Reserve over whether interest rates should be cut so far and so fast.

Last but not least, the Federal Reserve’s actions have done little or nothing to slow the fall in housing prices and home sales. Foreclosures continue to grow, and more and more borrowers who are ‘underwater’ because their mortgage is larger than their home price are walking away from their loans. Losses on investments backed by mortgages continue to grow. The falling housing market is depriving working people of their main form of wealth, while job losses are accelerating month by month. This is causing them to cut back on their spending, which will slow the economy even more, even as they fall behind on their debt payments, adding to the financial crisis.

As the crisis goes from bad to worse, there are more and more criticisms of Federal Reserve chairman Ben Bernanke and the Federal Reserve itself. But the problem is not the actions (or inaction) of the Federal Reserve in dealing with the crisis. In the past there was the hands-off attitude of the Federal Reserve under former chairman Alan Greenspan and the Bush administration during the housing boom from 2002-2005. The Federal Reserve had the power to curb the excesses of the mortgage madness, but did not do so. Republicans in Congress and the White House also blocked efforts to regulate mortgage lenders. This left the mortgage industry under state regulation, which in many cases amounted to little. Here in California, mortgage lenders are examined only once every four years. The Republican governor did not even appoint a permanent regulator until 2006, and there was little oversight until 2007, when the crisis began.

The problem is that the Federal Reserve and the government follow the interests of the wealthy, who seek ever-greater profits no matter what the cost to society may be. So the Federal Reserve, the Bush administration and state governments turned a blind eye to the excess and fraud of Wall Street, to keep their billions of dollars of profits flowing. Fundamentally, the problem is the capitalist system itself, built on private property and motivated by greed, which leads to recession and financial crisis.

#SanJoseCA #Analysis #capitalistCrisis #recession #bankBailout #BearStearns

The Mortgage Bankers Association of America (MBAA) reported that a bit more than three-quarters of one percent (0.78%) of all mortgages went into the foreclosure process in the three months ending in September. This was the highest level since the MBAA began reporting this statistic in 1972. In addition, 5.59% of residential mortgages were at least 30 days late, which was the highest since 1986. These numbers show that the housing market continues to worsen, as a perfect storm of adjustable rate mortgages resetting to higher rates, falling home prices, and a slowing economy batter home-buyers.

The problems in the mortgage market are spilling over into other credit markets, despite the Bush administration and Federal Reserve claims that they were ‘contained.’ Late payments for auto loans from finance companies and dealers rose to 2.77% in the April to June period, which is the highest since the recession in 1991. Many school districts, cities and counties in Florida were also swept into the growing credit crisis when the Florida State Investment Pool stopped withdrawals after almost half their deposits fled upon news that the pool held billions of dollars of investments backed by subprime mortgages. This left these local government without the cash to pay their bills and payrolls.

The Bush administration mortgage plan was worked out with big banks and mortgage lenders. It calls for subprime mortgages whose rates are resetting starting Jan. 1, 2008 until July 2010 to have the initial low rates continue for up to five years. However most homebuyers who are in financial trouble will not be covered by this plan. First of all, only homebuyers who have adjustable rate mortgages and poor credit will qualify. This covers a minority of homebuyers (45%) going into foreclosures. Homebuyers in this group who are already behind on their mortgages more than 60 days or in foreclosure are not covered. Also those who are deemed able to pay the higher rate are not included. Each mortgage borrower would have to negotiate their extension individually. With all these hoops to jump through, the California Greenlining Institute said that only 12% of subprime mortgages and 5% of oppressed nationality homebuyers would end up benefiting. Finally, the whole plan could be dragged out by lawsuits from investors who bought investments based on these mortgages.

One detail reported in the Wall Street Journal, but not in other newspapers, is that only subprime mortgages packaged into securities and sold to investors are covered by the plan, not loans made and held by banks. While mortgages made and held by banks are only a small part of the total subprime mortgages, this is another example of how the big banks who funded, processed and profited from the securitization of mortgages are being let off the hook.

Take, for example, the mess in Florida. Local governments want the state to guarantee their moneys in the State Investment Pool, while the state wants the local government to share the losses on investments. But nobody seems to be pointing their fingers at the big banks that set up the ‘Structured Investment Vehicles’ or SIVs that the state pool invested in. The banks should be forced to take over the SIVs and cover any losses to the local governments.

Tough times require tough solutions. The country is facing the biggest housing bust since the great depression of the 1930s. We know the Bush administration record on dealing with disasters from New Orleans after Hurricane Katrina. We can’t afford to let the Bush administration and their masters on Wall Street continue to propose band-aids while whole neighborhoods, especially poor, African American and Latino communities are engulfed in an economic disaster. What working people need is a New Deal on housing, which will put families and neighborhood needs over the greed of Wall Street.

We need a foreclosure moratorium of at least a year on owner-occupied homes together with a moratorium on evictions of tenants in foreclosed properties. During this time laws covering mortgages need to be fixed by banning prepayment penalties and putting a freeze on mortgages resetting to higher interest rates. We need to change bankruptcy laws so that they cover home loans and allow home buyers in financial distress to repay their loans at lower, fixed interest rates. Finally, owners of foreclosed properties must either maintain them or have them condemned and seized without compensation as financial, health and safety hazards to their communities. These condemned properties should be turned over to local governments who can sell some, rent out others or put them to some other use for communities.

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