On the failure
of the financial bailouts,
and the issue of an auto bailout

(Presentation at the Detroit Workers' Voice Discussion Group meeting
of November 30, 2008, edited for publication)


. Four weeks ago (Nov. 2), at our last meeting, we began a discussion of the current economic crisis. We discussed that it was not just a crisis of mortgages, but it meant misery for working people in general -- layoffs, pensions collapsing, public services being cut. It means not only tent cities of the homeless, but it threatens all workers with the loss of all that they have worked for their entire lives.

. And we pointed out that the bailouts weren't designed for the good of all. They were only designed to give money to the financiers and bankers. Benefits were supposed to trickle-down to the entire population, but instead the crisis continued and deepened.

. What has happened since then?

. We have seen larger and larger bailouts of the bankers and financiers. If one includes guarantees as well as subsidies, it has reached almost 8 trillion dollars. And we see the crisis continuing anyway, with each bailout being declared insufficient a few days after it goes into effect.

. But we also see the other shoe dropping. While the bankers and financiers get trillions, there are demands that workers pull in their belts and live on less. In the discussion over a possible bailout of the Big 3 automakers, the demands are already being put forward that auto workers should take yet more cuts in their wages and benefits, and that the health care and pensions of retirees should be cut. The UAW leadership, fresh from getting strikers to end a three-month strike at American Axle by taking a cut of their wages in half, is already let it be known that it will give concessions, such as eliminating the jobs bank.

. It's clear that we're not all in it together, capitalists and workers. Not at all. The rich get trillions from the government, while the workers get homelessness, unemployment, and maybe a bit of charity. Workers need to organize a movement on their own behalf, separate from the bourgeois campaign for bailouts of the rich. As millions upon millions of workers are affected, over the next several years, we need to turn our misery into an organized movement for our own class interests. We need to demand that bailouts go to the workers, not the rich, and to see that this crisis isn't an accident, but a typical feature of capitalism. Periodic crises will continue so long as the rich run the economy.

. Now I want to go into these points in more detail. First I want to discuss the latest outrages about the bailouts; then why the economy keeps going down despite these bailouts; and then go into the auto bailout, what we can expect from it, and what the UAW leadership has been doing.

The newest bailout

. To begin with, what's happening to the bailouts?

. Back in late September and early October, the Bush administration, with the help of Obama and the Democrats, told the country that a huge $700 bailout was essential immediately. Every day of delay, every hour counted. We had to have the TARP, the Troubled Asset Relief Program. The bad debts of the financiers had to be bailed out by the government buying "troubled assets", or worthless bits of financial paper that no one else would buy.

. This bailout reassured the stock market for a whole day. And then the crisis resumed. And it wasn't long after that Secretary of the Treasury Henry Paulson announced that he wasn't going to use the $700 billion allocated to TARP for buying troubled assets at all. Why, now that the money had been allocated, he decided that not only wasn't it not essential to rush out and buy troubled assets immediately, but it really wasn't the right thing to do at all. Instead the $700 billion used to be used in other ways to funnel money to the financiers, such as buying equity positions in banks and investment houses.

. You would think Paulson would have the decency to resign, and Bush and the Democrats would hang their heads in shame, for their $700 billion blunder. But instead a new and further bailout for the financiers was demanded, and this one too had to be given immediately. The original $700 billion was to be reinforced by another $800 billion for Wall Street. Aside from directly spending $800 billion, the government was to assume the risk for various investments. Counting these guarantees, as well as ones already assumed, this means -- according to The New York Times -- that the bailout has reached the level of $7.8 trillion in loans, "investments", and guarantees. (Edmund L. Andrews,"US Details $800 billion Loan Plans", Nov. 25, 2008) That's

over 2 1/2 times the federal budget for one year, and over half the entire gross domestic product for a year.

. As far as Bush and the Democrats are concerned, nothing's too good for the financiers. No amount of money wouldn't be given to them. The heads of the financial houses make tens of millions or even hundreds of millions of dollars a year for their services. And when they ruin the economy, the bailout consists of giving them trillions of more dollars to play with.

. Aside from financial rewards, they are rewarded with government positions. Everyone knows that the Bush administration represents big business. But Obama has already announced a number of appointments which he will make to financial positions. And he's appointing the same old Wall Street gang. For example, Obama's Treasury Secretary will be Timothy Geithner, president of the New York Federal Reserve bank, who has been a backer of financial deregulation; who has actively promoted global neoliberalism (free-market fundamentalism) through his time as Director of the IMF's Policy Development and Review Department; and who showed his idea of a proper bailout by helping J.P.Morgan Chase get a great deal in buying Bear Sterns. Another example is that Robert Rubin will be one of his top economic advisers. Rubin was not only a chief architect of deregulation, but he worked several years at Citicorp, which itself is benefitting from one bailout after another, first $25 billion, and then another $20 billion more with a $306 billion guarantee against its assets losing value. Rubin was known for things like piously warning in public about the dangers of risky investments, while simultaneously urging Citicorp to sink deeper into the ongoing financial bubble.

Why it isn't working

. But with all this money flowing into bailouts, why isn't it working? Why isn't the economy getting better?

. The bourgeoisie pretends that it can conquer the business cycle by increasing government spending during slowdowns. This increased spending will supposedly make up for the slowdown in corporate spending.

. But not a cent of this $7. 8 trillion goes directly to increased spending on material things. It all goes to the bankers and financiers to prop up their wheeling and dealing. Not surprisingly, it hasn't done anything but allow investment houses facing bankruptcy to continue to pay big dividends to their shareholders and big salaries to their executives. As we pointed out last time, The Washington Post has reported that "US banks getting more than $163 billion from the Treasury Department for new lending are on pace to pay more than half of that sum to their shareholders, with government permission, over the next three years." (Binyamin Appelbaum, "Banks to Continue Paying Dividends", October 30, 2008) And that was before the latest bailouts.

. These bailouts haven't even resulted in banks resuming their normal function of making commercial loans to people and businesses. They're still making fewer loans on harsher terms. The idea was that the bailouts would reassure the banks, and the loans would resume as a trickle-down effect. But trickle-down is a fraud, as always.

. So the Democrats and Obama now talk of a big stimulus package, which is separate from the $7.8 trillion already allocated. But a stimulus alone, or even direct spending on material things, is unlikely to do anything but blunt the crisis a bit. This is because what is going on is both a financial crash and an overproduction crisis. To forestall this crisis would require interference with many of the wealthiest and most powerful moneyed interests, and the capitalists have no intention of allowing this.

. Capitalism has periodic overproduction crises, where everything goes to hell because too much has been produced for the marketplace to absorb. Today there is excess capacity in auto, airlines, and a variety of industries. One of the reasons for the housing bubble was to keep pushing more and more office and home construction in order to take up excess capacity. As a result, whatever bailout is organized, there is going to be a dramatic restructuring of industry.

. And secondly, the deregulated financial system is so rotten, and neo-liberalism has resulted in such a system of financial fantasy and play-acting, that additional crises are coming. The home mortgage crisis is going to be supplemented by a crisis in commercial mortgages. There are also many government programs whose financing was put into financial deals, and these are collapsing as well. This is aside from the crisis in state and municipal finances, which depended in part on taxes from the housing bubble. And of course, there is going to be an effect from people losing their incomes and being unable to buy anything.

The crisis of neo-liberalism

. But, it is said, the government has done with neo-liberalism and deregulation. All sorts of economists, TV commentators, newspeople, etc. say that neoliberalism is dead. Now the economy will be regulated. Why, the bailouts are supposed to prove that. They are even called "socialism" by free-market fanatics who think that nothing should be done as homelessness grows and people begin to flock to the bread lines.

. But the abandonment of neo-liberalism isn't what's happening yet. The government is still set on free-market economics and market solutions to everything. Obama's election program stressed this.

. The bailouts are not the end of deregulation. They are an attempt to get out of the crisis by using some gigantic financial subsidies -- and some reregulation solely of the financial sphere -- while leaving the main market economy untouched. They are another desperate attempt of neo-liberalism to save itself. That's why they were needed immediately. That's why the capitalists will spend any amount of money of them.

. They think that with a little bit of reregulation of the financial markets alone, things will be fine.

As the crisis continues to deepen, they will be forced to make more substantial changes. They will have to turn further from the legacy of the last several decades of neo-liberalism and Reaganism and Clintonism in order to deal with the economic and environmental crises that are coming upon us. They will move closer to something resembling the old regulated capitalism of the first couple of decades after World War II. This capitalism wasn't the workers' friend. It was full of exploitation and periodic slowdowns and recessions. And the capitalists, as always, sought to break strikes, maintain racial discrimination, fight wars such as in Vietnam. , etc. But the capitalists then saw that they had to have some government economic regulation in order to do these things. They were familiar with war-time planning from World War II, and they knew that it allows the companies to grow fat on the basis of the planning by capitalist governments. And so for a couple of decades there was regulated capitalism and the promotion of "mixed economy".

. But then the capitalists turned to deregulation in a frenzy with Reaganism and what followed. That is the system that is going into crisis now. But the capitalists aren't yet convinced that they have to give up anything but a tiny scrap of deregulation. That's what is going on for now.

What workers have to do

. So what do workers have to do? We shouldn't have any illusions that the current round of neo-liberal trickle-down bailouts will cure the economy. Regulated or unregulated, capitalism has periodic crashes. And this crash is going to be a doozy.

. Instead we must put forward our own demands for help that goes directly to workers. There should be programs to maintain people's livelihoods in the face of the economic crisis. We shouldn't expect that bailing out the financiers will stop homelessness; instead, there should be direct help to the workers to keep their homes. And similarly, there must be struggle to maintain wages and health care and pensions.

. Indeed, we should insist on a change in the way pensions and health care and other programs are run. The market system of health care and the investment system of pensions are in crisis, and they can't be fixed. The financing of the public schools has been in crisis for decades. We need national health care, with single-payer health insurance to begin with. We need Social Security increased and turned into the main pension system, to replace the investment schemes that are now so prevalent. We need to revamp the public school system so that working-class and poor children have good schools. We need to institute a system of general environmental planning that forces industry to operate in an environmentally-friendly manner and rebuilds the infrastructure.

. All we need to ensure that the new regulations and programs aren't simply imposed on us from above. We need to be organized not just to demand programs, but to have a role in implementing them.

. And we should question the whole system of capitalism that brings us such insecurity. It is a system that spends decades debating whether to provide funds for even minor but very helpful education programs like Head Start, while giving trillions to financiers without even the decency of a good debate. We need to question the system that can't provide security to those who do the work.

. These are not separate tasks. Whether it is fighting for benefits or questioning capitalism itself, the first task is that we have to build a movement that looks at things from our class standpoint. We must build organizations that always raise the question of the conflict of interest between worker and capitalist.

The auto bailout

. This is not what is being done by the UAW leadership in the case of the auto bailout.

. The threatening collapse of some or all of the Big 3 auto companies is a sign of the rottenness of capitalism. The auto industry used to be the pride and joy of American capitalism; and now the domestic capitalists can't even keep their companies afloat.

. But the question arises of what will happen if these companies go bankrupt? There will likely be a restructuring, with part of the auto industry liquidated so as to deal with the question of excess capacity. And the rest will be restructured. The capitalists want to see a cut in the workers' wages and benefits, and to see the retired workers ruined. The bourgeoisie, which makes such a fuss over the sanctity of contracts, thinks nothing of advocating that that the promises to retired workers should be broken. Those contractual obligations are just a scrap of paper to them. The retirees aren't slaving for the bourgeoisie any more, so the bourgeoisie resents every penny that goes to the retirees.

. But suppose there is a bailout instead of bankruptcy? But a bailout will also result in reorganization. The press has discussion of the arrogance of the auto capitalists, which is extreme, and the need to force them to produce cars more suited to the times, and so forth. But if you listen closely, it turns out that there is also talk of forcing cutbacks on the workers. The conservative Republicans are vocal on this, and the Democrats, while posing as friends of the working class, go along with it too.

. Meanwhile there is no guarantee that all the present auto workers will be employed if auto is bailed out. Indeed, just the opposite. Restructuring the auto industry means getting rid of many workers. That is why it is already said that the jobs bank will be eliminated: this is the program where laid-off workers get up to 95% of their pay. Since it is expected that many more workers will be laid off, the bourgeoisie wants to get rid of it.

. A front page article in the latest Michigan Chronicle states directly that "There is no gainsaying that the plan most likely to be offered by Congress would be one that would ask a lot of the UAW and eventually strip the once powerful labor organization of its own bargaining powers, rending it toothless to check against corporate excesses and abuses." (Bankole Thompson, "Down for the Count: Hope rests on unions to save auto industry jobs, benefit", Nov. 26-Dec. 2, 2008) It adds that "That is why earlier calls for a bailout of the Detroit Three have hinged on making sure that current labor agreements with the Big Three are all open for renegotiation."

. In other words, a bailout would do the same thing to the UAW workers that a bankruptcy judge would do. But can the workers expect that the UAW leadership would stand against this?

. Well, the UAW leadership postures for its membership. The Detroit News reported on Nov. 18 that Gettelfinger "rejected new wage cuts for UAW workers or a reduction in payments to a $60 billion UAW-run health care trust that takes over responsibility for retiree health care in 2010. " (David Shepardson "Gettelfinger: Wage, benefit cuts unjustified') Well, that's what the DN says in its own words; when they actually quote him, he only rejects "deep cuts". And then three days later The Detroit News reports that Gettelfinger says, with respect to the jobs bank, that "We're on the verge of eliminating that provision." He isn't even upset about this, but shrugs it off, saying, in essence, so what, the UAW has really pretty much already abandoned the jobs bank anyway. It's already sold out the workers on the jobs banks, so why not complete the sell-out? But of course, this logic would apply not just to the jobs bank, but to the wages and benefits of those workers lucky enough to keep their job as well.

. Now, with respect to the jobs bank, look what the UAW has already agreed to. According to The Detroit News, "While the specific provisions vary from company to company, idled union members now have a limited number of times they can reject offers of work at other facilities before losing their jobs. Company sources said these provisions would have allowed them to eliminate all or most of the workers still in their jobs banks by now, were it not for a dramatic drop in car and truck sales that has forced each of the automakers to cut production and idle more workers." I.e., leave your home, have your spouse quit their job, and move to another state to face layoffs there, or get thrown out of the jobs bank. And what stopped this scheme? Not the UAW leadership.

. The UAW leadership will do the same thing in the auto bailout as it did at the American Axle strike. It wants to continue to collect dues from whatever workers it can, no matter how low their wages are. It wants to be an unofficial part of the Big 3's Board of Directors. That's all it will fight for.

The alternative to lining up behind the auto capitalists

. Does that mean that auto workers should give up? Should they simply accept being thrown into poverty and homelessness?

. Not at all. But they should fight on their own behalf, not that of the capitalists of the Big 3. The auto capitalists doesn't just want to be bailed out: they want to use the bailout to cut wages and free themselves from their obligations to retirees. But it is not the auto capitalists who should be bailed out, but the auto workers who should be protected.

. But the UAW leadership has become part of the public relations campaign of the auto capitalists. They repeat arguments trying to show that the auto industry should be bailed out, without distinguishing between the auto capitalists and the workers. And this campaign is then echoed at every level. The latest issue of The Citizen has an article "Hamtramck at a crossroad: mayor joins elected officials in plea for auto bailout". There is no talk of what the auto capitalists will do with the bailout, no demands that the workers be protected. No, the workers are supposed to believe in trickle-down economics.

. If the facilities of the Big Three are to be maintained, the auto magnates shouldn't be bailed out: they should be expropriated. The capitalists have run their companies into the ground; the net worth of Chrysler, for example, is hardly anything. These companies should be taken over, without reimbursing the capitalists for their now-worthless equity in the company, and they should be directed producing things of use. This could be either better cars, instead of present models that are environmentally obsolete, or other useful environmental or infrastructure projects.

. But in fact, Congress isn't going to expropriate the Big Three. And the newly-elected Congress somehow did expropriate them, it would impose its own miserable conditions on the workers, just as it will on any auto bailout, and it will keep the workers out of any say on how the companies run. The debate in Congress is only over the best way to impose a neo-liberal restructuring on the Big Three, by letting a bankruptcy judge do it, or as a precondition for a governmental bailout. In this situation, what the workers have to do is concentrate on rallying a class protest against this, and demanding support for their livelihood. We must get prepared for the fight against the conditions of such a bankruptcy or bailout.

. This will be difficult because the workers face not just the harsh economic conditions, but the treachery of the UAW leadership. And among auto workers, there is presently no major organized resistance to the union bureaucracy.

. But there are some things in the auto workers' favor. They still are a substantial number. They will be involved in a struggle which other workers know that they face as well, And moreover, while the demands of the American Axle strike may have been thwarted by the UAW leadership, still the American Axle workers went down swinging, and this will be remembered.

. So it's possible that the auto workers may develop some struggle for their demands. In this struggle, progressive activists should insist on bringing forward the difference between the interest of the auto capitalists and auto workers. They should denounce the class collaborationism of the UAW leadership. And they should look deeply into the causes of the auto crisis, seeing the incompetence and greed of the auto capitalists, but also the fact that such crises are inherent in the private ownership of the means of production, in short,in capitalism.

. If the auto workers succeed in achieving any protection for themselves, this will encourage other workers. And if they achieve any step towards class independence, even though it be but a slight one, it will electrify workers elsewhere. But if they fail to defend themselves, it will discourage other workers, just as the concessions the UAW granted at the time of the Chrysler bailout of 1979 were cited by employers all over the country in forcing down the wages and conditions of their workers.

It's time for class independence

. The present agony of the auto workers is going to be repeated in every industry, every workplace, whether the companies are on the verge of bankruptcy as in auto, or are still profitable. How far we workers can protect ourselves in this crisis depends on whether a movement for class independence develops. We must distinguish between bailing out capitalists and bailing out the working masses of this country.

. We need to put no trust in the new phase of capitalism that the crisis will probably give rise to: the replacement of bald neo-liberalism and deregulation with some sort of regulated capitalism. Instead we must step up as much pressure on the capitalists as possible. Socialism isn't simply regulation; it's regulation by the working masses and in their own interest, a regulation that is possible when the private ownership of the means of production is abolished. True, even under capitalism, some regulation is coming. It is needed for the survival of the economy. But the capitalist economy can survive by crushing us further, so we have to fight about the content of the regulations, and not think the mere fact of regulation shows that things are getting better.

. We are going to suffer very bad pains during this crisis. There is no way around this. The working class goes into this crisis too disorganized for it to be otherwise. But if a movement for class independence develops, as it did during the Great Depression, the current economic crisis may mark the beginning of our class's resurgence. <>

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