Guest blog by Steven Miller
(This is the second of 6 guest posts by Steven Miller describing the financialization of capitalism and the takeover of the global economy by bankster speculators)
Speculators – Part II
Today the financial industry makes far more profit than any other sector of capitalist production. In 1973, they made 16% of total US profits; by 2007, financial profits reached 41% of all profits. (2) Since credit and debt control the levers of the economy, the financial industry has become politically dominant. The planning function of government increasingly devolves to their control. Finance – producing money from money – produces no value; it simply moves money around, but it does centralize even more wealth in the hands of speculators.
Once Wall Street speculators realized, after the 2008 Crash, that their new “financial instruments” were actually weapons of economic mass destruction, they understood that these tools could be employed to attack national and public wealth. Speculators get richer by seizing your wealth.
They do this today with hedge funds, among other things, which are completely private, completely unregulated and completely hidden from the public. But you can make wild speculative bets with their expert staff. Because they are “private”, we are supposed to accept whatever negative effects they have on society. Though the results are highly destructive to society, this is not up for debate.
Today the financial industry in the US is sitting on the largest mountain of cash in human history, over $2 trillion. Why? This is perceived as strange behavior, since they received over $16 trillion in the 2008/9 Bailout. In addition, the US government for at least two years has been dutifully sending them $85 billion a month, over a trillion dollars a year, in free money. (3)
So why don’t they spend it?
Every modern industry, especially finance, is based on extending credit; the debt is then “leveraged” to takeover companies and engage in various forms of speculation. As financial companies began to collapse in 2008, every one that was “solvent” lied and minimized how much of their holdings were based on toxic assets. Since each one knew that the others were also lying, they began to curtail how much credit they would extend. Without credit, modern capitalist commerce was on the verge of collapse. This is why the form of the Bailout was for the government to buy up toxic assets. This situation still prevails today.
Michel Chussodovsky, professor of economics at the University of Ottawa, and organizer of the Center for Global Research describes how this was rigged:
“In a bitter irony, while the Wall Street institutions were the recipients of the bailouts, they are also the creditors of the federal government, which has been precipitated into a structure of debt financing controlled by Wall Street. This deficit financing… is controlled by the creditors. It does not create employment. It is not expansionary.” (4)
This reality illuminates the dangerous instability of the times. In essence, the public is financing its own indebtedness and funding its own privatization. The banks collapsed the economy in 2008 because they had been counting their various toxic assets as part of their wealth. Money is now generated, loaned and invested by clicking a computer keyboard. The monthly $85 billion gift, of course, is not put into gold bars and moved into the bank vaults by elves. The financial industry uses public money to offer increasingly shady loans, essentially organized criminal activity against the public.
Every day the value of one-year’s GDP in the US – about $14 trillion – passes through Wall Street and other financial institutions! This is the Casino Economy. Most of this vast wealth is put into play as speculative bets, driven by computer-driven programs, on anything from water to debt to fracking. Just like mortgages, anything that can be financialized – entire electrical grids, school districts, pensions, and medical credit – almost anything at all – can also be securitized and bundled as fodder for speculation.
It is important to recognize that none of these vast transactions are taxed at all. Real people pay a large sales tax on almost everything in the US; corporate people pay ZERO on their schemes to increase their great wealth. A simple tax of 2 cents on the dollar would generate $28 billion a day, enough revenue to solve every financial issue that America faces.
Numerous people have proposed this idea, since it would end Austerity and usher in an era where governments could provide incredible resources to real people for free. The fact that this “reform” will never be permitted is a telling sign of a system that is approaching its demise.
The immediate result of the Crash was that the banks, hedge funds, insurance companies, private equity firms, real estate interests, etc. simply reprogrammed their computers to speculate on food and petroleum. Hence the mega-jump in food prices in the Fall of 2008. But money that doesn’t circulate produces no profit, so the financial industry has begun to invest in solid, material assets, tangible properties that cannot be wiped out with a click of a keyboard. Meta-money is the cousin of the NSA’s meta-data. Its use by corporations is equally malign.
Thus today we are in the midst of a tsunami of privatization, as the banksters are seizing and privatizing everything they can get their hands on. They are seizing public assets and a rate never before seen. Everything is financialized – given a monetary rating; then it is securitized – turned into speculative assets, which are quickly privatized; then your access to it without money is eliminated and thus criminalized. (5)
This trend has been noted by a number of observers:
Michael Hudson, professor of economics, University of Missouri Kansas City,:
“This financial engineering is not your typical bubble. The key to the post-2000 bubble was real estate. It is true that the past year and a half has seen some recovery in property prices for residential and commercial property. But something remarkable has occurred. This new debt-strapped low-interest environment has seen Hedge funds and buyout funds doing something that has not been seen in nearly a century: They are buying up property with cash, starting with the inventory of foreclosed properties that banks are selling off at distress prices.” (6)
Ellen Brown, Web of Debt Blog:
“Giant bank holding companies now own airports, toll roads, and ports; control power plants; and store and hoard vast quantities of commodities of all sorts. They are systematically buying up or gaining control of the essential lifelines of the economy.” (7)
Michel Chussodovsky again:
“The privatization of public monuments, museums, national parks, the post office, etc., has been raised in recent media reports as a possible ‘solution’ to the debt crisis. But let us not be misled: the process of acquisition of federal public property including the infrastructure and State institutions is likely to go much further. The public sector is up for grabs. Wall Street will eventually go on a buying spree picking up State owned assets at rock bottom prices.” (8)
References and Resources
2) Dave McNally, Global Slump, 2011. P 86
3) Harding. “Bernanke takes plunge with QE3.” www.ft.com
4) Chussodovsky. “The Shutdown of the US Government and ‘Debt Default’. A dress Rehearsal for the Federal State System?”. Center for Global Research
5) 5) “Debt As a Class Weapon”. Rally Comrades, October 2011
6) Michael Hudson. “The Bubble Economy as a 2 Part Play for Privatisation”. July 4, 2013
7) Ellen Brown. “The Leveraged Buy-out of America.” Center for Global Research, August 26, 2011
8) Chussodovsky. Op sit
photo credit: nromagna via photopin cc
To be continued.
Steven Miller has taught science for 25 years in Oakland’s Flatland high schools. He has been actively engaged in public school reform since the early 1990s. When the state seized control of Oakland public schools in 2003, they immediately implemented policies of corporatization and privatization that are advocated by the Broad Institute. Since that time Steve has written extensively against the privatization of public education, water and other public resources. You can email him at email@example.com
Originally posted at Daily Censored
In this 2nd post, Miller focuses on the dangerous instability of our current Casino Economy.
In my view, one of the most important points he makes is how easy it would be to end both dangerous speculation and Austerity through a financial transaction tax. Theoretically such a reform would allow capitalism to limp on a bit longer. Miller sees the unwillingness of powerful investment banks to permit an FFT is a sign our current economic system is on the verge of demise.
Nicely done. The destruction of the regional banking system (which made the bulk of its profits lending to middle market companies in their own regions) and the concentration of assets in the mega-Wall street banks (which make the vast bulk of their profits through trading platforms and NOT through lending) was decried by many while it was occurring. These “Cassandras” were duly ignored. The “too big to fail” banks should be broken up and Glass – Steagall reinstated. Fat chance.
Good point. I guess the good news is the bills in 20 state legislatures to create publicly owned banks like the Bank of North Dakota – which for the state of North Dakota serves the same purpose.