Workers Vanguard No. 1011
|
26 October 2012
|
Bush/Obama and the Bank Bailout
During the 2008 election campaign, we called Barack Obama a “Wall
Street Democrat” when the bulk of the left was openly or backhandedly pushing
his candidacy. During the intervening four years, Obama has amply confirmed our
characterization. Nevertheless, right-wing demagogues like Rush Limbaugh and
Glenn Beck castigate Obama as a “socialist,” and Mitt Romney and other
Republican politicians denounce him as “anti-business.” On the other side, some
leading Democrats are using pseudo-populist rhetoric in attacking the
Republicans for favoring the rich. At the Democratic National Convention, Vice
President Joseph Biden lambasted the GOP for opposing “even one dollar—one
cent—in new taxes for millionaires.” Elizabeth Warren, the Democratic Senatorial
candidate in Massachusetts and a hero in liberal circles, declaimed:
“Republicans say they don’t believe in government. Sure they do. They believe in
government to help themselves and their powerful friends.”
In reality, the Obama administration has been just as subservient
to Wall Street bankers as its Republican predecessor. That reality is described
in a factually detailed, firsthand account: Neil Barofsky’s Bailout: An
Inside Account of How Washington Abandoned Main Street While Rescuing Wall
Street (Free Press, 2012). Barofsky is the former Special Inspector General
for the bank bailout program, initially called TARP (Troubled Asset Relief
Program). His efforts to impose somewhat more stringent conditions on the banks
receiving hundreds of billions in government money—greater transparency, limits
on executive pay—were continually opposed and obstructed by Obama’s treasury
secretary, Timothy Geithner, and his cohorts. With the fervor of the newly
enlightened, Barofsky exclaims:
“I had no idea that the U.S. government had been captured by the
banks and that those running the bailout program I’d be charged with overseeing
would come from the very same institutions that both helped cause the crisis and
became the beneficiaries of the generous terms of the bailout.”
As a liberal, Barofsky believes that the U.S. government can and
should serve the interests of the American people even at the expense of Wall
Street. His assertion that the government “had been captured by the banks”
implies that this was a relatively recent development, a notion currently
widespread among liberals and reinforced by many reformist “socialists” who have
cheered on the populist Occupy movement. However, as Karl Marx and Friedrich
Engels stated in the Communist Manifesto over 150 years ago: “The
executive of the modern State is but a committee for managing the common affairs
of the whole bourgeoisie.” In capitalism’s imperialist epoch, which emerged in
the late 19th century, the bourgeoisie as a whole is dominated by the lords of
finance.
The financial abuses that concern Barofsky are but a small aspect
of the system of exploitation, immiseration and oppression that is capitalism.
Even if all of the policies advocated by him had been implemented and strictly
enforced, they would have had little effect on the worsening conditions of the
working class and poor amid the deepest and most prolonged global economic
downturn since the Great Depression of the 1930s. Here one can clearly see the
destructive irrationality of the capitalist system. To overthrow that system and
with it the political rule of the bourgeoisie, under both the Democrats and
Republicans, requires a social revolution carried out by the working class
allied with the impoverished black and Latino masses, establishing a workers
government. Such a government would expropriate the productive wealth now in the
hands of the capitalist class and establish a planned socialist economy, one
based on meeting social needs, not maximizing private profit.
The Bipartisan Financial Elite
When the financial crisis hit Wall Street in the fall of 2008,
Barofsky was a senior federal prosecutor, specializing in mortgage fraud, at the
office of the U.S. Attorney in New York City. He was then offered the job of
“SIGTARP,” special inspector general of the newly established TARP, by the
outgoing Bush administration. Barofsky was surprised that as a known Obama
supporter he was selected by this right-wing Republican administration for a
supposedly important financial post.
In its own way, Barofsky’s appointment illustrates how the two
capitalist parties, despite their sometimes heated rhetorical exchanges,
collaborate when the vital interests of the capitalist ruling class are at
stake. Bush’s treasury secretary, Hank Paulson, a former CEO of Goldman Sachs
(the country’s premier investment bank), needed support for the bailout from the
then Democratic majority of the House of Representatives and Senate. He was
willing to pay a small political price by making one of their own the program’s
“watchdog.” As it happened, this particular “watchdog” was rendered toothless by
the subsequent Obama administration.
The top government financial officials, under both Republican and
Democratic presidents, are mainly drawn from the same small pool of the Wall
Street elite. A good example was Barofsky’s immediate boss, Herb Allison, head
of TARP under Obama. A former CEO of Merrill Lynch, he was brought to Washington
by Paulson during the financial crisis in late 2008 and made head of Fannie Mae.
A giant government-sponsored corporation involved in mortgage finance, Fannie
Mae was effectively nationalized to prevent it from going bankrupt. When the
Obama team took over, they retained Allison, shifting him to another component
of the government’s bailout of finance capital.
In his own naive way, Barofsky reveals the cynical manipulation of
public opinion by the Democrats as well as Republicans. After Obama was elected
but before he took office in January 2009, his main economic point man, Lawrence
Summers, urged Congress to release the second $350 billion cache of the TARP
funds. In doing so he said that the new administration would impose tougher
conditions on the recipient banks. Barofsky recounts a conversation at the time
with Neel Kashkari (also a Goldman alumnus), who was head of TARP in the
lame-duck Bush administration:
“Kashkari dismissed the point, saying ‘Those new conditions are
purely political. And I strongly suspect, even if they’re adopted, the new
administration may not want you looking too closely at them.’ I was somewhat
surprised that Kashkari was essentially accusing his incoming bosses of making
false promises to Congress just to get their hands on the second cache of TARP
funds. But he was ultimately correct; those ‘commitments’ never saw the light of
day.”
Barofsky implicitly assumes that unlike the cynical Republican
financial operative Kashkari many members of Congress, presumably mainly
Democrats, were taken in by Summers’ “false promises.” They really weren’t that
gullible. The main thing driving Obama’s men was to dampen popular opposition to
and even outrage over the bailout of the bankers amid increasing immiseration
for working people.
Barofsky looked forward to the new administration only to be
bitterly disappointed by the replacement of the Republican Paulson by Democrat
Timothy Geithner: “Whereas Paulson appeared to view SIGTARP as a potential ally
that could help protect TARP and enhance its credibility, Geithner was utterly
dismissive.” Geithner is another example of the bipartisan character of the
financial elite. A career government functionary, Geithner started out at a
think tank established by Henry Kissinger, a major Republican power broker. He
then became a protégé of Summers, who served as an economic consigliere in the
Clinton administration in the 1990s. Under Bush II, Geithner was president of
the New York branch of the Federal Reserve (U.S. central bank). Along with
Paulson and Fed chairman Ben Bernanke, he initiated and organized the massive
bank bailout.
An early instance of Barofsky’s disillusionment with Geithner’s
Treasury Department concerned executive pay for the bailed-out firms. An
especially egregious case was that of AIG (American International Group). A
global insurance giant, AIG was a major provider of so-called credit default
swaps (CDSs), a kind of insurance against the default of various types of bonds.
When the financial crisis hit, AIG could not pay off the hundreds of billions it
contractually owed to Goldman, JPMorgan, Deutsche Bank and other banks that had
purchased its CDSs. The Treasury Department and Federal Reserve duly “rescued”
the fallen insurance giant to the tune of $170 billion, money that went to pay
off the holders of its CDSs.
In March 2009, Treasury officials approved $168 million in annual
“retention bonuses” for executives in AIG’s Financial Products division, in
Barofsky’s words, “the very unit whose reckless bets had brought down the
company.” Pointing to the AIG bonus scandal, Barofsky comments:
“The Wall Street fiction that certain financial executives were
preternaturally gifted supermen who deserved every penny of their staggering
paychecks and bonuses was firmly ingrained in Treasury’s psyche. No matter that
the financial crisis had demonstrated just how unremarkable the work of those
executives had turned out to be, that belief system endured at Treasury across
administrations.”
The Treasury officials’ dogged defense of the “staggering paychecks
and bonuses” of Wall Street executives is not, however, motivated by the
ideological biases that Barofsky ascribes to them. Rather, the false
ideology—“these executives are worth every cent they make”—acts as a rationale
for their material self-interest. The top officials of the
Treasury Department, Federal Reserve and other government financial agencies
typically come from and return to the boardrooms and executive suites of the big
Wall Street firms. For example, when Neel Kashkari resigned as head of TARP, he
moved on to a senior position in PIMCO, the world’s largest investment fund
specializing in corporate and government bonds.
The Bank Bailout and Other Financial Scams
The official justification for the bailout was that it would enable
and encourage banks to start lending again, especially to businesses, and
thereby pull the economy out of the sharply deepening downturn. At the time, we
predicted that was not going to happen. Right after Obama was
inaugurated we wrote:
“Bank executives are fearful that additional loans will become
additional losses. Through the massive sell-off of financial stocks...capitalist
investors are forcing bank executives to rebuild their capital base however they
can, including by reducing their outstanding loan volume. So any government
bailout money is going to be hoarded, used to pay down the bank’s own debt or to
take over weaker, failing competitors.”
— “Obama: CEO of Bankrupt American Capitalism,” WV No. 930
(13 February 2009)
Barofsky, who closely monitored how banks were using the bailout
money, substantiates this prediction:
“Banks were beginning to talk to the press, and they were saying
that they were using their taxpayer-supplied funds for just about everything
other than increased lending that had been Treasury’s justification for CPP
[Capital Purchase Program]. Buying securities, great; buying other banks, no
problem; saving it for a rainy day, sure; but lending? It wasn’t happening.”
One of the few financial programs instituted by the Obama
administration that was supposed to directly help working people hurt by the
economic downturn was HAMP (Home Affordable Modification Program). Announcing
the program immediately after taking office, Obama claimed that it would enable
up to four million homeowners to modify their mortgages to avoid foreclosure. To
begin with, excluded from this program were people who were faced with losing
their homes because they had lost their jobs and couldn’t find another one. To
qualify for HAMP required a certain level of income from current
employment.
Barofsky explains how this program mainly benefited the banks and
their underlings, an especially sleazy type of financial operator called
mortgage servicers. The latter collected the mortgage payments and, after taking
their cut, transferred the money to the banks. Under HAMP there were two levels
of mortgage modification (reduction): trial and permanent. A trial modification
was much more lucrative for the banks and servicers than a permanent one. Under
a trial modification all mortgage payments, even if made on time, were legally
considered “late” because the amount was less than the originally scheduled
amount. Participants were therefore charged a late fee that was waived only if
the trial status was made permanent.
Servicers naturally used every means available to them, including
outright fraud, to prevent trial modifications from becoming permanent. Many
families were subjected to a lengthy trial period only to be denied permanent
status. The banks then demanded they pay a huge “deficiency” bill—the
accumulated difference between the reduced and original mortgage amount—plus
late charges. Many families lost their homes because they participated in
HAMP! Barofsky writes: “Borrowers who might otherwise never have missed
a payment found themselves hit with whopping bills that they couldn’t pay and
now faced foreclosure. It was a disaster.”
The HAMP scam demonstrated on a small scale the different ways by
which the Democrats and Republicans serve the interests of Wall Street. The
Republicans openly express hostility to and contempt for the working class, poor
and oppressed minorities. Witness Romney’s recent rant against almost half the
U.S. population because they “believe that they are entitled to health care, to
food, to housing.” The Democrats claim to stand for the interests of working
people, sometimes even at the expense of financial capitalists. But that claim
is fraudulent.
In opposition to both parties of capital, we stand for a
revolutionary workers party, part of a Leninist-Trotskyist international
dedicated to fighting for socialist revolution to overthrow the capitalist order
worldwide. This will lay the basis for a rationally planned international
economy. Only then will productive forces be developed and utilized such that
poverty, scarcity and want are eliminated, creating the conditions for an
egalitarian and harmonious society.
Formar para el desfile al mediodía en la esquina de la calle Beacon Street y Charles (justo arriba de Cheers en la entrada para el Boston Common).
VFP Pavilion at Faneuil Market (Samuel Adams Park) desde las 11 AM PM -4. Se necesitan voluntarios para configurar el pabellón y el personal durante el desfile.
Programa de VFP en el Mercado Faneuil se inicia después de acabado desfile (aproximadamente a las 2:00 pm, pero está supeditada a la llegada del desfile oficial) con oradores, cantantes y bandas (entre 30 y 45 minutos, el más corto es el mejor)-Este-temas destacados del año No a la guerra contra Irán, Freedom For Private Bradley Manning.
Estaremos repartiendo panfletos durante el día en varios lugares del centro de la ciudad de Boston (incluyendo la oficina de reclutamiento de las Fuerzas Armadas en la calle Tremont y otros sitios TBA) repartiendo volantes que destacan nuestro dos principales cuestiones e Irán y Manning Bradley.
Venga a ayudar a establecer y dotar de personal del pabellón en el Mercado Faneuil. Ayuda folleto. Ayude a engrosar los números. Traiga VFPers compañeros y otros partidarios. Señalar este evento a los periódicos locales y decirles que usted estará allí para ayudar a nuestra campaña de publicidad.