The continuing economic crisis

The financial crisis is not over although it has been moved off of the front pages of many papers.  On Thursday, September 23, 2010, the Financial Crisis Inquiry Commission came to Sacramento chaired by Phil Angelides.  In his opening statement Angelides noted that there were 26 million out of work, over 2 million have lost their homes, over $12 trillion in wealth has been wiped out, and California has an official 12.8 % unemployment.

The crisis started in the housing markets, particularly  in places like Sacramento. The economic problems were accelerated by the near larceny of business practices by corporations including Washington Mutual and Long Beach Savings.  Sub prime and Alter A mortgages were promoted and sold to make outlandish profits even though it was clear that many home buyers could not pay for their mortgages.

The  current Great Recession was accelerated far beyond  Sacramento and the Central Valley by finance capital and banking, mostly on Wall Street, ie. Chase Banks, Bank of America, Goldman Sachs,  AIG, and others.  Finance capital owned the banks, and they robbed the banks through investment and trading  schemes including investments in mortgage backed derivatives. Wall Street’s actions plunged the U.S. into the worst financial crisis since the Great Depression, destroying jobs and lives, and triggering a recession in much of  the developed world.

One person testifying ( I did not get his name), said this was , “capitalism at its most unregulated.”  The effects of the housing crisis spread to Wall Street because it was Wall Street firms backing the mostly fraudulent mortgages – and then they were bailed out.

We are now  in the greatest economic crisis since the 1930’s.  WE need  a new  consistent, comprehensible narrative  to explain how the economic system is only working for the rich and powerful, not for working people.   Such a narrative  would explain  to working families  the economic  reality and the destruction  which they are seeing around them and provide an alternative to the narrative being offered by the  media, the Tea Party and the other corporate front groups.

The  recent work 13 Bankers. The Wall Street Takeover and the Next Financial Meltdown. ( 2010)  and a number of other books  develop  the important thesis that the U.S. is being directed and exploited by an oligarchy.  This oligarchy protects  their profits and their privileges, they dominate the government.  And, they will continue to do so until they are stopped.

Johnson and Kwak  argue that in the crisis of 2007/2009, which the oligarchy created, the rich seized billions of dollars for themselves.  They made massive profits from the economic disaster. The Great Recession cost  the homes, the jobs, and even the lives of working people.

 In  The Wall Street Takeover and the Next Financial Meldown,  Johnson and Kwak describe in detail the self serving economic theories which the wealthy and the powerful promote, such as those advanced most notably by the University of Chicago economists.

Perhaps most important is to understand that the system has not been fundamentally changed – it will all happen again.  Johnson and Kwak note

 “ In the dark days of late 2008- when Lehman Brothers vanished, Merrill Lynch was acquired, AIG was taken over by the government, Washington Mutual and Wachovia collapsed, Goldman Sachs and Morgan Stanley fled for safety morphing into bank holding companies, and Citigroup and Bank of America teetered on the edge of being bailed out- the conventional wisdom was that the financial crisis  spelled the end of an era of excessive risk –taking and fabulous profits.  Instead,  we can now see that the largest, most powerful banks came out of the crisis even larger and more powerful.  When Wall Street was on its knees, Washington came to its rescue- not because of personal favors to a handful of powerful bankers, but because of a belief in a certain kind of financial sector so strong that not even the ugly revelations of the financial crisis could uproot it.”  ( P.11)

To see more on this see, “The easiest way to rob a bank is to own one,” on a prior post.

A hopeful counter point  to oligarchic power was offered in a presentation by Barry Lynn of the New America Foundation at a noon conference downtown.    Lynn argues in his book, Cornered: The New Monopoly Capitalism and the Economics of Destruction, (2010) that the growth of monopoly power in the U.S. has given the powerful, or those referred to by Johnson and Kwak as the Oligarchs, a new power to control our economy and to govern our lives.  He gave examples from beer brewing, agriculture (chickens and milk), to Wall Mart and Google to argue for an effort to renew our democracy.  Interestingly, his anti monopoly of power argument came from a rather conservative perspective- not from the Left.