Text version of the Militant, a socialist newspaper  
the Militant, a socialist newspaper
about this site directory of local distributors how to subscribe submit a photo or image order bundles of the Militant to sell
news articles editorials columns contact us search view back issues
The Militant this week
IN SPANISH
El Militante
FRONT PAGE ARTICLES
U.S. gov’t prepares major bank bailout
New cuts in social services for workers
 
Cuban gov’t leader speaks in New York
 
Calero visits workers hit by Ike
 
$90,000 fund marks 80 years of building communist party
 
‘Militant’ kicks off fall effort to win new readers
 
Supporters of Troy Davis win temporary stay of execution
FEATURE ARTICLES
Socialist candidate: ‘Lift the embargo on Cuba!’
Record of Militant Fightning Fund
Click here for the record
FORUMS
CALENDAR
EL MILITANTE
SUBMIT LETTER TO THE EDITOR
SUBMIT FORUM
SUBMIT TO CALENDAR

A socialist newsweekly published in the interests of working people
Vol. 72/No. 39      October 6, 2008

 

Socialist Workers 2008 Campaign
Click here for campaign material

(lead article)
U.S. gov’t prepares major bank bailout
New cuts in social services for workers
 
AP Photo/Richard Drew
Wall Street traders September 22. That day Dow Jones industrial average dropped 3.3 percent, led by a decline in financial stocks.

BY BRIAN WILLIAMS  
September 23—The federal government announced a plan September 19 to spend $700 billion to buy largely worthless mortgage-related securities from banks in hopes of slowing down the most severe financial crisis facing the U.S. rulers since the 1930s.

The proposal comes after the federal government pledged $200 billion September 7 to take over the giant mortgage firms Fannie Mae and Freddie Mac. A week later, September 15, the fourth largest investment bank, Lehman Brothers, collapsed and Bank of America took over Merrill Lynch, the world’s largest brokerage firm. The next day the U.S. government seized control of American International Group, one of the world’s leading insurers, at a cost of $85 billion.

The $700 billion bailout package was precipitated by a threatened collapse of even more major banks and a credit freeze on the world markets in which banks have been unwilling to lend to one another.

After a two-day rally of stock prices following the announcement of the bailout plan, the Dow Jones industrial average September 22 dropped 373 points, 3.3 percent, led by a decline in financial stocks.

With a massive bailout being made available to the nation’s banks, New York State and city governments are moving swiftly to impose new spending cuts to social services affecting working people the most. Gov. David Paterson said that he may call the legislature back for an emergency budget-cutting session. A similar session in August approved $1 billion in cuts. Paterson told Fox Business News that there will need to be more cuts “in areas that we never thought we would.” Massachusetts governor Deval Patrick said that he may also ask the state legislature there to take similar action.

New York mayor Michael Bloomberg September 23 ordered city agencies to eliminate $1.5 billion in spending over the next two years. This would include cutting $185 million from schools, $11.9 million from the Department of Transportation, $7.8 million from the Department of Homeless Services, and $6.7 million from the Parks Department. He also called for rescinding a 7 percent property tax cut.  
 
‘Distressed assets’
The $700 billion proposal allows the government to buy banks’ “bad debt” over the next two years. Under the plan the government buys these securities and holds them for several years in the hopes that they will regain some value. The scheme would cover U.S. banks and all other banks with “significant operations” in the country, states a U.S. Department of the Treasury fact sheet. The Treasury Department will purchase “distressed assets,” in particular mortgage-backed securities and loans, but it may also buy “other assets, as deemed necessary to effectively stabilize financial markets,” the fact sheet states.

The U.S. government’s national debt level will be raised from $10.6 trillion to $11.3 trillion to cover the purchases. The debt ceiling had previously been raised prior to the takeover of Fannie Mae and Freddie Mac.

The only limitation on the bailout is that purchases can’t exceed $700 billion at any one time. However, Republican Richard Shelby, a member of the Senate Banking Committee, estimates that the amount could rise to $1 trillion or more.

The plan would give “sweeping powers” to the treasury secretary, notes the Wall Street Journal. “Aside from requiring periodic reports to Congress, the bill provides no oversight of the bailout’s management—and specifically bars any court or agency from reviewing it.”

Both Republican presidential candidate John McCain and Democratic candidate Barack Obama have sought to cast themselves as defending working people in the midst of the bailout talk, saying that executives at firms receiving these funds should not be rewarded with higher salaries.

Obama asserted that the plan can’t just be “for Wall Street, it also has to be a plan for Main Street” that “will put money in the pockets of working families.” His running mate Joseph Biden said, “If we’re gonna bail you out … then you better damn well open your books to us and let us see exactly what you have.” McCain said he was undecided how he would vote on the $700 billion package.

Róger Calero, presidential candidate of the Socialist Workers Party, said the bailout plan “will not solve the capitalists’ financial crisis, which is not a product of ‘bad’ regulation or overpaid executives, but a result of the wages system. The Democrats and Republicans are trying to socialize certain losses of the capitalists. They’ll only ‘open the books’ to a select few to the extent it helps the employers stabilize their system.

“The socialist campaign calls for opening the books of the corporations to workers, their unions, neighborhood associations, and price committees, so we can see how they exploit us and organize to defend our standard of living, safety on the job, and conditions of work. In the process we’ll learn how to control and manage production, as a step toward taking state power and ending capitalist exploitation.”  
 
Run on money market funds
The Federal Reserve has stretched its reserves quite thin as a result of its lending programs and bailouts. In mid-2007 the central bank had reserves of about $800 billion in Treasury securities. By mid-September this year it had fallen to just over $300 billion.

The Federal Reserve has also pumped tens of billions of dollars into halting a bank run against money market funds. According to Crane Data, an agency that covers money market and mutual fund news, total deposits in these funds fell September 17 by at least $79 billion. The $3.4 trillion of money market funds are worth more than half the value of U.S. bank deposits.

In response, the Treasury Department announced September 19 it would temporarily use $50 billion from the government’s Exchange Stabilization Fund to insure existing money-market fund customers against losses. This fund was created in 1934 to provide support for the dollar.

On September 21 the Federal Reserve approved the conversion of Goldman Sachs and Morgan Stanley, the two remaining large investment firms on Wall Street, into bank holding companies that will function more like commercial banks. The move gives both banks greater options in borrowing funds from the Federal Reserve and expanded access to bank deposits.
 
 
Related articles:
U.S. auto giants request billions in gov’t bailout

Printer logo 
Printer-friendly version of this article


 
 
 
 
Home | Text-version home