Stop the Bail Out! Stop War Funding! Stop Paying the Rich! • Economic Coup by Most Powerful Monopolies•Scramble of the Parasites to Feast Off Big Government Bailout
• Text of Draft Proposal for Bailout Plan • Bailout of the Rich Continues Unabated• Largest Pay-the-Rich Scheme in History • Paulson’s Pay-the-Rich Scheme and China
• Bush, Obama, McCain and Hoover’s Road of Depression and War
Seizing Public Revenue with Impunity
Economic Coup by Most Powerful Monopolies
President George W. Bush has asked Congress for authority to buy $700 billion of bad debts held by the financial oligarchy and to increase the national debt for the second time in two weeks from $9.815 trillion to $10.615 trillion and now to $11.3 trillion. U.S. Treasury Secretary Henry Paulson will receive unprecedented executive power to manage these funds with impunity.
The U.S. Treasury will also make $50 billion available to guarantee against losses in the $3.5 trillion money market sector. And Congress also passed a bill giving General Motors $25 billion.
The U.S. political elite, including Democratic presidentialcandidate Barack Obama, business people, many economic experts, and the mass media declare in unison that no alternative to a bailout of the rich is possible. The people are told if Congress does not release public funds for this scheme, then a slide into dark economic depression and chaos is a certainty. Thus the rationale of no alternative to justify using public money to pay the rich is the now standard force majeure of exceptional circumstance. Right alongside this is the government claim at all levels that there is “no money” for social programs.
Central Banks within the imperialist system of states dominated by the U.S. gave their approval of the plan offering $248 billion in additional U.S. dollar liquidity. Varying amounts are coming from the Central Banks of Japan, Europe, England, Switzerland, Australia, India and Indonesia. The Bank of Canada pledged $10 billion.
The declaration of force majeure is an economic coup by the most powerful U.S. monopolies to seize public revenue with impunity. The working class and middle strata pay around $2 trillion of the total U.S. Federal tax revenue of $2.5 trillion. With the latest Bush pay-the-rich scheme, the bulk of public revenue now goes to fund war and bailouts of the rich to compensate them for their failed economic system.
The war budget is approaching $1 trillion and the cumulative pay-the-rich schemes since last March are now over $1 trillion. Interest on the U.S. national debt is $400 billion leaving $100 billion for all other government programs, which require a minimum of $1.3 trillion, with discretionary spending an additional $500 billion. The federal deficit was projected at $400 billion but will obviously rise well beyond that figure unless the government cuts program spending, which it will do as the current anti-social offensive increases all down the line. Big states like New York and California are already imposing yet more massive cuts.
As for borrowing abroad, the U.S. financial oligarchy faces a growing rebellion to its dollar hegemony, as its national debt spirals out of control with seemingly no restrictions on its limits.
The situation is not good for the U.S. or the world’s peoples. It is a grave danger, as a force majeure of this magnitude in federal spending will most likely be followed by a force majeure in U.S. politics, which may entail a military coup d’état or some other form of open fascist rule by the rich. As military preparation for just such a measure, U.S. Northern Command (NorthCom) will now have an active-duty Brigade Combat Team as an “on-call federal response force.” They are to be used for any “emergencies” inside the U.S. The Brigade will become permanent. It also marks the first time an active unit has been given a dedicated assignment to NorthCom. As part of their training, the combat team, fresh from Iraq, will also learn how to use “the first ever nonlethal package that the Army has fielded.” The weaponry is specifically for “crowd and traffic control,” designed to “subdue unruly or dangerous individuals without killing them.”
The working class and allies must view the situation soberly without preconceived notions that our civil society and economic and political institutions “as we know them” are secure and will continue without gross interference by the ruling elite under a similar hoax of a force majeure. The situation demands more urgency in organizing for democratic and economic renewal, to defend the rights of all.
The neo-liberal agenda has reduced the U.S. budget to war spending and bailouts for the rich. It is breathtaking how brazen the ruling elite has become in paying the financial oligarchy with public money. For the rich, a variant of the Bush plan is considered necessary to save their wealth, power and privilege but for the people it means greater impoverishment and the hopelessness of fending for oneself without the collective strength of society, the socialized economy and one’s peers.
It is immensely important that the working class and middle strata not capitulate to the propaganda that there is no other choice than war and to pay the rich. An alternative is not only possible but necessary. Workers must ask themselves: What positive role do the rich and their private monopolies play in serving nation-building, the socialized economy and the well-being of the people? The answer can only be, none! They are anachronistic and serve only to wreck not build. Spiritually they are very backward, spreading a culture of greed and anti-worker parasitism, teaching young workers the myth that their work to transform natural resources into use-value is a negative cost of production. According to the rich, even without such necessary work, new use-value can somehow be expanded through usury and fees by merely circulating already-produced value.
It is in the act of rejecting the self-serving rhetoric of the ruling elite of no alternative to war and paying the rich that pro-social possibilities arise such as restricting monopoly right through public control of the wholesale sector, increased investments in social programs, and a public banking system without private profit, which is chartered to serve nation-building, a sustainable economy and the needs of the people and small business with interest-free credit with only small administrative fees.
The key is to get together to discuss the situation without the preconceived capital-centered notions from the mass media, business-parties and experts who deny an alternative pro-social program is possible. From getting together and discussing come great possibilities to act as an organized and effective force to renew democracy and the economy, fight for the rights of all and stop these schemes for war and paying the rich.
Let Wall Street Fall!
Stop the Bail Out! Stop Paying the Rich!
Fight for A Pro-Social, Anti-War Program!
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“A billion here, a billion there, and pretty soon you are talking about real money.” - Senator Everett McKinley Dirksen, Republican of Illinois who died in 1969.
Even allowing for inflation and in the context of federal spending standards, $700 billion is an enormous sum. It represents more than $2,000 for every man, woman and child in the United States.
To put it another way, $700 billion is more than the gross domestic products (the sum of all the goods and services produced in a year) of Argentina and Chile combined, according to current almanacs. It is roughly 70 percent of the GDP of Canada.
But to be really impressed by how much money $700 billion really is, one should look at how much money the United States government spends on social programs and, more somberly, how much it has spent fighting wars over the years.
The sum is roughly what the Pentagon expects to spend in the fiscal year that ends September 30, including the costs of the campaigns in Iraq and Afghanistan. This according to the Center for Arms Control and Non-Proliferation, a research group in Washington, which cited figures from the Congressional Research Service and Office of Management and Budget data.
The arms-control research group calculates that the United States spent $670 billion (in 2007 dollars) on the war in Vietnam, so the bailout figure being circulated now in Washington would be enough to pay for that conflict all over again, in money if not in tears.
Again, calculating in 2007 dollars, $700 billion would be enough to pay for over 20 percent of what the United States spent fighting World War II, the research group says. The sum is almost twice what the United States spent on World War I, and well over twice what America spent waging war in Korea.
And the United States spent a mere $7 billion, in 2007 dollars, fighting the Spanish-American War in 1898 just about what the federal government is spending this year on the Head Start Program.
This year, Head Start is helping just over 900,000 school-age children from poor families, according to the Department of Health and Human Services. Of course, Head Start is politically popular, and generally regarded as one of the most beneficial programs inspired by President Lyndon B. Johnson.
It has been noted already that, while the federal bureaucracy has not been able to come up with astronomical sums of money to pay for healthcare and other needs, it seems prepared to do just that to alleviate a financial upheaval, especially since the tremors would otherwise be felt far from the canyons of Wall Street.
And yet another way to look at it is that $700 billion is more than 40 times what NASA will spend this fiscal year.
If one is bullish on America, as President Bush is, one could hope that all those distressed mortgages the government is going to buy may turn out to be good investments.
But back to that truly staggering figure of $700 billion. One could say that, in theory, it is enough to pay for the Head Start program for the next 100 years, assuming that all that money were invested sensibly and conservatively enough to keep up with inflation an investment strategy apparently not always in vogue of late.
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Scramble of the Parasites
to Feast Off Big Government Bailout
Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it. Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages. At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees. Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions.
“The definition of Financial Institution should be as broad as possible,” the Financial Services Roundtable, which represents big financial services companies, wrote in an e-mail message to members on Sunday.
The group said a wide variety of institutions as varied as mortgage lenders and insurance companies should be able to take advantage of the bailout, and that these companies should be able to sell off any investments linked to mortgages.
The scope of the bailout grew over the weekend. As recently as Saturday morning, the Bush administration’s proposal called for Treasury to buy residential or commercial mortgages and related securities. By that evening, the proposal was broadened to give Treasury discretion to buy “any other financial instrument.”
The lobbying became particularly intense because Congress plans to approve a package within just two weeks, without the traditional hearings and committee process. “Of course there will be fierce lobbying,” said Bert Ely, a financial services industry consultant in Alexandria, Va. “The real question is, who wouldn’t want to be included in the package?”
Mr. Ely said the open-ended nature of the Treasury’s plan could be interpreted to mean that the government was open to acquiring “any asset, anywhere in the world.”
“The question that I am raising — is there any limit?” Mr. Ely said.
Each part of the financial industry is pursuing its own interests.
Small banks, for example, are pushing the government to buy loans they made to homebuilders and commercial developers. Wall Street banks are lobbying to temporarily suspend certain accounting rules to avoid taking big losses on the assets they sell to Treasury, which would weaken them further.
Over the weekend, the Securities Industry and Financial Markets Association, Wall Street’s main trade and lobbying group, held conference calls to discuss “your firms’ views and priorities related to Treasury’s proposal,” according to an e-mail message sent to members.
One of the calls addressed the fact that municipal securities were not included in the proposals released at the end of last week. Some bankers are pushing for government support of those securities as part of a broader effort to restore investor confidence in money market funds.
Other firms hope to be hired to manage the assets that Treasury acquires, a job that could earn them $1 billion a year, even if they charged fees that were modest by industry standards. Among them are the asset management companies Pimco and BlackRock. Morgan Stanley, the investment bank, is also vying for the work.
Some private equity firms, including the Blackstone Group, may be interested in pursuing an asset-management assignment from the government, people briefed on the matter said. Such firms have already expressed interest in buying up distressed debts after having bet against them early last year. That raises complications because those firms hold assets similar to the ones the Treasury plans to buy.
William H. Gross, chief investment officer of Pimco, which manages about $830 billion in assets, would like to be an asset manager for the government but said he had not been in touch with Henry M. Paulson Jr., the Treasury secretary, over the weekend. Mr. Gross is among the financial executives Mr. Paulson, who previously headed Goldman Sachs, has regularly consulted with since the financial crisis began.
Another contender is Morgan Stanley, which advised Treasury on an unpaid public service basis on its takeover of Fannie Mae and Freddie Mac and on the American International Group, the insurer that the Federal Reserve agreed to lend $85 billion to last week in consultation with the Treasury Department.
Similarly, Bank of New York Mellon and JPMorgan Chase, which bought Bear Stearns in a deal brokered by the Federal Reserve and the Treasury Department, were also campaigning for a spot.
BlackRock, a big New York asset management firm, was also involved in negotiations with the government, people briefed on the matter said. The firm is already managing $30 billion of Bear Stearns mortgage assets for the Fed, and it has done work for Fannie Mae, Freddie Mac and A.I.G. A BlackRock spokeswoman declined to comment.
There were signs of the industry’s fingerprints on drafts of the legislation released over the weekend. While an earlier draft said that only firms with headquarters in the United States could sell assets to the government under the program, a later version said sellers could include any financial institution. Securities firms were initially excluded but were included in a version released Sunday afternoon.
Perhaps the biggest question about the Treasury’s acquisition plan is how the government will decide how much it is willing to pay for the loans and securities it acquires. Will the Treasury Department, in the interest of jumpstarting the credit market, try to bolster large financial institutions like Citigroup and Washington Mutual by paying a slight premium to the markets’ valuation of these troubled assets?
Analysts and investors say they expect financial firms to hold onto their troubled securities until the government begins acquiring assets through reverse auctions and negotiations. Eventually, the Treasury will return to the market to sell the assets back to private investors, but that could be a few years away.
“There will be that period where the Treasury takes the place of the private market,” Mr. Gross of Pimco said. “Hopefully they will get out of that market but we will have to see how quickly that takes place.”
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Text of Draft Proposal for Bailout Plan
Below is the draft proposal for the bailout plan submitted by President George W. Bush to Congress. Negotiations since that time have changed some of the content, but the specifics are still being kept secret at this time.
Legislative Proposal for Treasury Authority to Purchase Mortgage-Related Assets
Section 1. Short Title.
This Act may be cited as ____________________.
Sec. 2. Purchases of Mortgage-Related Assets.
(a) Authority to Purchase. — The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
(b) Necessary Actions. — The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;
(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and
(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
Sec. 3. Considerations.
In exercising the authorities granted in this Act, the Secretary shall take into consideration means for —
(1) providing stability or preventing disruption to the financial markets or banking system; and
(2) protecting the taxpayer.
Sec. 4. Reports to Congress.
Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.
Sec. 5. Rights; Management; Sale of Mortgage-Related -Assets.
(a) Exercise of Rights. — The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.
(b) Management of Mortgage-Related Assets. — The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.
(c) Sale of Mortgage-Related Assets. — The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.
(d) Application of Sunset to Mortgage-Related Assets. — The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretary authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time
Sec. 7. Funding.
For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Sec. 9. Termination of Authority.
The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.
Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.
Sec. 11. Credit Reform.
The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.
Sec. 12. Definitions.
For purposes of this section, the following definitions shall apply:
(1) Mortgage-Related Assets. — The term mortgage-related assets means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.
(2) Secretary. — The term secretary means the Secretary of the Treasury.
(3) United States. — The term United States means the States, territories, and possessions of the United States and the District of Columbia.
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Bailout of the Rich Continues Unabated
The U.S. financial oligarchy, which comprises the most powerful owners of U.S. monopolies, has staged what many are calling an economic coup. The U.S. public treasury has been reduced to bailing out the rich from their evermore adventurist schemes for big scores, war and war preparations.
In addition to $700 billion for annual war spending, the recent pay-the-rich schemes are approaching $400 billion, probably much more but they are shrouded in secrecy. On September 16, the former CEO of Goldman Sachs Investment Bank and now U.S. Treasury Secretary Henry Paulson announced the purchase, through a loan by the New York Federal Reserve, of 80 percent of AIG stock for $85 billion. AIG is the main insurer of those adventurist derivatives such as mortgage-backed commercial paper and other monopoly bonds. AIG declared it could not meet its obligations to pay outstanding insurance claims among other things.
The current explosive pay-the-rich intervention by the U.S. Treasury Department began last March when the Federal Reserve gave $29 billion in guarantees for the takeover of investment bank Bear Stearns by another bank, JPMorgan Chase. Last week the government took over the mortgage giants Fannie Mae and Freddie Mac and made available an initial amount of $200 billion to cover their failed bonds. Now comes the $85 billion for AIG and an astonishing amount associated with the collapse of Lehman Brothers Investment Bank. Following the bankruptcy filing of Lehman Brothers, the Federal Reserve is rumored to be going to guarantee $138 billion of bad Lehman debt held by JPMorgan Chase. Without that guarantee, JP Morgan Chase may soon follow Lehman into bankruptcy protection. Other shoes to fall in these destructive failures may be Washington Mutual Bank, Wachovia and Citigroup, which is the holder of the largest amount of Lehman bad debt and the biggest bank in the world. Other holders of debt and obligations that may be in trouble are many monopolies considered mostly industrial such as GE, GM and Ford. However, in the world of monopoly capital, holdings and ownership are completely intertwined across the financial and industrial world. No real separation exists between what some call the real economy of industrial production and distribution and Wall Street financial companies. They are completely merged into the financial oligarchy. For example, JPMorgan Chase is part of the same monopoly empire as U.S. Steel.
To finance these pay the rich schemes the U.S. Treasury, aside from cutting spending on social programs, has announced increased auctions of securities through the Federal Reserve. These auctions, including special ones, are listed on the websites of the Federal Reserve Bank and its member banks. These auctions, which inject new U.S. dollars into the global economy, are mostly bought by the Central Banks of Japan, China and recently Russia. Of course, these auctions will inflate the U.S. dollar, which will lose value not necessarily in comparison with other currencies but most certainly with goods and services.
The dictatorship of the financial oligarchy over the public treasury is enforced with a dictatorship over politics and government. It is extremely important that people take these financial events seriously and correlate them with the hold over political power by the parties of the rich, which form a cartel-party system whose main aim is the keep people out of power. To break the hold of the rich over the public treasury, worker politicians must break the hold of the rich and their business-parties over political power and government.
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U.S. Government Rescues Financial Oligarchy
Largest Pay-the-Rich Scheme in History
The Bush administration has seized control of Fannie Mae and Freddie Mac, the biggest mortgage companies in the United States. The government pay-the-rich plan places the two private monopolies under government conservatorship, similar to bankruptcy reorganization, and provides as much as $100 billion to each company to backstop any shortfalls in capital. To put that amount of money in perspective, it is larger than Canada’s entire federal budget. Fannie and Freddie ownership equity will be liquidated while rescuing the far larger $5.4 trillion in mortgage debt ownership and corresponding bonds. The $5.4 trillion in outstanding mortgage debt is now far more than the value of the real estate on which it is based, and the potential mortgage service payments are less than the amount required to service the bonds the two companies have issued.
Real estate value and income from mortgage service payments have fallen in tandem with a surge in mortgage defaults and foreclosures but that is not the principal reason for the difference between the amount of mortgage debt Fannie and Freddie control, the bonds they have issued and the value of the corresponding real estate. The imbalance of value stems from its theft by the embedded parasitism of the monopoly capitalist system. Mortgages are issued, bought, re-bought and bundled into bonds, sold and resold with fees, interest and capital gains taken out every time they change hands.
The parasitic frenzy surrounding real estate and financial derivatives (mortgage or asset-backed bonds etc.) became the latest boom after the collapse of the dot.com speculative bubble in 2000. Massive quantities of investment dollars fuelled by usury, the carry-trade in Japanese yen and U.S. dollar hegemony poured into the real estate market and the buying and selling of derivatives. Real estate prices soared well above the intrinsic value of the commodity and parasites made off with billions of dollars.
The hundreds of billions of dollars worth of value seized and siphoned off during parasitic financial transactions have created a crisis for the financial oligarchy, for which it is desperate to pass the burden onto the working class and weaker countries. The value must be replaced somehow either with value from another sector; a re-evaluation downward of the value of real estate and the mortgage-backed bonds; a devaluation of U.S. currency; a transfer of public money such as the Fannie and Freddie pay-the-rich scheme; a theft of value from abroad through war, occupation and unequal terms of trade; bankruptcy of many of the largest monopolies or a combination of all or some of these possibilities.
The law of value of commodity production demands that what is not produced cannot be consumed. Money cannot be “made” from parasitic transactions without value coming from socialized production somewhere in the world. The excesses and failure of the financial oligarchy have brought it face to face with financial ruin especially for many of the largest monopolies on Wall Street. The pay-the-rich bailout of Bear Stearns and now Fannie and Freddie are attempts to save their skins. The transfer of wealth from the public treasury to the financial oligarchy is portrayed as necessary to save the entire banking and financial system but that is a big lie. The real alternative is to let them fail including the privately owned and controlled U.S. Federal Reserve, and instead use the bailout money to underwrite a publicly-controlled banking system that provides credit without private profit, parasitism and usury.
The manufacturing crisis, foreclosures, a social housing crisis, homelessness, falling real estate values yet rising prices of other necessities, over one million vacant new housing units unsold and a bankrupt and frozen credit system are some of the results of the present parasitism and failure of the U.S. financial oligarchy. An alternative is needed!
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Paulson’s Pay-the-Rich Scheme and China
A U.S. mortgage debt of $12 trillion is owned by Fannie Mae, Freddie Mac, other big financial institutions and even foreign governments. However, that $12 trillion mortgage debt on paper is hundreds of billions of dollars more than both the intrinsic and current market value of the U.S. real estate it represents. The actual value and potential service payments underwriting the $12 trillion mortgage debt is short hundreds of billions of dollars in value, much of which has been taken out by parasites for fees, capital gains and interest. To rescue the mortgage debt for the financial institutions holding it, the U.S. government will be required to replace an approximate amount already consumed. Those parasites who took this money are mostly the very same members of the financial oligarchy who now are applauding and benefiting from Paulson’s pay the rich scheme.
Some of the mortgage debt and mortgage-backed bonds have already been downgraded through write-downs and losses at monopolies throughout the world. Fannie and Freddie alone lost $14 billion in the last four quarters. In Canada, losses have been mounting at CIBC, other banks and pension and mutual funds. But the biggest shoe was yet to drop and U.S. Treasury Secretary Henry Paulson, former CEO of Goldman Sachs (one of those financial institutions) has come to the rescue of the rich with pooled public money from the U.S. Treasury. Fannie and Freddie under U.S. government control with $200 billion of public funds at their disposal will immediately begin to buy mortgage-backed debt, which has been frozen for over a year. This will let off the hook many of the largest monopolies at least for the time being, as they have been sitting on mortgage-backed debt they have been unable to sell because the real estate collateral for the mortgages is less than the value of the bonds.
U.S. Dollar Hegemony
The government takeover of Fannie and Freddie also serves another purpose — to shore up U.S. dollar hegemony internationally. The government bailout will prop up the value of U.S. securities held abroad and the U.S. dollar. This measure in turn encourages foreign governments to continue buying mortgage-backed securities because they are explicitly guaranteed by the U.S. government. It is reported that the People’s Bank of China alone held $340 billion of Fannie and Freddie securities at the end of June. This is a rather remarkable phenomenon whereby China, a poor developing country, is underwriting mortgages (from which parasites siphon off billions) for a country that spends $700 billion annually on war and war preparations.
Foreign governments however are on the horns of a dilemma as expressed in the following comments from a prominent Chinese economist. He Fan of the Chinese Academy of Social Sciences remarked: “China has bought a lot of asset-backed securities, and there might be short-term improvement in price [with the Paulson pay-the-rich takeover].”
Reflecting on the implications for the future, He Fan said, “For China, whether or not you buy the new treasuries, there will be losses: if you buy them, you’re getting deeper in the hole; if you don’t buy, your existing holdings will lose value.”
He Fan refers to not only the $340 billion of Fannie and Freddie debt owned by the People’s Bank of China but the hundreds of billions of U.S. debt other Chinese financial institutions own and the U.S. dollars currently held in reserve. If China and other countries such as Japan stop buying U.S. debt and holding U.S. dollars in reserve, the value of the U.S. dollar will fall, decreasing the value of the existing international reserves of U.S. dollars and dollar denominated debt and equity.
He Fan said the Fannie and Freddie takeover was a desperate act of last resort, underlining that the credit crisis was far from over adding, “This shows that the risks involved are greater than we thought. As such, Chinese banks should be cautious and prudent.”
But being ensnared within the imperialist system of states under U.S. hegemony He Fan said China “has little room to diversify its $1.8 trillion in currency reserves. Buying non-government dollar bonds would be even riskier, while the euro is expensive and yields in Japan are low. If we don’t buy U.S. treasuries and asset-backed securities, what else can we buy? China just has no way to avoid the risks. Whatever we do, we have to bear the losses.”
He Fan was not reported to have explored any alternatives such as extricating the country from the imperialist system of states. This would mean in part facing the situation of a lower-valued dollar upon selling its U.S. dollars for Chinese renminbi and investing that money in China’s social programs and infrastructure, trading with others on the basis of mutual benefit, leading the world by refusing to use U.S. dollars, euros or yen as international currency and stimulating the local Chinese economy by refocusing it from export-dependent to self-reliant and by decreeing that all companies employing over fifty workers must immediately double their wages and salaries, while providing guarantees to all workers.
(Articles above on the economy based on articles by K.C. Adams, a journalist for The Marxist-Leninist Daily, Canada, cpcml.ca)
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Bush, Obama, McCain and Hoover’s Road of Depression and War
On a day when Lehman Brothers, a major U.S. bank declared bankruptcy, another investment bank, Merrill Lynch, was swallowed up by Bank of America. Stock markets had their steepest drop in six years, politicians of the rich and monopoly media were sounding like Herbert Hoover.
Herbert Clark Hoover was the thirty-first president of the United States (1929-1933). He became president the year the most wretched depression the world has ever experienced began, which only ended in the bloodshed and destruction of World War II.
During the first three years of his presidency, Hoover declared at every turn that the “economy is fundamentally sound” while life went from bad to much worse.
Despite disastrous wrecking of manufacturing, foreclosures and the anti-social offensive, U.S. “leaders” remain detached and anti-conscious, with their claims that the “fundamentals are sound” and everything will be fine.
During Hoover’s presidency, which included the first three years of the 1930s depression Hoover said, “In America today, we are nearer a final triumph over poverty than is any other land.”
“It is just as important that business keep out of government as that government keep out of business.”
“We have not yet reached the goal but... we shall soon, with the help of God, be in sight of the day when poverty shall be banished from this nation.”
“With impressive proof on all sides of magnificent progress, no one can rightly deny the fundamental correctness of our economic system.”
“Gentlemen, you have come 60 days too late. (June 1930) The depression is over.”
Today, Bush, and both Republican and Democratic presidential candidates reject the modern definition of rights, whereby rights belong to the holder by virtue of being human. No one should be subjected to arbitrary detention and deportation and no one is illegal. Yet the government increases detentions of immigrants, denying people their basic civil rights stepping up harassment and deportation.
In 1929, Hoover authorized the Mexican Repatriation program to split employed and unemployed workers on an ethnic basis. It blamed workers who were victims of the failed economy for being a “burden on municipal aid services.” The racist program was largely a forced deportation to Mexico of an estimated 500,000 U.S. residents. Many of those forced to leave were long-time U.S. workers. The next president, Franklin Delano Roosevelt, a Democrat, continued the racist anti-Mexican program until 1937.
Both McCain and Obama espouse the so-called goodness of monopoly competition, as did Herbert Hoover. Despite the abject failure of monopoly capitalism to escape financial crisis, the magical power of competition is not to be questioned, only “greed.” Hoover said, “Competition is not only the basis of protection to the consumer, but is the incentive to progress.”
Monopoly competition plays a highly destructive role in a modern socialized economy and must be restricted and finally abolished by the working class movement in its fight to build a self-reliant sustainable socialized economy in its own image. Such a modern economy utilizes the collective strength of socialized production rather than split it up into competing privately owned parts that seek to destroy their competitors. Monopoly competition is one of the factors for economic crises and inter-imperialist war.
Oh Yeah? Herbert Hoover Predicts Prosperity
On the morning of October 24, 1929 (“Black Thursday”), billions of dollars in stock value were wiped out before lunch. The Great Crash was underway. The next day President Herbert Hoover counseled reassurance, but as stock prices continued to plummet Hoover’s reassurances rang increasingly hollow. The president’s efforts to reassure the public did not stop, in part as he tried to convince voters that his policies were bringing recovery. In 1932, Edward Angly published a short book filled with optimistic forecasts about the economy offered by Hoover and his associates. The sarcastic title Oh Yeah? reflected his contempt for political leaders who did not seem to know what was happening to the country.
August 11, 1928
“Unemployment in the sense of distress is widely disappearing. . . . We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us. We have not yet reached the goal, but given a change to go forward with the policies of the last eight years, and we shall soon with the help of God be in sight of the day when poverty will be banished from this nation. There is no guarantee against poverty equal to a job for every man. That is the primary purpose of the economic policies we advocate.” - Herbert Hoover, speech accepting the Republican nomination, Palo Alto, California.
October 22, 1928
“Prosperity is no idle expression. It is a job for every worker; it is the safety and safeguard of every business and every home. A continuation of the policies of the Republican party is fundamentally necessary to the future advancement of this progress and to the further building up of this prosperity.” - Herbert Hoover, Campaign Address, Madison Square Garden
July 27, 1928
“The outlook of the world today is for the greatest era of commercial expansion in history. The rest of the world will become better customers.” - Herbert Hoover, Speech at San Francisco
November, 1929
“Any lack of confidence in the economic future or the basic strength of business in the United States is foolish.”
January 21, 1930
“Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said the reports to the Cabinet showed that the tide of employment had changed in the right direction.” - News dispatch from Washington
March 8, 1930
“President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days.” - Washington dispatch
May 1, 1930
“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States -- that is, prosperity.” - Herbert Hoover, Address at annual dinner of the Chamber of Commerce of the United States
October 2, 1930
“During the past year you have carried the credit system of the nation safely through a most difficult crisis. In this success you have demonstrated not alone the soundness of the credit system, but also the capacity of the bankers in emergency.” - Herbert Hoover, Address before the annual convention of The American Bankers Association, Cleveland
October 21, 1930
“President Hoover has summoned Colonel Arthur Woods to help place 2,500,000 persons back to work this winter.” - Washington dispatch
December 1930
“Economic depression cannot be cured by legislative action or executive pronouncement.” - Herbert Hoover, Message to Congress
June 15, 1931
“I am able to propose an American plan to you.... We plan more leisure for men and women and better opportunities for its enjoyment. We plan not only to provide for all the new generation, but we shall, by scientific research and invention, lift the standard of living and security of diffusion of wealth, a decrease in poverty and a great reduction in crime. And this plan will be carried out if we just keep on giving the American people a chance.” - Herbert Hoover, Address to Indiana Republican Editorial Association, Indianapolis
October 1931
“On September 8, I requested the governors of the Federal Reserve banks to endeavor to secure the co-operation of the bankers of their territory to make some advances on the security of the assets of closed banks or to take over some of these assets, in order that the receivers of those banks may pay some dividends to their depositors in advance of what would otherwise be the case pending liquidation. Such a measure will contribute to free many business activities and to relieve many families from hardship over the forthcoming winter, and in a measure reverse the process of deflation involved in the tying up of deposits.” - Herbert Hoover
October 18, 1931
“The depression has been deepened by events from abroad which are beyond the control either of our citizens or our government.” - Herbert Hoover, Radio address at Fortress Monroe, Virginia
(Found on the web @ HISTORY MATTERS - The U.S. Survey Course, excerpts)