[Peace-discuss] The administration and the banks

[C. G. Estabrook]

["...President HopeNChange has pretty much turned the federal government into a 
wholly owned subsidiary of Wall Street..."  That and other remarks, below, come 
from the excellent Doug Henwood, editor of the Left Business Observer, and were 
delivered at the panel, ”Nationalize the Banks! What Does it Really Mean?,” 
organized by the Socialist Register, at the Left Forum, New York City, April 19, 
2009. --CGE]


The title of our session reminds me of that glorious week in Seattle back in 
December 1999. At that time, and for a little while afterwards, it seemed like a 
new movement had been born, and there was some real potential for transforming, 
or even overthrowing, capitalism. One of my favorite chants of that moment of 
carnival came from the unfairly maligned Black Bloc:

	Capitalism? No thanks!
	We will burn your fucking banks!

Not constructive, perhaps, but inspiring nonetheless.

But, it’s also a reminder of a couple of things. One is that that Seattle moment 
came at the end of the 1990s boom, not unlike the way the upsurge of the 1960s 
came late in the post-World War II boom. Though it’s something of an article of 
faith on the left that crisis is full of radicalizing potential, it may be 
easier to argue that good time are even more so. After all, the U.S. 
unemployment rate December 1999 was 4.0%, the lowest it had been in almost 30 
years. Real hourly wages had been rising for more than four years, the best 
streak since that measure peaked in 1973. In such an environment, expectations 
rise, and it’s a lot easier to tell the boss to “Take This Job and Shove It” 
(which, by the way, hit the charts in January 1978, when the unemployment rate 
was falling from its 1975 highs, and the real wage was, unusually for the 
period, picking up some steam—not to be too vulgar Marxist about explaining 
culture materially or anything).

Sure, everyone remembers the 1930s Depression as a time of radical agitation, 
but that was a very extreme case. The economic troubles of the 1970s were hardly 
a fertile period for radical organizing.

Where’s the outrage?

Which brings me up to the present. It’s amazing to me how little protest there 
has been, despite the longest, and by some measures, nastiest recession in 70 
years. (Putting it in some perspective, the contraction in GDP so far is nowhere 
near the worst post-World War II recession, and the decline in employment, while 
harsh, was worse in the recessions of the 1950s. What’s scary is that it should 
have all turned around by now, and hasn’t.) But when people are scared, they 
hunker down, and even long for a restoration of the status quo ante, rather than 
thinking about radical rethinks of the whole set-up.

Speaking of restoring the status quo ante, that’s pretty much what it looks like 
the Obama administration looks to restore—from the big picture structure of Wall 
Street domination of economics and politics down to the details of 
securitization. Waxing geeky for a moment, so we really need to relaunch the 
securitization of everything? Haven’t even the very orthodox learned that the 
packaging of smallish, individual credits into large, tradeable securities 
increases systemic risk and eliminates any incentive to scrutinize borrowers 
carefully?

Obama gave a rather pretty speech the other day. Some of the things he said: “It 
is simply not sustainable to have a 21st-century financial system that is 
governed by 20th-century rules and regulations that allowed the recklessness of 
a few to threaten the entire economy.  It is not sustainable to have an economy 
where in one year, 40 percent of our corporate profits came from a financial 
sector that was based on inflated home prices, maxed-out credit cards, 
over-leveraged banks and overvalued assets.  It’s not sustainable to have an 
economy where the incomes of the top 1 percent has skyrocketed while the typical 
working household has seen their incomes decline by nearly $2,000.  That’s just 
not a sustainable model for long-term prosperity.” No, it’s not, but what does 
he propose to do about it? Next to nothing, so far.

Status quo ante

And the portents of the future aren’t so great, either. His top economic 
advisor, Larry Summers, earned something like $8 million last year from Wall 
Street, where, by his own admission, he learned to think like a hedge funder. 
His financial bailout scheme consists mainly of writing unconditional large 
checks to large banks. Oh yes, he summoned a dozen top bankers to the White 
House the other week, and served each of them nothing but a single glass of 
water without ice, no refills.

Nice theater, but they’re still getting to run their banks as they like. The CEO 
of GM was sent packing—by auto czar Steve Rattner, a former private equity guy 
who’s under investigation for possible kickbacks for rights to manage the New 
York State pension fund. The UAW is likely to be effectively broken as a 
condition of the industry’s rescue. But what have the bankers sacrificed? So 
far, the Obama administration’s notion of change, when it comes to this bailout, 
is to replace the Goldman Sachs alum at the top of the Tarp apparatus with a 
Merrill Lynch alum. Wow, that’s change we can all believe in, eh?

Even a middle-distance look at the Obama administration’s revision of Hank 
Paulson’s Tarp doesn’t look all that change-y. The great innovation is to offer 
hedge funds and the like very low-cost federal financing to buy up troubled 
assets, with the Treasury bearing most of the risk and the speculators most of 
the possible gains, if any. Already, it looks like the banks have figured out 
ways to game the system, like setting up off-balance-sheet entities to buy their 
own toxic junk, clearing it off their books, and sticking Uncle Sam with most of 
the bill. Advisors to the program, like BlackRock, the private equity firm, and 
Pimco, the world’s largest bondholder not located in China, hold a lot of bad 
assets themselves, so their advice and their own speculative cash could easily 
be deployed to bail themselves out of some bad positions cheaply.

As we breathlessly await the results of the Treasury’s stress tests for our 
biggest banks, you have to wonder just how honest this exercise is going to be. 
Their initial worst-case economic scenario, which featured an unemployment rate 
slightly north of 10%, is now looking like the most likely trajectory—a 
realistic worst case could be more like 12% or 15%. How would even a 
more-or-less healthy bank like JPMorgan Chase fare with a near-doubling of the 
jobless rate?

And how healthy are Citi and Bank of America, really, even with last month’s 
8.5% unemployment rate? Citi reported its first profitable quarter in over a 
year, but it was mostly the result of accounting gimmickry. Even the almighty 
Goldman Sachs, which is probably the healthiest of the household names (at least 
in some households), squeaked out a first quarter profit because, thanks to an 
accounting technicality (switching from a fiscal to a calendar year when it 
converted from being an investment bank to a commercial bank), it was allowed to 
forget about its huge loss in December.

Ah, maybe I’m wrong to worry about these things. Last week, Time magazine 
declared the banking crisis to be over. But this reminds me of Allen Ginsberg’s 
poem, “America,” in which he asks the title country, “Are you going to let our 
emotional life be run by Time Magazine?” Probably not a good idea to let our 
economic life be run by Henry Luce’s progeny either.

But aside from all these technical details, like whether our banking system is 
solvent or not and whether Washington is prepared to evaluate the situation 
honestly or not, let me return to my original political point, which is that 
President HopeNChange has pretty much turned the federal government into a 
wholly owned subsidiary of Wall Street. It’s fashionable in some circles, even 
around these halls, to attribute this to misunderstanding, or some sort of 
Clintonian hijacking of a phantasmic transformative agenda, or even imagine this 
to be some clever feint before a New New Deal is announced. Ha. There’s a reason 
that hedge fund ubermensch Paul Tudor Jones threw Obama a fundraiser in April 
2007, only two months after he announced his candidacy. He knows an ally when he 
sees one. Obama is a very intelligent fellow, and a masterful politician. He 
knows exactly what he’s doing. He didn’t appoint Summers and Geithner out of 
naivete or sloppiness.

A real New Deal

Just a reminder of what a New New Deal might sound like. Here’s FDR, in his 
October 1936 speech announcing the Second New Deal (which, it doesn’t hurt to 
remember, came just months before the return to fiscal and monetary orthodoxy 
that launched the second Great Depression in 1937):

    "We had to struggle with the old enemies of peace–business and financial 
monopoly, speculation, reckless banking, class antagonism [what’s wrong with 
that, exactly? - DH], sectionalism, war profiteering.

    "They had begun to consider the Government of the United States as a mere 
appendage to their own affairs. We know now that Government by organized money 
is just as dangerous as Government by organized mob.

     "Never before in all our history have these forces been so united against 
one candidate as they stand today. They are unanimous in their hate for me–and I 
welcome their hatred."

You just can’t imagine Obama saying anything like that, can you?

Shameless public rituals

So, here we are, spending trillions in public funds in a perhaps futile, perhaps 
not futile, effort to restore the status quo ante. And the public seems largely 
dissociated from the entire process. Yeah, there were some bellows of rage when 
the bailout was voted on last year, and of course there were the teabagging, ha 
ha, parties the other day, but basically the financial wing of the bourgeoisie 
has been given free rein. (And, as that list of exceptions to the passivity 
suggests, most of the critique has come from the right, often the far right, 
clad in headdress by Lipton’s.) That presents a major problem for what I’m about 
to say, since offering these sorts of high-minded suggestions in the absence of 
any popular mobilization, risks devolving into a rather unsatisfying form of 
public masturbation. But let me pretend, for a few minutes, that I’m a man 
without shame.

What would it mean to nationalize the banks? Well, there’s the orthodox version 
of that, which means to take them into government hands, put them on a drip 
infusion until they return to health, and then privatize them. That’s the 
Swedish model that people talk about, and while it’s probably more effective and 
cheaper than what we’re going through now, it’s probably not what Leo or many 
people in this room have in mind.

Waxing transformative

So in preparation for this panel, I read a book that Leo [Panitch, co-editor of 
the Socialist Register and organizer of the panel] recommended, Richard Minns’s 
slim 1982 volume, Take Over the City: The Case for Public Ownership of Financial 
Institutions. From the point of view of someone reading it in the USA of 2009, 
it starts with several serious problems. One is that the financial landscape has 
been totally overhauled. Then and there, a few giant banks dominated Britain’s 
financial system. Now and here, things are massively dispersed and complex.

And in the Britain of 1982, there were still some unions, and unions who were at 
least vaguely interested in this sort of thing. Here and now, we have almost no 
unions, and the ones we have aren’t the least bit interested in socializing 
finance. In fact, just last week, Leo Gerard, the president of the Steelworkers 
who, I’m told, longs to succeed John Sweeney at the AFL-CIO, explained to the 
New York Times that while (quoting the paper’s paraphrase of Gerard) “large 
labor demonstrations are often warranted in Canada and European countries to 
pressure parliamentary leaders. Demonstrations are less needed in the United 
States, he said, because often all that is needed is some expert lobbying in 
Washington to line up the support of a half-dozen senators.”

What does it mean to nationalize the banks when almost no one really wants to? 
It’s hard to imagine even a significant attempt at re-regulating finance, given 
the predilections of this Wall Street-besotted administration and the crush that 
most progressive forces still have on Barack Obama.

Ok, back to fantasyland. Minns had a couple of things in mind when he proposed 
taking over the City of London. One was providing the long-term funding 
necessary to re-industrialize Britain. That sounds appealing to a country, ours, 
that has lost 1.5 million manufacturing jobs since the recession began, and 5 
million over the last ten years. But manufacturing what, exactly? And in 
competition with China? Or high-tech greeny stuff that doesn’t have to compete 
for shelf space at Wal-Mart? Can we revive manufacturing without erecting some 
high tariff walls? Are we really so sure that the mainstream isn’t right about 
the contribution of Smoot-Hawley to the Great Depression?

But Minns also looks to nationalizing the banks as a way to mount the commanding 
heights of British capitalism. The banks owned, either for themselves or on 
behalf of clients, large to controlling interests in the stock of UK Plc. 
Translating this approach to the U.S. in 2009 brings up several enormous 
problems. One is that stockholding here is widely dispersed among hedge funds, 
private equity funds, pension funds, mutual funds, and millions of individual 
investors. Banks own almost none of these shares. Pension funds own about 10%; 
mutual funds, about 20%; and individuals, not quite 40%. Pension funds are held 
in the name of workers, and they’re managed by and for Wall Street. It’s a major 
undertaking for a takeover artist to assemble enough shares to launch a 
challenge to the existing management of a single firm; how do we multiply this 
by the 500 stocks in the S&P index? And if I really wanted to lay it on, I’d ask 
who “we” are, anyway?

And, leaving aside all these details, financial assets are at the core of how 
the capitalist class is formed, and how its rights of ownership and control are 
exercised. Nationalizing the banks, and mounting the commanding heights, means 
attacking that class relation at its core. It would be insane, at our present 
level of political development, to talk in those terms.

It seems more promising to me to talk about things that we can almost imagine 
doing, at our present level of political development. Rather than taking over 
the banks, let’s use some of that bailout money to create new financial 
institutions. (There’s that “us” problem again, but let’s bracket that for now.) 
Cooperatives, nonprofits, community development groups. Here in New York City, 
it would be wonderful to create some sort of economic alternative to the Wall 
Street-dominated economy, like small-scale, specialized, environmentally 
friendly manufacturing or food processing; we’d need some sort of planning 
mechanism with a financing operation at the center to make that happen. I wish I 
could say there’s someone working on this sort of thing, an all they need are 
some fresh funds and encouragement, but that doesn’t seem to be happening.

Or, instead of foreclosing on a few million houses, we could create some sort of 
public corporation or corporations that would take title to the houses and 
create new ownership structures, like limited equity co-ops, or LECs. In an LEC, 
people buy their dwellings from the co-op, but can only sell them back to the 
co-op (and not on the open market), at a price reflecting only inflation and 
property improvements. This would satisfy the apparent mass need for 
homeownership, the appeal of which I have to say eludes me, at the same time it 
would take housing, one of life’s essentials, out of speculative markets 
forever. Such a scheme would probably work best where the properties are 
concentrated in a single geographical area, as they are here in southern Queens 
and central Brooklyn; not so well in exurban Nevada or Florida.

In other words, all I can do is stand here and call for what used to be known as 
“creeping socialism.” That’s rhetorically and politically very disappointing. 
I’m even disappointing myself. But these creeping interventions would change 
material relations and consciousness to at least some degree. Sad to say, 
though, even this compromised creepy agenda looks heroic under the current 
configuration.

Of course, maybe things will be different when we do next year’s iteration of 
this panel.

http://doughenwood.wordpress.com/2009/04/20/nationalize-the-banks/