The capitalist system will not, change so we must change the system

Source: FT.com

The Financial Times advised it readers to "Read the Big Four" in the aftermath of the crash and published this image The 1% are not stupid, they consider Marx very relevant. 

by Richard Mellor
Afscme Local 444, retired

Debt allows the capitalist system to reach beyond its limits; but only temporarily as the economy has to be brought back to reality at some point.  Home prices and debt drove the huge increase in spending prior to the crash of the sub prime housing market, an event that one commentator said would be the greatest loss of African American wealth in US history. Since 1980, the aggregate stock of US debt rose from 163% of GDP to 346% by 2007.   Household debt rose from 50% of GDP to 100% during the same period while the indebtedness of the US financial sector climbed from 21% to 116% (Financial Times 9-24-08).  

People thought their houses were banks, and safe banks at that. According to Freddie Mac, cash taken out of home equity went from $21 billion in 2000 to $321 billion in 2006. The figures are staggering.  In total, the debt boom of 2001-07 pumped $3 trillion in to the economy.  It was the most pronounced credit cycle in history during which the personal sector took in as much debt as the last 40 years combined.  That's an incredible injection of cash in to the economy in such a short period. It was inevitable that this bubble would burst. The severity of the crash stunned the capitalist class.  The headlines and comments in the serious journals of capitalism at the time give some idea of the dour mood among them about the future of their system.  “Capitalism in Convulsion” wrote the Financial Times on Sept. 20,  2008.  “A week that shook the system to its core”, reads another headline in the same issue. The main story in the September 28, 2008, issue of Business Week read, “Wall Street Staggers” and was accompanied by the picture of a bull, head down with blood dripping from its mouth and body from the numerous swords that are protruding from in between it shoulder blades; the defeated animal’s blood is all over the page.

Something drastic had to be done, “heavy costs will be inflicted on the American taxpayer, who is now subsidizing Wall Street.”, wrote John Plender in the Financial Times. How true that statement was as the politicians in the two Wall Street parties dipped their dirty little hands in to the public trough and allocated as much as $16 trillion dollars to bail out the bankers and rescue capitalism from total collapse. The housing industry and auto was basically nationalized although the US capitalist class preferred the term “conservatorship”so as not to implant in any way the idea that public ownership, considered socialism in the US, was rescuing capitalism from itself.

The young up and coming coupon clippers with their tee shirts and jeans had never experienced such a crisis; they thought it would never end.  Their confidence in the system was severely shaken and the theoreticians of capital and the old guard had to ensure them that all would be well, they’d been through this before.  It was time for a history lesson. The pages of the serious journals of capitalism were filled with articles explaining the nature of the system and the history of such crashes dating back to the great Tulip bubble of the 1600's.  Readers flocked to bookstores to get a copy of Marx’s Das Kapital, the most thorough analysis of the capitalists system of production.  The Financial Times, the journal of British finance capital urged its readers to study Marx.

“The beginning of wisdom is to recognize that financial booms and busts have been a feature of capitalism from the very start,” wrote Samuel Brittan in the Financial Times. Gillian Tett, also of the Times wrote: “…many bankers have believed—at least until recently---that this decades burst of market innovation had re-written the rules of finance.” . Ms Tett pointed out that Lehman Brothers, (the bank that was allowed to collapse) estimated that there had been 60 market crashes since 1622, “This summers turmoil will not be the last”she warns her class brethren. “This neo-modern credit market is not very dissimilar after all from its classical predecessors” she quoted a Leheman Brothers analyst as saying. We will get through this, was the message.

The mood was so tense and anger so pronounced in the aftermath of the crash that Obama was forced to chide his banker friends as they continued to receive huge bonuses as workers lives were shattered.  The bonuses were  “..the height of irresponsibility” he said at the time, “It is shameful” he added and appealed to his class to show, “some restraint and show some discipline and show some sense of responsibility.”  He assured them that profit taking will return but now is not the time.  The situation was too volatile; the anger too great.

Not one of these bankers served any time for their crimes though “at least 21 of the top 25 subprime originators…..were either owned or financed by the biggest recipients of the troubled asset relief funds.”  Included in these were Bank of America, Wells Fargo and JP Morgan according to the Center for Public Integrity (FT 5-6-09).

 These episodes “…. occur with striking regularity—typically at least once a decade.”, Ms. Tett had assured the young coupon clippers. Considering they claim to know so much you’d think they’d have figured a way to avoid them.  Plus, knowing that, one would wonder how come respected journals of capital would even entertain the idea that the business cycle was dead; it shows how confused they are about these issues.  The answer to that is simple---profits---the gold at the end of the rainbow; the goose that lays the golden egg; money without working.  This is what blinds them to the reality of their system.  Only the regularity of such capitalist crisis will likely not be limited to once a decade or appear in quite the same way each time as this historically bankrupt system of production blunders along towards the abyss wreaking havoc along the way.

Such great social shocks leave their mark as once venerable institutions (Leheman, Kodak) enter the history books and new movements arise. The Occupy Movement that arose at the time appears to have ebbed somewhat due to its own mistakes and violent and brutal repression on the part of a beefed up state apparatus. But the Great Recession has left a bad taste in the mouths of millions. Polls have shown that as much as 36% of us favor some form of socialism.  In the aftermath of the crash Business Week launched a campaign to counter the unfavorable view about the market that existed in society but found through its focus groups that the term “Capitalism” could not be used as respondents considered it to represent the powerful crushing the weak.  This reflects a poweful tendency for fairness and equality in society despite the massive propaganda of the 1% promoting selfish individualism and a winner take all mentality.

It’s not likely what the capitalist commentators refer to as our “profligate” spending habits will return any time soon, no matter how hard they try to convince us otherwise, certainly not before the next crisis.

Consumer spending has grown at a 2.1% annual rate since the end of the Great Recession compared to 3.2% for the twenty years prior to the crash as money is not so readily available.  Moneylenders are wary about lending and corporations are sitting on trillions in cash. Homeowners who thought that housing prices would rise forever and saw their homes as a bank and a secure one at that, have been badly burned.  Thousands of layoffs, massive cuts in social services and education and lost homes have taken their toll on the American psyche.

As hedge funds pour millions of dollars in to buying up foreclosed homes, sometimes renting them back to those from whom they were stolen and jacking up home prices in the process, those seeking home as a shelter are rethinking things. Instead of the house being a source of disposable income the feeling now is that a home is “more a nest egg to be secured” writes Rich Miller in Business Week adding,  “Cash-in refinancings, in which borrowers invest more of their own money in the house, outnumbered cash outs by more than 2 to 1.”

The consequences of this sea change in attitude is that every dollar increase in the housing sector may only yield 1 cent compared to 3 to 5 cents prior to the crash by Business Week’s estimations. It will not be the driver it was.

My point in all of this, other than writing being somewhat of a catharsis, allowing me to vent my frustrations about the destructive nature of the capitalism mode of production, is to keep history in perspective and the fact that their behavior that brought us the Great Recession is still there despite their glowing although somewhat guarded reports about growth.  Growth for them is stock market numbers.  It is the laws of the system that drives the big capitalists to do what they do, the same laws that drive them to war.

The old habits are returning, the financial swindling, speculation, lack of regulation or finding ways around it, the accumulation of capital in to fewer and fewer hands; more for those at the top, less for the rest of us including in the form of social services and of course the destruction of the environment. Coupled with this we see increased repression and curtailing of civil rights as those on whose backs their wealth is made are driven to resist being driven to starvation in some parts of the world and pauperism in others.  The US will have its “Arab Spring” there is no avoiding it.

I am optimistic because I am confident the US working class will fight back. Our history is one of rich and militant struggle against the most callous and ruthless ruling class in history.  We didn’t get this far by sending e mails to Congress.  It is to this history and great tradition that we must return.

As the ecosocialists like to say: System change not climate change. For a democratic socialist world.

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Student debt: the next bubble? Let's confront this class war.

by Richard Mellor
Afscme Local 444 retired

Iran has been downgraded for a minute or two as North Korea offers US capitalism’s spin doctors a better option for keeping its population focused on imaginary external enemies.  The intention in the Korean Peninsula is regime change which would open up new territory and a new source of cheap Labor power. US capitalism presents North Korea as a serious threat (see previous post) as it wages a domestic war on all aspects of our lives and the misery and death that is a result of this war far outweighs anything foreign.  The details of this war on its own people, this class war, are available if you look for them, if you ignore the propaganda and the absurd War on Terror.

Leaving aside the more brutal forms of oppression here in the US, the prison industrial complex that houses more than 2 million souls, more than any other country, the homelessness or the miserable health care system that leads to thousands of deaths and is the leading cause of bankruptcy, we should consider debt.  Millions of people are enslaved by debt.  People use credit cards to buy food, purchase health care and other necessities.

As we saw with the onset of the Great Recession when poor and low income people, desperate for shelter and keen to avoid the clutches of the landlords and rent payments where your rent pays the mortgage on someone else’s home, were conned in to loans that they would inevitably default on. The consequences of not paying the moneylenders are dire:

"I just wanted to be able to eat and sleep in my house and have a roof over my head…” one 89 year old woman still working told the Wall Street Journal*,  "Every day at midnight when I go to sleep, I think maybe when I wake in the morning they'll tell me to get out."

This is how capitalism treats older workers; this wasn’t a foreign plot. Then we should consider the human and financial cost to society of all the illnesses caused by the stress brought on through living in a perpetual state of fear and insecurity in modern day debt bondage.  A bad credit rating in the US can keep you from getting a roof over your head, a car, and other important needs.

The new potential debt bubble is the student loan market.  I have written about this in the past and that there shouldn’t even be such a thing as a student loan market. Education, like health care, a job, housing, would be a right in any society that claims the mantle civilization.  The cost of a university education has risen more than 40% in the last ten years and student loans with some $1 trillion in outstanding debt have surpassed credit cards and auto and are now second only to home mortgages as a source of consumer debt according to the US Federal Reserve. As recently as nine years ago, outstanding student debt was around $250 billion.

Some economists are alarmed at what they see as a debt bubble that will equal the housing bubble that led to the 2007 meltdown.  Their concern as always, is the damage to the system, an economic disruption that halts profit taking and creates the potential for social unrest.  Others say the figures are not so bad, “….average debt for graduates with debt is around $27,000, which is small compared to mortgage debt,” saysNeal P. McCluskey of the Cato Institute, "For students going to good schools and pursuing in-demand degrees, it should not be hard to pay off.” Oh, I have lots of friends at Harvard and Brown and that’s just what we need, more MBA’s.

In the wake of the austerity war on wages and working conditions, in particular public sector jobs, leaving college owing $27,000 (this is the average) is a considerable burden even if you find employment.  There are hundreds of thousands of young people with college degrees that cannot find work in their field. “If a college student takes a $25,000-a-year job, as many are, the debt to income ratio is very high,”, says Richard Vedder, an economics professor at Ohio University. He adds that there are thousands of students that owe way above the average.

And total student debt is not just in the form of official public or private loans.  Parents are loaning their children money either through their savings or through taking out lines of credit or second mortgages. Meanwhile, not only is the delinquency rate on student debt climbing, the amount of debt is increasing even faster. In 2005 average student loan debt was $17,233 rising to $27, 000 by 2012, an increase of 58% in seven years according to MAINST. COM.   Credit card and auto loan balances decreased during that period.

Professor Vedder says he is opposed to forgiving the debt because the taxpayer will not be able to absorb it.  The bankers, auto bosses and other coupon clippers got to our pocket books first but there is still plenty of money in society, I have shared those sources on these pages many times.  There is the more than $26 trillion the super rich stash away in offshore accounts, an amount equal to the combined GDP of the US and Japan.  "Studies have estimated that cross-border flows of global proceeds of financial crimes total between $1 trillion and $1.6 trillion a year," says the International Consortium of Investigative Journalists after receiving leaked information about tax havens and offshore accounts where the 1% hide the money they have stolen from us.

And what does it cost to fly stealth bombers and B52’ around the Korean Penninsula?  The cost to the US taxpayer of these predatory incursions and occupations and the bases that go with them is extensive. And these ventures are not defensive measures, they are to protect and expand the influence of US capitalism.  These are not our wars.  The policies coming out of Washington and the Pentagon do us far more harm than some 7^th century Mullah in Pakistan.

The psychological, physical and inevitably financial costs to us brought about by market forces are huge. This is a domestic war being waged on us day in day out.  As their policies deprive so many Americans of health care, education, a roof over our head a job, and certainly a vacation abroad, we night consider a nice camping trips to one of the beautiful state and national parks we have in this country but they’ve blocked what was once a cheap alternative to Paris as they close our natural wonders in order to place the burden of their crisis on to our backs.  This will not continue unchallenged forever.

As you mull over whether or not this poverty stricken little country called North Korea that suffered almost total annihilation in an imperialist war will take away your rights or the crazed Mullahs of Tehran will destroy your freedoms, remember the WMD’s in Iraq---remember Powell telling the world how dangerous they were and how they could destroy us all.  Remember the Gulf of Tonkin.

Most of all consider that more and more parents are taking out life insurance policies on their children because they have taken out loans to pay for their education. They don’t want to lose their own homes if they are saddled with a student debt if their child dies. This is what happened to one woman who told her story to the Financial Times:

“The loans company calls two or three times a day. They’re just coming after me like sharks to repay loans that funded an education my son will never get to use…..I’m worried that my home will be taken away if I don’t pay. They will not forgive the loans. Had I known the severity, I would not have let my child go to college. It’s a nightmare,”

It’s not some foreign terrorist creating this nightmare; it’s a domestic one.

“Clearly we are in a tipping point and there will be repercussions,” says the above quoted Professor Vedder.  He is right about that. But it’s quite clear if we take the time to think about it that it is not the little man in Iran, or the rather youthful leader of the Stalinist regime in North Korea we need fear.  The most devastating war we are facing is the domestic one, the class war and it’s time we took the offensive in it.

From our previous blog on this issue:

No to austerity, money is everywhere:

* Cancel all student debt, make the rich pay
* Federally funded education at all levels
*Corporations out of education
* Reduce class sizes K thru 12 to 15
*student, parent teacher control of curriculum
* Take the banks and finance houses under public ownership and control
* Allocation of capital on the basis of social
*Build an independent working people's political party based on our organizations and communities
*For a democratic socialist society--production for social need not profit

* WSJ 3-12-07

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Students mired in a sea of debt

Reprinted from Naked Capitalism

Student Loan Bubble So Big It’s Trumping Credit Cards as a Spending Driver

by Yves Smith
It turns out Lambert’s mother-in-law research is pretty good. A February 27 report from Orono, Maine:

Long conversation between the driver of the municipal shuttle bus, a chatty type, and a passenger. She’s going to back to school to become a nurse (“those will be the last jobs to go”) he’s an older engineering student also working grocery bagging and doing internships.
They both think:
The economy is never going to get better
The next crash will be student loans
Not excited or angered about, just the way it is. And they’re both going into debt over student loans anyhow (she $40K worth but “a job for the rest of my life”).
Neither of them from the country, as it were. Both pretty cosmopolitan.
Word from the hinterlands…

On February 28, the New York Fed released a study on student loans. Much blogosphere chatter, of the “it’s a bird, it’s a plane, it’s a bubble” based on charts like this…

….pointing out that student debt outstanding is nearly three times as large as the total as of 2004, and more scary charts like this:

This is even uglier than you might think, since 30-49 are peak earning years. Oh wait, that was the old normal.
And when you integrate this with the just-released New York Fed quarterly household credit survey, you reach some not pretty conclusions. Student debt is now a bigger source of consumer borrowing than credit cards (we are speaking in terms of macroecomoic impact):

And it’s now the loan category where borrowers are in most distress (hat tip Russell H):

This level is particularly ugly given that student loans cannot be discharged in bankruptcy. It’s more rational to get in arrears on anything else, since you have some hope of negotiating for a restructuring.
As Warren Mosler said via e-mail:

Student loans have been making a meaningful contribution to aggregate demand.
If origination slows it’s another negative for growth and output to add to the tax hikes and spending cuts.
This is not to say I favor the student loan channel for education. Quite the contrary, in fact.
But just like the savings and loan credit expansion leg propelled the Reagan years, the .com and y2k credit expansion the Clinton years, and the sub prime credit expansion the Bush years, to a much lesser extent the student loan credit expansion has supported the current modest recovery.
And when they end the support ends.

So Lambert’s bus sources were spot on: student loans are not only looking bubbly, but the level of borrower stress is saying something has got to give. One sign is that law school enrollment has fallen 15% since 2010. Students are correctly worried about borrowing heavily in a weak job market. But so far, enough people believe in the value of education as a workplace credential that the student loans outstanding are still rising. It’s hard to discern how this plays out, but the endgame might not be that far off.

Read more at http://www.nakedcapitalism.com/2013/03/student-loan-bubble-so-big-its-trumping-credit-cards-as-a-spending-driver.html#60U1KIdmsXR4D8du.99

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