--- Begin Message ---
-------------------------
Via Workers World News Service
Reprinted from the July 11, 2002
issue of Workers World newspaper
-------------------------
CAPITALIST BOOM LEADS TO BUST:
WALL STREET REELS AS WORLDCOM COLLAPSES
By Milt Neidenberg
The fallout from the financial crisis at WorldCom, the
second-largest long-distance telephone service provider in
the country, is incalculable. The corporation, which is on
the edge of a Chapter 11 bankruptcy, controls over 70
percent of Internet traffic at some point, about 30 percent
of consumer long-distance phone calls, and 50 percent of all
corporate communications in the U.S.
Chief Executive Officer John Sidgemore announced that
another 17,000 workers would be laid off immediately. Of a
predominately non-union workforce that once totaled 80,000,
some 6,000 have already been axed. Sidgemore assured the
government, which relies heavily on WorldCom circuits, that
there would be no disruptions of vital communications,
meaning the workloads of the remaining workers will increase
dramatically.
Sidgemore, who dumped most of his shares in the company
while management was cooking the books, has stashed away
close to $90 million. But his take is much higher when
additional benefits are included. Other insiders, including
former and current officers and board members, walked away
with hundreds of millions of dollars.
One long-time WorldCom employee in New Jersey told Workers
World how the layoffs were carried out: "You could hear a
pin drop. Those of us who didn't receive a pink slip watched
as cardboard boxes piled up outside the buildings were
handed out to our sisters and brothers. Management told them
to fill up the boxes with the personal belongings they had
accumulated during years of service. Most controlled their
emotions. They were followed by guards to make sure the
company property was secure."
CAPITALISTS' OLD LAMENT: TOO MUCH CAPACITY
WorldCom's demise, following the boom and bust period
currently affecting the strategic telecommunications
industry, has triggered a monumental crisis. There is just
too much capacity and competition within the industry--too
many sellers and not enough buyers. It has drawn the
attention of the Bush administration, the Securities and
Exchange Commission (SEC), the Federal Communications
Commission and congressional oversight committees.
All are frantically grasping for Band-Aids to dampen the
growing anger over this criminal activity--and, most
importantly, to allay the fears that the fallout will not be
isolated but will affect the economy as a whole.
The collapse of any individual industrial or financial
institution, even one as large as WorldCom, might have only
limited significance for the overall economy. On occasion,
the financial markets even shrug off these developments and
play up what is positive to calm the jittery nerves of
investors. Capitalist propaganda, through the powerful and
tightly controlled media, can often do this. But this time
it may prove more difficult, given the crisis.
A Wall Street Journal front-page article on June 27, titled
"Stock Market Complicates Central Bank's Challenge to Revive
U.S. Economy," showed concern about accumulating scandals--
Xerox has joined the growing list--and wonders whether the
gloom and doom on the market will affect economic growth.
"There is a risk that at some point the cumulative impact on
business, investor and consumer confidence of declining
stock prices and the drumbeat of news of corporate
malfeasance takes a toll on growth," warns the Journal
article.
Federal Reserve Board Chair Alan Greenspan has challenged
the analysts' concern. He would like the public to believe
that the economy is improving, and that what goes on in the
stock market does not affect economic growth.
Tell that to the millions of unemployed. The stock market is
the heart and nerve center of the capitalist system. Its
health determines the entire economic and class underpinning
on which the market rests.
Sam Marcy, the founder of Workers World Party, wrote in
"Wall Street Crash, What Does It Mean?" in 1988: "The stock
market should not be understood in the narrow sense. It
broadly encompasses the heads of the biggest banks (such as
the Federal Reserve Board), the heads of other exchanges and
government agencies like the SEC. It is the most prominent
representative of capitalist production itself."
The hope for a vigorous recovery from the 2001 recession is
fading, notwithstanding the efforts of Greenspan to spin a
web of damage control. Evidence is piling up that the demise
of WorldCom is just the tip of the iceberg.
THE ROT BEHIND THE STINK
A wave of bankruptcies and accounting scandals has laid bare
what is going on in the giant financial and corporate
institutions. Corporate/banking heads and many of their
boards of directors have stacked the books with phony
profits to rip off billions of dollars in bloated salaries,
stock trading, stock options and bonuses. Huge losses that
were covered up have now come to light.
WorldCom was just one of many corporations that gave its top
executives exorbitant freebies while covering up $3.8
billion in losses.
Corporate malfeasance is compounded by an increasingly weak
economy, a falling dollar--now at its lowest level against
the euro in 28 months--huge government and corporate debt,
and the flight of international capital, which had been a
key factor in U.S. economic expansion. Most significant,
consumer confidence dropped to a four-month low, the second
biggest drop since Sept. 11.
Are the wizards of Wall Street worried that another 1929
stock market crash is on the horizon? Whether their fears
and anxieties will be realized remains to be seen, but the
danger lights are flashing. The capitalist economy is on a
slippery slope, sliding in that direction.
The stock market overall has been in decline since well
before 2002. The NASDAQ market has plunged 72 percent, the
biggest drop in any major market since the 1929 crash. This
is where the high-tech dotcoms have been traded.
The prestigious Standard & Poor's 500 is down nearly one
third. The Dow Jones industrial average has dropped 2,000
points, from 11,000 to around 9,000 in two years.
The bursting bubble of the vast telecommunications industry
threatens to affect many other Fortune 500
financial/corporate titans.
A statistic in the New York Times June 27 --one day
following the WorldCom collapse--put it in sharp
perspective. Merrill Lynch, the country's largest brokerage
corporation, has tracked the top 20 stocks, measured by the
number of accounts that each major investor held at the
beginning of the year. These investors have suffered a
significant loss of 36.1 percent in that period.
Those wiped out over the last two years are not just the
average Main Street investors. These are the big boys, who
invest big-time in blue-chip corporate/banking behemoths
such as General Electric, IBM, Citigroup, Microsoft, AOL
Time-Warner and other illustrious giants that make up the 20
most widely held stocks.
Most significant, the roll call of the 20 behemoths reveals
that they, too, are not immune from a growing economic
crisis. It confirms that they are subject to the declining
rate of profit. Overproduction inhibits them from expanding
and investing in new technology. It drives them to reduce
their workforce, increase productivity and aggravate the
economic crisis further. All this can only speed up the
class struggle.
The WorldCom executives, whose scandalous conduct has come
to light because of overproduction, are linked to the most
powerful banks in the world. The lenders to WorldCom include
Bank of America, lead agent for all three WorldCom credit
lines; J.P. Morgan Chase, Citigroup, Fleet Boston Financial,
Mellon Financial, Bank One and Wells Fargo.
TRILLIONS APPEAR TO VANISH
Also in difficulty are the holders of $28 billion in
WorldCom bonds, whose value is now down to 13 cents on the
dollar, as well as the shareholders, whose stock is
currently floating at around 6 cents. Clearly, if WorldCom
petitions for bankruptcy, much of this equity will become
worthless.
It is estimated that over $2 trillion has been lost in the
financial markets since the Enron debacle.
More and more what emerges is the outline of a general
economic crisis. The stock market is an integrated element
of the entire financial services industry--the multitude of
banks, credit unions, insurance companies, mortgage
associations and, most important, pension funds that are the
lifeline of senior workers who have labored long years for
economic security.
The stock market is not just a barometer but an economic
summary. It is intimately bound up with the world economy--
an economy dominated by U.S. imperialism. It is wedded to
the boom and bust cycle and to the crisis of overproduction
that results in mass layoffs and poverty.
The workers will bear the brunt of this collapse. Since the
recession began in March 2001, 1.2 million U.S. workers have
been laid off, nearly 170,000 of them from the
telecommunications industry. More will be laid off now that
the bubble has burst. Few will ever be hired back. Add this
to the previous victims of unemployment and poverty and a
major economic catastrophe is in the making.
The economic crisis has mushroomed into a political crisis,
even though the Bush government and the Democratic Party
have only minor quarrels. Both are marching in lockstep with
their allies on Wall Street.
Since Bush initiated his "war on terrorism," framed in a
frenzy of patriotism, the attacks on the workforce, their
jobs, civil rights and labor rights have dramatically
increased. Immigrant-bashing, racism and sexism are on the
rise.
If the labor movement is to win back a measure of economic
and political justice, then as a first step, working class
solidarity and unity must take precedence over the patriotic
war cries of the Bush administration. There is no other way.
- END -
(Copyright Workers World Service: Everyone is permitted to
copy and distribute verbatim copies of this document, but
changing it is not allowed. For more information contact
Workers World, 55 W. 17 St., NY, NY 10011; via e-mail:
[EMAIL PROTECTED] Subscribe [EMAIL PROTECTED]
Unsubscribe [EMAIL PROTECTED] Support the voice of
resistance http://www.workers.org/orders/donate.php)
------------------
This message is sent to you by Workers World News Service.
To subscribe, E-mail to: <[EMAIL PROTECTED]>
To unsubscribe, E-mail to: <[EMAIL PROTECTED]>
To switch to the DIGEST mode, E-mail to <[EMAIL PROTECTED]>
Send administrative queries to <[EMAIL PROTECTED]>
--- End Message ---
