You're On the Hook (Shhh! (Forever))

Have any of the people who have benefitted from the recent financial catastrophes (cured somewhat by your kind largesse) said "Thank you" to you lately? Because once you read the following documentation about the upcoming economic changes guaranteed for life in the U.S. (and in many other countries as well), I'll bet you also will think that surely they should. First they took your good jobs and shipped them overseas or to Mexico, then they took your savings (through your future debts to pay the off-book costs of the various wars being fought for the control of Middle Eastern and Asian oil resources and the bailout required because of the ongoing looting of the financial institutions (and the accompanying inflation arising from these actions)) - and don't forget that during this time their enablers at the top of the government ("Thank you! Cheney and Rummy and Ricey and Dicey) remained complacent (if not in outspoken denial) in the face of hot foreign engagements which steeply raised the price of energy - and then to cap it off, they accepted (even encouraged) the steep rise in unemployment, currently at a 5-year high (if not much higher due to the dubious accounting methods used today) and very unlikely to decrease any time soon (and you could also add in the commensurate rise in the number of "unemployables" in this economy who were replaced by H1-B employees working for half (or even a quarter, if overseas) of their former salaries (and therefore not paying very much in taxes, if any at all), with the savings from this decrease in expenditures going straight to the top of the earnings pyramid (which obviates the previous tax liability)). Whew! I'm sure there are other factors I could include, but why bother? Isn't this compilation enough to give you massive heartburn for years to come? Wait for it, yes, of course, there's always reality TV to take the edge off, huh? Oh, I almost forgot, as a result of this financial chicanery, what do you think will happen to the Social Security trust fund - which is only a trust fund as long as the financial system of the government of the U.S. remains trustworthy to its creditors in the rest of the world? Right. They have solved the problem of what to do about the much-spoken-of Social Security shortfall, supposedly some 30 years in the future, by eliminating it altogether. Did you know that that was what you were voting for (or against) in the elections of 2000 and 2004? No? Well, are you ready to listen to some "Thank-yous" now? Good. I thought you might want to start looking for that long line of grateful receivers of your hard-earned providence. As for me, I think the Rethugli-Cons have done a standout job of selling the citizens of the U.S. on the fact that they are all above middle class and, thus, should continue to vote Rethugli-CON in 2008. The two articles I've run below in their entirety are only the first two you should read thoroughly, and then begin to make a daily occurrence of such in your personal economics self education, so you can better understand exactly what happened to your money. (Emphasis marks and some editing are mine.) Enjoy! _____________________________________________________

Record Corporate Bailout Reveals the Bankruptcy of American Capitalism Barry Grey 13/09/08 "WSWS" -- - The US government takeover of the mortgage finance giants Fannie Mae and Freddie Mac has dealt a shattering blow to the ideology of market capitalism, which has been used for decades to justify a relentless assault on the working class and a vast transfer of wealth to the American ruling elite. The endless invocations of the virtues of private enterprise, individual entrepreneurship and self-reliance, used to demonize socialism and defend a system that exploits the vast majority for the benefit of a financial elite, have been exposed as frauds. When it comes to big capital, losses are socialized. Only profits remain private. The same forces who year after year have inveighed against “big government” in order to justify the removal of all legal impediments to the accumulation of corporate profits and private fortunes, and carry out the destruction of social safeguards for the working class, have engineered a massive expansion of government power to safeguard the interests of the financial elite. The bailout has as well exposed the real relations of political power and influence behind the façade of American democracy. The largest government bailout of private companies in world history—whose ultimate cost to taxpayers is likely to reach hundreds of billions—was sanctioned in advance by the Democratic Congress and given instant approval by the leadership of both parties and both of their presidential candidates. There have been no investigations into the greatest financial scandal in world history. Neither party has any interest in bringing to light the swindling and skullduggery of the Wall Street moguls, because they are both bound hand and foot to those responsible for the financial debacle. What has been revealed is the existence in the United States, behind the increasingly tattered veneer of democratic institutions, of a plutocracy—the political rule of the rich. When it comes to the basic interests of the financial aristocracy, both parties and all of the official institutions of society snap to attention and do the bidding of their Wall Street masters. The bailout of the two mortgage giants—which account for 80 percent of new home mortgages in the US—is a demonstration of the historic failure of American capitalism and the profit system on a global scale. It was precipitated by the deepest economic crisis since the Depression of the 1930s, whose epicenter is the United States. The Bush administration moved to take over Fannie Mae and Freddie Mac under conditions of a rapid erosion of international confidence in the solvency of not only these two companies, but of the United States government itself. Over the past several months, global investors, including central banks and government investment funds, primarily in Asia and Russia, have been dumping their vast holdings in mortgage-backed securities issued by the US government-sponsored firms. Fannie Mae and Freddie Mac have a combined liability of $5.3 trillion in mortgage-backed securities which they own or guarantee. The run on their assets has not only intensified the crisis of the two companies, which are massively leveraged and have suffered billions of dollars in losses as a result of the collapse of the US housing market, it has thrown into question the status of all US government debt, including US Treasury bonds. The US, by far the world’s largest debtor nation, with a current account deficit of nearly $800 billion, is sustained by the inflow of hundreds of billions of dollars from abroad. It currently imports $1 trillion in foreign capital every year, or over $4 billion every working day. But the assumption by the US government of the debts of the two mortgage companies, while averting an immediate financial meltdown, only compounds the crisis of American capitalism. As Martin Wolf, the financial correspondent of the Financial Times, wrote on Tuesday, “As a result, US housing finance has been brought under direct government control and, in the process, the gross liabilities of the US government, properly measured, have increased by $5,400 billion, a sum equal to the entire publicly held debt and 40 percent of gross domestic product.” At a stroke, US sovereign debt has doubled and is now roughly equal to America’s gross domestic product. On July 14, one day after US Treasury Secretary Henry Paulson called for legislation to give him unilateral and unlimited powers to use public funds to rescue Fannie Mae and Freddie Mac, the Wall Street Journal editorialized on the implications of a government bailout of the two companies. It wrote: “But with financial woes mounting, some investors are betting they may profit from weighing the unthinkable question: Could the US government default?” This immense increase in US government indebtedness can only further undermine international confidence in the credit-worthiness of US Treasury bonds, resulting in a further decline in the dollar and a sharp increase in the interest paid by the US to borrow from its international creditors. The claims made by the Bush administration, echoed by the US media, that the bailout of the two mortgage finance companies will consume at most $200 billion in public funds—itself a massive amount that eclipses previous corporate bailouts, including the $160 billion bailout of the savings and loans industry less than two decades ago—are not credible. An indication of the sums envisioned by US policy makers is the fact that the legislation passed last July giving Paulson the power to bail out Fannie Mae and Freddie Mac raised the US debt limit by $800 billion, increasing the cushion between the debt limit and current government indebtedness to $1.1 trillion. Some sense of the social priorities of the US ruling elite and its two parties can be gleaned from a comparison between the sums being extended to bail out just these two companies and those allocated by the federal government in 2008 for education ($67.5 billion), unemployment benefits ($37.3 billion), highways and mass transit ($53.1 billion) and housing ($7.4 billion). Moreover, the bailout of Fannie Mae and Freddie Mac is only the prelude to a far broader use of public funds to bolster the balance sheets of major corporations. Democratic presidential candidate Barack Obama and his Republican opponent John McCain are both supporting a $50 billion bailout of the US auto companies, which will inevitably entail further cuts in jobs and wages. And the plunge of the Wall Street investment bank Lehman Brothers toward bankruptcy—the firm’s stock fell by 45 percent on Tuesday—poses another rescue operation similar to the $29 billion bailout of Bear Stearns last March. It is already being widely broached that the government establish a permanent mechanism for using taxpayer funds to buy billions of dollars in failing assets from major banks and financial companies. The Wall Street Journal wrote on Tuesday, “Creating a government-backed entity to buy up these assets could jump-start the market for home loans and relieve banks and other financial institutions, which are taking big hits to their balance sheets as they fall in value.” The Financial Times sounded the same theme, declaring, “The US government might end up having to support the recapitalization of a much wider range of financial institutions in order to curb the credit crunch.” These statements give the lie to the attempt to portray Fannie Mae and Freddie Mac as aberrations, which in their reckless speculation and pursuit of super profits departed from the norm. On the contrary, they typify the financial parasitism and outright criminality that have become pervasive characteristics of the workings of American capitalism and the social physiognomy of the US corporate elite. The operations of the two government-sponsored firms are entirely in line with the unbridled speculation, based on an immense expansion of debt, that has become the hallmark of American capitalism. Their role in the housing and credit boom that has now come crashing down was of a piece with the creation of the vast edifice of paper values, engineered through the so-called “securitization” of debt, which sustained the super profits and immense salaries raked in by Wall Street. In the wake of the bailout, press reports have noted the bloated salaries of the companies’ CEOs. Before they were sacked as part of the government takeover, Fannie Mae CEO Daniel Mudd and Freddie Mac chief Richard Syron took in between them $29.5 million over the several years they headed their respective corporations. And they stand to receive another $29 million as part of their exit packages. But these sums are by no means exceptional. The Financial Times reported last week that compensation for major executives of the seven biggest US banks totaled $95 billion between 2005 and 2007. The collapse of Fannie Mae and Freddie Mac is a paradigm of the US economy as a whole. Over the past three decades, the decay of American capitalism has taken the form of a vast growth of financial parasitism. At its heart, this involves the separation of wealth creation from the creation of real value in the production process. The American ruling elite has largely dismantled the productive base of the US economy, ruthlessly downsizing manufacturing at the cost of millions of jobs and the destruction of working class living standards, in order to reap higher profits from increasingly reckless forms of financial speculation. The indices of the growth of financial speculation in the US economy are staggering: In 1982, the profits of US financial companies accounted for 5 percent of total after-tax corporate profits. In 2007, they made up 41 percent of corporate profits. This process has generated ever greater levels of social inequality, the most telling symptom of the degenerate state of the US profit system. A report by the Congressional Research Service, updated July 31, provides a measure of the ever growing chasm between the ruling elite and the broad mass of the American people. It states that the share of national income accounted for by the top 1 percent of earners (as reported on tax returns) reached 21.8 percent in 2005—a level not seen since 1928. The report further noted that in 2006, corporate profits totaled 12.4 percent of national income, a level not reached in 50 years. The cost of the ever-expanding bailout of American big business will be borne squarely by the working class. Even in the midst of growing unemployment and poverty and a flood of home foreclosures, there is much talk in the media about the American people “living beyond their means.” That the next administration, whether headed by McCain or Obama, will sharply intensify the assault on working class living standards was spelled out by the New York Times, which editorialized Tuesday: “Senators John McCain and Barack Obama have both voiced support for the bailout, which shows good judgment. But what the next president will need to worry about, and both candidates need to talk about, is the depth of the country’s economic problems. It will take discipline and sacrifice to address them.” The only alternative to a rapid lowering of working class living standards and the only rational and progressive solution to the financial crisis is a socialist program of nationalization of the entire financial system under the democratic control of the working people, with provisions to secure the investments of small depositors and share-holders. The wealth and resources of the country must be developed and allocated to meet the social needs of the population, not the money-mad strivings of financial speculators. This policy can be carried out only through the independent political mobilization of the working class in opposition to the two-party system and the financial aristocracy which it serves. The Socialist Equality Party is dedicated to the building of such a mass socialist movement of the working class. - - - - - - - - - - US Jobless Rate Soars as Foreclosures Break New Record Bill Van Auken 6 September 2008 In a stark indication that the crises gripping the US housing market and the financial sector are spreading throughout the economy, unemployment figures for August rose far more sharply than expected, hitting a five-year high. The official unemployment rate rose to 6.1 percent last month, according to a report released Friday by the Bureau of Labor Statistics. In addition to the net loss of 84,000 jobs last month, the agency revised its figures for June and July, reporting the destruction of an additional 58,000 jobs, pointing to an entire summer dominated by layoffs and economic slump. Meanwhile the so-called misery index, which adds the unemployment and inflation rates, hit 11.7 percent, the worst figure recorded since mid-1991, as high gas, food and utility prices continue to gouge workers’ paychecks even as layoffs mount. Also on Friday, the Mortgage Bankers Association issued a report showing that the new foreclosure rate has risen to its highest point in nearly three decades, as falling home prices and tighter credit is forcing more and more people out of their homes. The total number of homes in foreclosure hit 2.75 percent, triple the rate recorded three years ago. Meanwhile, 6.41 percent of all home mortgages were one or more payments overdue, a record high since these figures were first recorded in 1979. At the same time, existing home sales fell to a 10-year low in the second quarter, while the median price of a single-family house plummeted by another 7.6 percent, the National Association of Realtors reported. The increase in unemployment and the rising number of foreclosures are clearly trends that are feeding into one another in a vicious downward spiral. Workers having lost their jobs are finding it impossible to meet monthly mortgage payments, and the collapse of home values has wiped out credit for many, leading to falling consumption and new layoffs. The loss of jobs was spread throughout the economy, with health care, education and government employment virtually alone in resisting the surge of layoffs. Manufacturing companies cut 61,000 workers from their payrolls; business and professional companies eliminated 53,000 jobs, temporary employment—which generally is a leading indicator of future job trends—fell by 36,000 and the retail trade sector cut 19,900 jobs. Construction employment was down just 8,000, reflecting in part the massive bloodletting that has already taken place—558,000 jobs wiped out since the beginning of 2007. Massive new layoffs are on the horizon. The Air Transport Association reported Friday that US airlines plan to cut at least 36,000 jobs by the end of the year. Job cuts will continue throughout the auto industry as new vehicle sales slump. The DMAX engine plant in Dayton, Ohio announced this week that it is laying off another 330 workers, on top of 290 jobs cut in July. The plant makes engines for GM trucks. Daimler Trucks North America, meanwhile, has announced plans to cut one of the two shifts at its Mount Holly, North Carolina Freightliner plant, putting 675 workers on the unemployment lines. The financial sector is also shedding large numbers of jobs. GMAC Financial Services announced this week it will lay off 5,000 workers, while Wachovia Corp. has indicated that it intends to eliminate the jobs of some 7,000 of its employees. The official figures released Friday were substantially higher than those predicted by economists, who had projected only a 0.1 percent increase over July’s rate of 5.7 percent, with the loss of 75,000 jobs, rather than a 0.4 jump to 6.1 percent and the loss of 84,000 jobs. The decisive issue in the unemployment figures is the sustained character of the assault on jobs, with unemployment rising for eight months straight—the most protracted such trend in the last 25 years. The result is that 2.2 million more workers have joined the unemployment lines over the past year, for a total of 9.4 million officially counted as out of work. These figures drastically underestimate the real crisis confronting working people in the US. An alternative measure provided by the Bureau of Labor Statistics, which includes so-called “discouraged workers”—those who have given up actively looking for work—as well as those forced to eke out a living with part-time jobs because they are unable to get full-time work, rose by a tenth of a percentage point to account for fully 10.7 percent of the US workforce. The latest report on the growth in unemployment elicited widespread acknowledgment that the US economy is gripped by recession. “The economy has clearly slipped into a jobs recession because the housing meltdown and credit market turmoil has spread to the broader economy,” Steven Wood, chief economist at Insight Economics, wrote after the new figures were released. Bank of America economist Peter Kretzmer, in a note to investors, wrote, “The rapid rise in the unemployment rate points to a US recession, as such an increase has never occurred outside of one.” The economist said that household surveys have produced data indicating that 1.75 million jobs have been wiped out since April alone. William Poole, former president of the Federal Reserve Bank of St. Louis, told Bloomberg Television, “It certainly increases the probability that we really are in a recession. It is a weak number, including the [June, July] revisions.” Friday’s dismal unemployment and foreclosure figures came at the end of the worst week for the world financial markets since the aftermath of the terrorist attacks on New York City and Washington seven years ago. The Dow Jones Industrial average eked out a 32-point advance Friday after falling nearly 350 points, or 3 percent, the day before—the worst losses in two months. The sell-off was attributed to the release of the initial projection of a 5.7 percent unemployment rate, combined with dismal retail sales figures and rampant rumors that a major hedge fund, Atticus Capital, with $14 billion in investments, was on the brink of collapse. While the Atticus executives insisted that the rumors were false and that the fund had substantial cash reserves, the fears that major hedge funds will go under are well founded. Many of them had invested heavily in the commodity bubble, which has been rapidly deflating with the recent fall in oil and food prices. Asian stock markets, which fell every day this week, suffered sharp losses Friday, with the Hang Seng index in Hong Kong falling 2.2 percent, Tokyo’s Nikei down 2.75 percent, the Shanghai A-share market dropping 3.3 percent and Australia’s market down 2.1 percent. Similar percentage losses were recorded on all of the major European markets. Meanwhile, the manager of the world’s largest bond fund warned Friday that the US economy faced a “financial tsunami” unless the government intervenes to buy up assets being dumped by banks and finance houses. “Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,” Bill Gross of California-based Pacific Investment Management Co. wrote in a statement on the company’s web site. “If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the US Treasury.” Specifically, he called for the federal government to stem the foreclosure tide by issuing subsidized loans and buying up properties. Gross’s statement reflects growing fears within financial circles that the worst of the credit crisis is still to come and could produce a catastrophic global collapse. In the face of the rapidly deepening economic crisis, the White House issued a sanguine statement that simply ignored the job losses and rise in foreclosures, pointing instead to earlier figures showing an increase in the gross domestic product. “The level of growth demonstrates the resilience of the economy in the face of high energy prices, a weak housing market and difficulties in the financial markets,” the White House said. While this is obviously cold comfort to the millions forced onto the unemployment lines or facing the loss of their homes, the attempt by the candidates of the two major parties to turn the latest figures into political hay offered little more. Republican candidate John McCain acknowledged that “Americans are hurting and we must act to create jobs.” He vowed to enact a “Jobs for America” program, which appeared to involve little more than job training schemes, tax cuts for business and advocacy of free trade. Democratic candidate Barack Obama issued a predictable statement accusing his rival McCain of preparing “more of the same” and continuing the Bush administration’s tax cuts for the rich. He pledged instead to institute an exceedingly modest tax cut for “middle-class families” plus a $50 billion fund to aid state budgets. There is no reason to believe such paltry promises will be realized. Even (if) they were, they would prove entirely inadequate to stem the tide of layoffs or stabilize the crisis-ridden financial system. The Democratic Party is incapable of advancing any serious alternative to the policies of the Bush administration, tied as it is to the interests of Wall Street and corporate America.

Suzan