Europe’s Debt Crisis Deepens

by Richard D. Wolff
Over the weekend, Fitch — the major rating company that, with its fellow majors, Moody’s and Standard and Poor’s, dominate the business of assessing the riskiness of debt instruments — took a highly publicized step.  It downgraded the credit-worthiness of the sovereign debts of many European countries.  What a spectacle!  These rating companies were distinguished by their laughably inaccurate (to be extremely polite) assessments of the risks associated with asset-backed securities.  Those assessments contributed to the economic crisis we are living through.  Now the world is supposed to hang on — rather than laugh at — their credit reports.
Europe’s debts — and social tensions swirling around them — are clearly problems.  Governments collapsing in Greece, Italy, and Spain show that, among other signs of the obvious.  The rating companies’ downgrades of European debt are rather like downgrading the likelihood of good weather while the rest of us are already rushing to close the windows against pouring rain.
Still worse are the usual media reports and discussions of the Fitch action.  They are once again full of eerie references to steps European governments must take “to satisfy the markets.”  This strange metaphorical abstraction — “the markets” — is portrayed as some sort of Frankenstein monster threatening to eat Europe’s children unless the parents support government austerity programs.  Those austerity programs are, of course, already making those parents and their children suffer.
Let’s take a momentary step back from what is an ideological — or better said, propagandistic — usage of the term.  “The markets” is a conceptual device that serves to hide and disguise those particular corporations that stand behind and work those markets to pursue their interests.  The politicians’ and mass media’s language makes it seem as if self-interested pursuit by those corporations were the machine-like operations of some unalterable, fixed institution.  We need to remember that markets, like all other institutions, are human inventions filled with a mix of positive and negative aspects and open to change.  After all, the mixed effects of markets have made them objects of deep suspicion and skepticism at least since Plato and Aristotle profoundly criticized markets as enemies of community thousands of years ago.
The chief creditors of European governments today are banks, insurance companies, large corporations, pension funds, some other (mostly non-European) governments, and wealthy individuals.  When politicians and media speak of the need for European governments to “satisfy the markets,” what they mean is to satisfy those creditors.  The chief influences among those creditors are the major banks that represent and/or advise all or most of the rest of them.  The major European banks were and are the chief recipients of the costly bailouts by those European governments since 2008.  Indeed, those bailouts sharply increased the indebtedness of European governments because the latter paid for those bailouts by borrowing.
The bailouts worked in Europe much as they did in the US.  Banks had speculated badly in asset-backed securities and their associated derivatives leading up to late 2008.  When borrowers (e.g., mortgagors in the US) increasingly defaulted on the loans comprising those asset-backed securities, the values of the latter collapsed.  Banks stopped trusting one another to repay loans between them — central to the global credit system — because all banks knew that they all held huge amounts of asset-backed securities whose values had collapsed.  Each major bank feared that others — like itself – might have to default on its debts.
Bank transactions with one another stopped and thereby produced a credit “freeze” or “crunch.”  In modern capitalist economies, businesses, governments, and consumers have all become more credit-dependent than ever.  Such a freeze or crunch therefore threatened wholesale economic non-functioning (collapse).

The solution was for governments to intervene massively to unfreeze the credit system.  They did this on multiple fronts simultaneously, so serious was the crisis.  First, governments lent freely to the major banks that could not borrow from each other.  Second, governments guaranteed various sorts of loans and debts so banks that had feared to lend would resume lending.  Thirdly, governments borrowed massively so private lenders — especially banks — would have a safe and profitable outlet for their loanable funds.  In these ways, as agent of the people, European governments unfroze and rebooted a collapsed private credit system at enormous public expense.  They thereby enabled the survival and continued profitability of the banks and their major clients.
Over the last year or so, those banks and their clients — freed by government bailouts from worrying about loans to one another — have begun to worry about their loans to European governments.  They fear one thing: aroused and angry publics.  People in the streets may not permit their governments to impose “austerity.”  The people may not accept government cuts in basic public employment and services to save money and to pay off creditors that were bailed out at public expense just a short while ago.
So the creditors are now pressing governments to ensure the safety of the national debt (to themselves).  The Fitch downgrade is part of that pressure.  The references to “satisfying the markets” simply disguise the whole outrageous process.  The crisis drama deepens: creditors’ pressure on governments increases austerity policies that increase mass opposition that frightens creditors who increase their pressure on governments. . . .
The contradictions driving this vicious cycle agitate all of European society and the global economy interlinked with Europe.  European governments fear the creditors and fear their rising domestic oppositions to austerity.  They express irritation against Fitch and the other rating companies for making their dilemma worse.  They have no solution, bend toward “satisfying the markets,” and thus pursue austerity in fits, starts, and retreats.  Like animals frozen in the headlights of oncoming disaster, the players in this absurd European drama issue redundant credit reports (Fitch), hold endless and fruitless conferences and summits (Sarkozy, Merkel, et al.), and twitch with anxiety as general strikes proliferate and governments teeter and fall.  Meanwhile, phantoms like “the markets” haunt the media analyses and politicians’ statements, serving mostly to fragment and obscure what is happening.

Richard D. Wolff is Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York.   He is the author of New Departures in Marxian Theory (Routledge, 2006) among many other publications.  Check out Richard D. Wolff’s documentary film on the current economic crisis, Capitalism Hits the Fan, atwww.capitalismhitsthefan.com.  Visit Wolff’s Web site at www.rdwolff.com, and order a copy of his new book Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It.  His weekly radio program, “Economic Update,” broadcasts on WBAI, 99.5 FM in New York City every Saturday at noon for an hour; it can also be heard live and in podcast archive on wbai.org.
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Let’s Occupy Together

(Originally Posted Nov. 5th, 2011)

I’m not sure why the media are having such trouble figuring out the demands of Occupy Wall St.  Recently, a seven-year-old girl, Celia Cooley, went down to Zuccotti Park and, posing as a reporter, she asked people why they were there (http://www.youtube.com/watch?v=x12iOQYY0w8).  What they said was quite consistent and quite reasonable and quite comprehensible to this young girl.  They said: We want our democracy back.

Anyone who is confused about what the protesters want has probably been listening to too much corporate news.  Corporate news stations present themselves as trustworthy and unbiased, but they are owned by large multinational corporations like General Electric and Westinghouse, and these are the folks that are benefitting from the policies that the protesters decry.

These news outlets don’t want the message of Occupy Wall St. to be heard.  They don’t want the protesters portrayed as ordinary Americans who have been bilked of their savings and booted out of the middle class and who are justifiably demanding that things change. If you’ve been watching corporate news and you are confused, the first thing to do is to broaden your sources of information.  Go to the non-commercial news sites on the Internet and listen to the chorus of ordinary Americans who are saying very clearly what’s wrong and who are making sensible suggestions about how to go about fixing it.

Here is some of what you will learn.

The economic crisis did not start because suddenly poor people started taking out mortgages on homes they couldn’t afford to pay for.  It didn’t start because of some corporate bad apples. Think about it.  The job of a lender is to determine if a person is credit worthy.  The reason loans were given to people who couldn’t afford them was simply that banks no longer had an incentive to find out if people were credit worthy.  Why?  Because banks were permitted to sell the mortgages to other companies for a profit, rather than waiting to collect on the loan.  The big banks pushed loans on people because they were making profit, hand over fist, from selling these loans to investors.

Why were the investors buying bad mortgages? Because they were permitted to bundle them together with other loans to look like safe investments.  Why did these investments look safe, because the folks in the rating agencies, who were supposed to rate these investments, were not sufficiently regulated and worked in cahoots with the big banks.

The problem, in short, was not individual behavior; the problem was that the system was jury-rigged.  Corporate lobbyists took over Congress and rewrote the banking laws in their favor.  As long as home prices went up, banks made a killing.  When the music stopped, instead of taking their consequences, big banks got their insiders at the Fed and the Treasury Department in D.C. to bail them out.  Then they got their friends their in corporate media affiliates to point their fingers at the borrowers ( the ones who are now homeless) and at big government (for wasting taxpayer money).  Meanwhile, Wall St. banks go on their merry way, paying out bonus, rewarding failure, avoiding the consequences of their actions, and continuing to use our Congress as their personal playground.

That’s just wrong.  That’s why folks are on the streets.

If you are in the Tea Party, you probably believe many of the same things that Occupy Wall St. supporters believe.  People should play by the rules.  People should be punished when they do something wrong.  If you reward people for cheating, they are likely to continue to misbehave.  Like supporters of OWS, you probably believe that our government should be accountable to us, we the people, and that the government should not collude with powerful elites to deprive people of the right to a livelihood, or to kick them out of their homes.  You probably believe that government shouldn’t write laws that favor powerful interests in order to raise enough money to get re-elected.

I support Occupy Wall St.  You and I may have our differences, but I think we share a commitment to restoring the integrity of this democracy.  I think we can agree that when a government no longer is responsive to the desires of the citizens, that it is the responsibility of citizens to act together.  The government itself is not the problem; the problem is that the government has been taken over by wealthy elites who do not have our interests at heart.  It is time for us to stand together, shoulder-to-shoulder, Republican and Democrat, on the streets of this great country and take our democracy back.

Turn off the corporate news, talk to your fellow Americans, one by one, until you decide for yourself whether what I am saying is true.  That’s what Celia is doing.  There is no other test in a democracy but that of the ability of ideas to stand the test of evidence and reason.  The values that our forbearers fought and died for are at stake.  Nothing less.

Let’s Occupy Together

I’m not sure why the media are having such trouble figuring out the demands of Occupy Wall St.  Recently, a seven-year-old girl, Celia Cooley, went down to Zuccotti Park and, posing as a reporter, she asked people why they were there (http://www.youtube.com/watch?v=x12iOQYY0w8).  What they said was quite consistent and quite reasonable and quite comprehensible to this young girl.  They said: We want our democracy back.

Anyone who is confused about what the protesters want has probably been listening to too much corporate news.  Corporate news stations present themselves as trustworthy and unbiased, but they are owned by large multinational corporations like General Electric and Westinghouse, and these are the folks that are benefitting from the policies that the protesters decry.

These news outlets don’t want the message of Occupy Wall St. to be heard.  They don’t want the protesters portrayed as ordinary Americans who have been bilked of their savings and booted out of the middle class and who are justifiably demanding that things change. If you’ve been watching corporate news and you are confused, the first thing to do is to broaden your sources of information.  Go to the non-commercial news sites on the Internet and listen to the chorus of ordinary Americans who are saying very clearly what’s wrong and who are making sensible suggestions about how to go about fixing it.

Here is some of what you will learn.

The economic crisis did not start because suddenly poor people started taking out mortgages on homes they couldn’t afford to pay for.  It didn’t start because of some corporate bad apples. Think about it.  The job of a lender is to determine if a person is credit worthy.  The reason loans were given to people who couldn’t afford them was simply that banks no longer had an incentive to find out if people were credit worthy.  Why?  Because banks were permitted to sell the mortgages to other companies for a profit, rather than waiting to collect on the loan.  The big banks pushed loans on people because they were making profit, hand over fist, from selling these loans to investors.

Why were the investors buying bad mortgages? Because they were permitted to bundle them together with other loans to look like safe investments.  Why did these investments look safe, because the folks in the rating agencies, who were supposed to rate these investments, were not sufficiently regulated and worked in cahoots with the big banks.

The problem, in short, was not individual behavior; the problem was that the system was jury-rigged.  Corporate lobbyists took over Congress and rewrote the banking laws in their favor.  As long as home prices went up, banks made a killing.  When the music stopped, instead of taking their consequences, big banks got their insiders at the Fed and the Treasury Department in D.C. to bail them out.  Then they got their friends their in corporate media affiliates to point their fingers at the borrowers ( the ones who are now homeless) and at big government (for wasting taxpayer money).  Meanwhile, Wall St. banks go on their merry way, paying out bonus, rewarding failure, avoiding the consequences of their actions, and continuing to use our Congress as their personal playground.

That’s just wrong.  That’s why folks are on the streets.

If you are in the Tea Party, you probably believe many of the same things that Occupy Wall St. supporters believe.  People should play by the rules.  People should be punished when they do something wrong.  If you reward people for cheating, they are likely to continue to misbehave.  Like supporters of OWS, you probably believe that our government should be accountable to us, we the people, and that the government should not collude with powerful elites to deprive people of the right to a livelihood, or to kick them out of their homes.  You probably believe that government shouldn’t write laws that favor powerful interests in order to raise enough money to get re-elected.

I support Occupy Wall St.  You and I may have our differences, but I think we share a commitment to restoring the integrity of this democracy.  I think we can agree that when a government no longer is responsive to the desires of the citizens, that it is the responsibility of citizens to act together.  The government itself is not the problem; the problem is that the government has been taken over by wealthy elites who do not have our interests at heart.  It is time for us to stand together, shoulder-to-shoulder, Republican and Democrat, on the streets of this great country and take our democracy back.

Turn off the corporate news, talk to your fellow Americans, one by one, until you decide for yourself whether what I am saying is true.  That’s what Celia is doing.  There is no other test in a democracy but that of the ability of ideas to stand the test of evidence and reason.  The values that our forbearers fought and died for are at stake.  Nothing less.

Bad Bankers

To fix the credit crisis Washington needs to figure out what to do with the bad loans that the banks made. The problem is that as long as the banks are holding these bad loans as assets, they will have insufficient capital to lend to credit worthy businesses. If businesses can’t expand, they won’t provide jobs; without jobs there is no spending.

Giving money to the banks last fall didn’t work – they are still nearly insolvent, they are not lending; they insist on continuing to pay themselves handsomely while we lose our jobs. People are fed up with solutions that throw money at Wall St. while asking those of us on Main St. to tighten our belts.

That’s why a recent solution proposed by the new administration is so incredible. The idea is to have the government use good tax payer money to buy up the bad assets of the banks leaving the banks with the remaining good assets. The banks then will be financially solvent and presumably will start lending again; businesses will borrow and start expanding and spending will resume.

The bad assets will belong to us. In other words we pay good money to make up for the mistakes made by bad bankers, they get off the hook and we are left with the bill. In the mean time, auto companies are being chastised for being uncompetitive and are told they have to restructure or go out of business. Oh yes, and for years we have been lectured by Washington on how providing welfare to people who have fallen on hard times only reinforces their bad behavior. Are you really willing to put up with this?

There are two things we can do. First we can vote with our feet and take our business elsewhere: we can put our money in and refinance our mortgages with small local banks and credit unions. Second, we can lobby our representatives to reject a further bailout of the banks. Instead of using our money to buy the bad assets of these failing banks, our money should be used to buy the banks themselves and to start operating the banks for the benefit of Main St. businesses and working people. If the banks are too big to fail then surely they are too big to be left in the hands of incompetent bankers.

Let the captains of the banking industry join the ranks of the unemployed – they acquired these bad loans and they should take responsibility for their actions. After all, they have been telling us for years that it is wrong to interfere with the dictates of the market and that helping people in hard times is counterproductive. They are wrong on both counts of course, but then, they have been wrong about so many things. It is time that we step in and put things right.

Boscov’s: Bailout or Boondoggle?

Submitted by David Hafer

As the global economy implodes, we are beginning to see the ramifications creep into our region as politicians scramble to provide taxpayer subsidized bailouts to their favorite financially troubled corporation.

The Snyder County Commissioners who value fiscal responsibility over political expediency deserve their constituents’ support. The important question the public should ask is why Boscov’s chain is so special that it deserves a $35 million bailout from the taxpayers of Pennsylvania.

Pennsylvania has no formal legal procedures for using tax money to bail out a failing retail business. With increasing budget problems, the state cannot afford to rescue every private business in trouble. We should ask why a small economically distressed county should provide collateral for a loan to a big corporate business that is failing through no fault of the county’s taxpayers.

The five million collateral in the form of Community Development Block Grant funds represents a critically important funding resource the county would lose if Boscov’s defaults on its loan. Considering the precarious state of the consumer economy, along with stiff competition from other chains, there is good reason to be skeptical of rosy claims that Boscov’s will return to profitability.

Loss of CDBG funds could impair the county’s ability to repair bridges and upgrade sewer and water systems forcing county officials to raise taxes or curtail services, prospects that would add to the hardships of residents already struggling to make ends meet.

Rather than propping up a failing retail store in an area already saturated with malls and big box stores, we should be looking at more productive ways to use public money to create jobs.

For example, reviving the region’s manufacturing economy. During the past decade, over 4500 manufacturing jobs, including 800 in Snyder County, have been lost. Industrial jobs provide substantially more in wages and benefits than dead end work in big box stores that pay minimum wage and import all their wares from China.

Bringing back manufacturing jobs will require substantial changes in the nation’s trade policies. Doing away with so-called free trade that siphons industries and jobs from Pennsylvania to the sweatshops of Asia would be a significant step in the right direction.

Changing trade policies may be a challenging task, but in the long run it will bring more economic benefits to our region than gambling away public money to save a retail dinosaur.

Welfare Capitalism

(submitted by Joe Detelj)

By all accounts we are bearing witness to a financial collapse of epic proportions. It is serious enough that our political appointees have offered a trillion dollar prescription to the Bush administration, no questions asked. The properly credentialed experts residing in our economic institutions warn that we have yet to suffer the effects of this in the “real” economy. The job losses announced to date will continue unabated well into the future. A double digit spike in home foreclosures clearly portends hard times and an economy whose fundamentals are far from sound.

In my opinion this situation needs to be viewed from a set of assumptions that are not necessarily those of the corporate media, Fox business news, or their sponsors. I assume that wealth is created from manufacturing and agriculture: Energy from the sun, mixed with air, water, soil, and mystery plus raw materials worked into the stuff we use to feed, clothe, house, and amuse ourselves generates the surplus that allows us to live in towns and cities, attend university, go to the opera, movies, or church such  as our inclinations warrant. The service economy is a myth, a Ponzi scheme whose effect we are now experiencing. How can we live by taking in each others laundry while the material substance of our lives is made in places the average person could never find on a map?

It is in this context that I find it difficult to control my passions in light of the Senate’s reaction to an auto industry loan. The opposition is largely centered in the right to work Southern states that are home to the foreign auto plants held up as  industry standards.  We are to suppose that the market share these plants would inherit in the event of a collapse of the domestic auto industry plays no part in the civic virtue exhibited by our kin south of the Mason-Dixon line. We have been issued the talking points that as guardians of the taxpayers money  these good fellows can not in good conscience help a failing industry unless the recipients  restructure. They could not support failure. If a restructuring takes place then limited help would be acceptable, with conditions similar but different from those imposed on Germany after WW1.  At last compassion reigns.

But let us be clear what is meant by restructuring, and that is that the union must be broken. If you listen to the latest rhetoric it does not obscure this  requirement which was originally inferred. Were we to scrutinize our civic guardians of virtue with a modicum of oversight comparable to that which they believe they are practicing, we would find circumstances that should give pause. Every foreign plant located in the US has been the recipient of huge subsidies. These factories have been given the facilities where they are located as an economic development stimulus. They are housed in State provided land , buildings, water, sewer, and a host of municipal services. They pay discounted utility bills not available to the rest of the citizenry. They all require rail service that has been routed and rerouted for their convenience, all at taxpayer expense. Their State and local taxes have been deferred, reduced or eliminated. Of particular relevance, is their absence of “legacy costs”.   

These plants being of more recent origin have a work force who have not reached retirement age, consequently their pensions are not factored into the published wage rates. Of greater significance is the fact that these factories are assembly plants. They assemble components imported from their European and Far Eastern parent companies: Multinationals that are not hindered by “legacy” costs since universal, single payer health care and a social safety net is provided as an entitlement of citizenship. It is not a cost of production incurred by the industry. The mystic market workings of a fair and impartial “invisible hand” guiding economic behavior is rubbish. The nonsense that we need only leave the market sort itself out is a veil of tears meant to obscure the ideological and financial self interests of the very persons who have created this disaster and laid us to rest on a bed of nails.  It has occurred to me that much is made of the wages that auto workers receive. They produce cars and trucks fundamental to our economy. They produce wealth. The industry is in a collapse and the workers, the least culpable cause of this situation are being blamed. The financial industry is  in a collapse of immensely greater proportions and we hear hardly a murmur of the need for reorganization cast at our friendly banker, broker, auditor, SEC/Federal Reserve director, Treasury Secretary, or President. I have not been able to find any call for a reduction of their compensation and benefits. They have destroyed wealth and have avoided scrutiny. The major difference is the color of their collar.    

Leadership at every segment of society has failed. A rearrangement of the deck chairs on the Titanic appears to be the order of the day. A clearer vision of remedial action that does not blame the victim needs  to be the first prerequisite for a proper correction to happen. People are hurting and are experiencing a great deal of uncertainty. In the grand scheme of things, they are not the engineers who brought this upon themselves.

Keeping Jobs at Home: Give the Workers Control

by John Peeler (originally published by the LA Progressive November 20, 2008)

Robert Reich, writing on the LA Progressive (November 19, 2008), calls for a “Bottom-Up Bailout,” by which he means not aiding the auto manufacturers, but rather providing direct credit and loan guarantees to small businesses and individuals, and supporting those big companies whose managers and workers are willing to put up their own resources and to restructure the companies. That approach would certainly be better than what we’ve seen from an administration that is as much lame-brained as lame-duck. But we can do still better.

To right this listing economy, we must do more than rescue large corporations that are “too big to fail.” We must redress a gross imbalance between management authority and worker rights, and to give the government a fundamental role in defending the public interest. Corporations are publicly chartered institutions that are supposed to serve the public interest even as they make profits for their stockholders. Obviously, the Big Three automakers-and hundreds of other corporations-have ill-served the public interest by making decisions like sending millions of jobs overseas, in pursuit of larger profits.

Rather than bailing out companies that have been consistently mismanaged and have failed to serve the public interest, and rather than just letting them fail, Congress should provide for the option of having the employees of the company take control, and reserving bailout funds as loans to worker-controlled corporations. In a bankrupt company, stockholders have already lost their stake, but employees have a very direct interest in correcting mismanagement in order to keep the company in business. In particular, employees have an interest in making management decisions that will maintain their jobs where they are, rather than sending them overseas. This might mean accepting lower wages or benefits in return for job security, but that would be a better bargain than workers now get, when they make concessions without any assurance that their jobs will thereby be saved.

There are obviously pitfalls to be avoided. The mere fact of worker ownership and control does not guarantee that management will serve either employee interests or the public interest. United Airlines, for example, came under employee ownership in an earlier crisis, but it was managed just the way other airlines were managed, and as a result continued to have poor relations with the employees who supposedly owned the airline! Go figure! What this means is that the leaders who are charged with managing the company need to be both competent and accountable.

Accountability is easy enough to arrange. The employees ought to have a direct, voting voice (one employee, one vote?) in selecting the chief executive, should receive regular, frank communication from the chief executive, and should have the right, under specified procedural conditions, to dismiss and replace the chief executive.

Competence is tougher. We know from our political system that democracy does not guarantee competence. If we didn’t know that before, eight years of George W. Bush should be convincing. But the right of dismissal allows workers who were manipulated initially to rectify their error after they have seen a chief executive in action. There is still a risk that employees would put short-term gains ahead of strategies intended to enhance long-term viability of the firm, but in this they would scarcely be any more short-sighted than the present management.

The government, as defender of the public interest, could have an important role as an external monitor of management competence. The Commerce Department, for example, could be vested with a seat on the board of the corporation, with the right to full information about its affairs, and the obligation to report both to the employees and to the public as to how well the company is being managed. The government representative could have the authority to order an employee vote on dismissing a chief executive.

Giving employees direct ownership and control of failed corporations, with government loans to let them regain their footing, is the best approach to a “bottom-up bailout.”

.
John Peeler