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Via Workers World News Service
Reprinted from the Aug. 1, 2002
issue of Workers World newspaper
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TURMOIL: STOCKS YO-YO AS MARKETS REVEAL $7 TRILLION
LOSS
By Deirdre Griswold
The connection of the banking system to the meltdown on Wall
Street has at last been dragged into the open with the
revelation that Citigroup and J.P. Morgan Chase made secret
deals with Enron to help cook its books.
These deals, in which the giant banks helped cover up
Enron's losses, were not undertaken out of compassion or
even a buddy-buddy mentality among the CEOs. They are
evidence that the biggest banks resorted to criminal conduct
in order to keep investors and the public at large from
knowing how shaky the entire structure of monopoly
capitalism was becoming.
Will the disaster now unfolding on Wall Street end in a
grimly familiar scene: the twin towers of U.S. capitalism,
the stock markets and the banks, swiftly crumbling right
before the eyes of a horrified public?
$7 TRILLION UP IN SMOKE
In just 10 trading days in mid-July, beginning with the day
President George W. Bush went to Wall Street to "calm
investors' fears," the Dow Jones Industrial Average lost
nearly 1,500 points, or 16 percent. The carnage in New York
is now dragging down global markets as well.
More than two years of decline in the U.S. stock markets
have already evaporated $7 TRILLION worth of paper wealth.
This is nearly a year's worth of goods and services produced
by the workers of this country.
How could this unimaginable volume of wealth just disappear?
In this chaotic economic system, the stock markets
anticipate future production.
It is true that they can move upward because of pure
speculation, producing what is called a bubble. The easy
credit of the last decade helped inflate stock prices.
Eventually, prices rise far above the earnings of the
companies, and the bubble can burst. This happens
periodically.
But this is not the decisive factor in the current sell-off,
which has vaporized so much wealth, including the retirement
funds of tens of millions of workers. It is a crisis of
overproduction.
In a general way, it is the expansion of production that
drives up the price of stocks. Had the capitalist economy
continued to grow, the future wealth represented by high
stock prices would have been realized.
However, the prices have dropped like a stone, especially
over the last three months. Some $7 trillion in anticipated
value has disappeared--not only because trend-setting big
investors now expect production to decline, but also because
they know that a depression will actually destroy a great
deal of what value has already been produced.
THE DREADED D-WORD
Depression! Is that an appropriate word to describe the
current crash and its effects?
Investor's Business Daily seems to think so. On July 3 the
New York financial newspaper published a graph on its front
page showing an uncanny resemblance between the movements of
the Nasdaq high-tech market over the period 1992-2002 and
the Dow Jones Industrial Average for 1921-32, the years of
boom and bust that ushered in the Great Depression.
CBS MarketWatch on July 23 also referred to a depression. It
reported that "Analysts at research and money management
firm Bridgewater Associates point out that this is the first
time since 1930 that the stock market has fallen in the face
of aggressive Fed easing [the lowering of interest rates by
the Federal Reserve Bank--DG].
" 'In that sense, we are in uncharted waters. Clinically
speaking, a recession is an economic contraction brought on
by tightening and ended by easing. A depression is a self-
reinforcing economic contraction, perpetuated by debt
liquidation in which central bank easing is impotent to
reverse the contraction. Recent market action is symptomatic
of depression,' Bridgewater pointed out."
Actually, these turbulent waters are not completely
uncharted. This country has been in a depression before.
MASSIVE DESTRUCTION OF WEALTH
In a depression, factories and offices stand idle, sometimes
abandoned. The equipment in them grows obsolete or rots
away. Even brand-new goods, like today's computers and their
software, sit on the shelves only to finally be thrown away,
outmoded long before they could have been sold.
In the Great Depression of the 1930s, this destruction of
goods and the equipment and facilities used to produce them
led to outrageous scenes of oranges being dumped in the sea
and wheat plowed under, even as hungry people lined up for a
bowl of thin soup and a crust of bread. Agriculture had
become very productive, but this bounty of nature could not
be sold--not at a profit, anyway. The bosses preferred to
have it destroyed than give it to hungry people.
The capitalist market could not meet people's most basic
needs. Almost 30 percent of the workers were unemployed--
human beings cast out just like the machines that were no
longer needed. Without jobs, millions couldn't afford food,
clothing or shelter.
A generalized capitalist crisis can also bring on an even
greater destruction of the wealth produced over generations
by the working class: it can lead to war.
Directly after the Great Depression came World War II. In
addition to the tens of millions of lives lost, there was
widespread destruction of the means of production. Intense
competition for markets and resources among the huge
corporations and banks of different capitalist countries had
led to the war. This competition was resolved in the most
horrible way, through wholesale destruction of factories,
farms and infrastructure.
The countries being fought over as the spoils of that war--
the colonized nations of Africa and Asia--had nothing to
gain and everything to lose. Their people were left starving
and their territories in ruins after the armies of the
competing exploiters swept through.
COLLAPSE NOT PSYCHOLOGICAL
Everyone in the capitalist establishment, from CEOs to
analysts and politicians, is treating the market collapse as
a psychological phenomenon. If only investor "confidence"
could be turned around, they say, the market rebound would
make everything all right.
They point hopefully to signs that consumers are still
buying homes and other items. What they are ignoring,
however, is that depressions don't start because consumers
suddenly, inexplicably lose "confidence."
They start because of overproduction, which is brought on by
the overbuilding of the means of production by the huge
corporations. They are all trying to undercut each other by
using the latest technology in order to produce cheaper than
their competitors. This investment in technology expands the
means of production at a breakneck pace that sooner or later
ends in a catastrophe.
Fed chair Alan Greenspan himself, in testimony to Congress
on July 16, confirmed that it was overproduction in the area
of capital goods like fiber-optic cables and computers that
was pulling the market down.
Once the markets starts to plunge, then layoffs of workers
and caution among consumers can have a snowballing effect as
they stop buying. But, as Karl Marx pointed out long ago,
the crisis begins not in consumption but in production
itself.
HOW BANKS HID ENRON'S TROUBLES
The latest phase of this tumultuous market contraction
started when the role of the banks in Enron's dirty deals
became public.
Examiners for the Senate Permanent Subcommittee on
Investigations and shareholders' lawyers say that the banks
structured billions of dollars of transactions for Enron in
a way that hid the company's growing indebtedness.
The latest revelation involved a "handshake" deal between
Citigroup and Enron code-named Roosevelt that allowed the
energy company to conceal a $500-million loan it got from
the bank by listing it as a commodity transaction.
Senate investigator Robert Roach told a hearing of the
investigative panel of the Senate Governmental Affairs
Committee on July 23 that, "The evidence indicates that
Enron would not have been able to engage in the extent of
the accounting deceptions it did, involving billions of
dollars, were it not for the active participation of major
financial institutions willing to go along with and even
expand upon Enron's activities."
Roach said there also is evidence that some of the banks
"knowingly allowed investors'' to rely on Enron financial
statements they knew were misleading.
According to the July 23 Associated Press, "The banks used
complex financial schemes to boost Enron's anemic cash flow
to match its profit growth on paper, according to lawmakers.
The energy-trading company recorded the money from the bank
loans as prepaid trades of natural gas and other commodities
with an entity based in the Channel Islands off Britain."
Besides Citigroup and J.P. Morgan Chase, the shareholders'
suit named Credit Suisse First Boston USA Inc., Canadian
Imperial Bank of Commerce, Bank of America Corp., Merrill
Lynch & Co., Lehman Brothers Holding Inc., Britain's
Barclays Bank PLC and Germany's Deutsche Bank AG.
The AP story added, "Houston-based Enron, which filed for
bankruptcy in December, taking the investments of millions
of people with it, used a web of thousands of off-balance-
sheet partnerships to hide some $1 billion in debt from
investors and federal regulators."
All this crooked finagling was to hide another feature that
Marx showed triggers a capitalist crisis: a falling rate of
profit.
WHAT CAN BE DONE?
What can the working class and all those whose lives are
ripped up by an economic crisis do to stop the super-rich
ruling class from dumping this one on their heads?
In the 1930s, the first reaction of stunned shock gave way
to anger and eventually mass action. It soon became clear
that all the promises made by the great captains of industry
and finance that the crisis would be short-lived were just
deceptions. They were trying to cover themselves while they
worked feverishly to make sure their own fortunes were
secure--in the same way the Enron executives and the others
have been doing.
The working class became more organized, militant and
cohesive as the depression deepened. They organized as the
unemployed, as tenants, as farm workers, and in the
factories. Huge crowds stopped evictions by putting people's
furniture back in their homes. Workers went on strike and
eventually sat in the factories to demand higher wages and
union recognition.
They also put demands on the government to provide jobs as
well as food, shelter and clothing for the unemployed. The
capitalist government responded with different tactics,
first using repression, then some concessions. The objective
was the same: to divert the workers from taking over what
they had built and running it for the good of all, not the
profits of a few.
The working class movement of the 1930s, powerful as it was,
with a long-lasting impact through such programs as Social
Security, welfare and unemployment insurance, did not unseat
the ruling class from its positions of economic and
political power. It did not liberate the means of production
from the hands of the privileged super-rich few, whose
wealth had been amassed directly from the labor of the
workers.
The inability of the working class--not just in the United
States but in Europe and other centers of world imperialism--
to overturn capitalist rule allowed the exploiting class to
resolve the depression through the most horrendous war the
world had ever seen.
The present deepening crisis is sure to arouse the workers
in the U.S. and around the world, at first in a defensive
struggle against the miseries inflicted on them by the
capitalist system. It carries within it the potential,
however, of making such a crack in this rotten system that
the workers and all humanity will be able to widen it and
pour through.
Capitalism must be replaced by its opposite: a society based
on social ownership of the means of production, administered
democratically by the masses of workers themselves and not
by a tiny elite who have shown that they will do anything,
no matter how heinous, in the pursuit of profit.
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