Most Americans are having no trouble figuring out whether or not we are in a recession. Certainly not the 100,000 workers tossed onto the jobless pile in January and February, or the millions living an economic nightmare following last summer’s bursting housing bubble, the subprime mortgage crisis, and the resulting credit crunch.
For some on Wall Street, however, it took the stunning collapse of one of the world’s largest investment banks, Bear Stearns, to get the drift.
The big difference though is that, for their pain, workers are getting a “stimulus package” of tiny one-time tax rebates, while wealthy investment bankers will now be getting an open-ended multi-billion-dollar government bailout package after the March 16 Bear Stearns collapse.
Labor analysts say the current crisis began long ago when the country was pushed onto a low-wage economic strategy where workers, at best, are given the ability to spend and borrow but rarely, if ever, given real wage increases. The country was put on a path of risky financial schemes emphasizing credit and debt that made billions for investors and money firms but hollowed out the real economy.
Expensive but risky loans and subprime mortgages were given out freely because they brought in lucrative fees. “The practice made fortunes for some at Bear Stearns, many of whom had already run off with the money before the collapse occurred,” the mother of a night shift worker at the firm’s New York headquarters told the World. She said her son held a second job there so he could pay tuition bills for his son and two daughters.
The rich shed tears on Wall Street this week, but the tears were not for the 14,000 Bear Stearns workers who stood to lose their jobs. They cried because Bear Stearns, which traded at nearly $160 a share less than a year ago, collapsed after losing billions of dollars on mortgage-backed securities.
The bailout involves an agreement by JPMorgan Chase to buy its rival, Bear Stearns, for $236.2 million – or $2 a share, only 1 percent of what the investment bank had been worth 16 days earlier. The Federal Reserve has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets, said JPMorgan, while Morgan guarantees all other business, such as trading and investment banking.
JPMorgan Chase chief financial officer Michael Cavanaugh refused press inquiries about what will happen to Bear Stearns’ employees.
The bailout deal is aimed at avoiding not only a bankruptcy but a crisis in the entire capitalist global financial system, analysts say.
President Bush, trying to calm turmoil in financial markets after these dramatic developments, declared March 17 that his administration is “on top of the situation” and dealing decisively with the slumping economy. He praised the Federal Reserve for its bailout of the Wall Street fat cats.
The nation’s central bank used this crisis to make its welfare for the rich program deeper and more open-ended than ever before. It cut its lending rate to banks to 3.25 percent from 3.5 percent and set up a new, more convenient fast track process for wealthy borrowers. It may cut its special interest rate for wealthy bankers yet again, this time to 2 percent, many on Wall Street are saying.
There’s generosity with taxpayer money when it comes to helping the rich, labor analysts say but the Fed, they point out, is ignoring another very important part of the mandate it got from Congress when it was established — the mandate to act as a guarantor of full employment.
Labor’s approach has been to call for immediate steps to revive the middle class by resolving the current affordable housing and mortgage foreclosure crises. Those responsible for these crises should be held accountable, labor says, not rewarded with big bonuses. Unions have called for a moratorium on economic policies that put corporate profits ahead of worker prosperity and reward financial gimmickry over the traditional “honest day’s work.”
Labor unions and Democratic candidates for public office, including the presidency, have called for an immediate moratorium on mortgage foreclosures for anywhere from six to 12 months.
Their point is that it is time to help the victims, not the companies who created the misery and are now getting almost all the government help.
jwojcik@pww.org
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