Banking reform? It won’t bring jobs or end workers’ crisis

By Fred Goldstein

The big business media is focusing all eyes on Wall Street, Goldman Sachs and the question of financial regulatory reform. An economic recovery has been declared and now attention is being shifted to a supposedly “titanic” battle shaping up between the bankers and the Obama administration over reforming the financial system.

Workers, communities, students and youth should truly be concerned with financial reform, but not the kind that is being dished out in Washington. The kind of reform workers need is a radical reform in the distribution of wealth in this country.

A people’s financial reform would take the trillions of dollars given to the banks and redirect those funds to create jobs for the 30 million workers who need them. It would redirect to cover the needs of the people all the ill-gotten gains of Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup, who got the lion’s share of the $10 trillion doled out by Washington in welfare for the rich.

For example, Secretary of Education Arne Duncan just announced that between 100,000 and 300,000 teachers’ jobs are in danger because of a $144 billion shortfall in state education budgets for the 2010-2011 school year.

Freeze payments to the banks

Those budgets are in shortfall partly because tax revenues have declined during the economic crisis. But the hundreds of billions of dollars that states and cities paid in interest to the banks have not declined. A true financial reform would freeze all payments to the banks and use that money to restore services.

The federal government pays a quarter of a trillion dollars in annual interest to these same financial robbers that it claims to be investigating and regulating in Washington right now.

These are the financial schemers who are putting people out of their homes on a daily basis by the tens of thousands. Millions have lost their homes and millions more are scheduled to be foreclosed or evicted. Bankers and corporations continue to roll in wealth while masses of people are homeless. This is what needs to be reformed.

Millions who cannot afford health care either go without or go into bankruptcy. Workers cannot pay their credit cards; students cannot pay on their loans; poverty levels keep rising; millions of children go to bed hungry at night; 6 million families live on food stamps alone; food pantries are overwhelmed by demand; schools and hospitals are being closed; water systems, bridges and roads are decaying.

Financial reform that does not deal with this mass social and economic emergency, but instead argues over how much the bankers can be allowed to fleece each other and the people, is a complete mockery. Real financial reform of a working-class character would take the financial resources of society, controlled by the banks and the government, and redirect them away from the rich — who create nothing but misery, poverty and unemployment — and steer them to meet the needs of the workers, who create the wealth.

Government and bankers

Of course, there is a serious battle between the Obama administration and the bankers. The bankers do not want any regulation at all. Jamie Daimon, CEO of JPMorgan Chase, put it plainly when he said that a reform of derivatives alone could cost the bank $500 million to $750 million in annual profits. (www.benzinga.com)

The Obama administration, on the other hand, is responsible for maintaining the stability of the capitalist system as a whole. It took $10 trillion to bail out the banks in this last crisis. The government debt skyrocketed as a result. The Treasury and the Federal Reserve as well as many sections of big business do not want this to happen again. The government and the system cannot afford it.

The Treasury Department, the Federal Reserve System, the Securities and Exchange Commission, and other government financial authorities sat on their hands and aided the buildup of the great bubble that burst and brought the housing market down. They shut their eyes as the financial swindlers were peddling billions of dollars in subprime mortgages, bundling them up and selling them all over the globe.

But now that there is a financial and economic disaster, the government is trying to put some restraint on the reckless speculation and swindling of the financial oligarchy.

One of the biggest fights is over the regulation of trading in derivatives, that is, financial betting instruments. U.S. banks hold $200 trillion worth of these high-priced gambling cards. JPMorgan Chase and Goldman Sachs have the largest holdings; they and five other U.S. banks hold 97 percent of these derivatives. They make tens of billions of dollars from these behind-the-scenes trades. When the trades go bad, the way they did with AIG and Lehman Brothers, the government gets stuck with the bill.

That is what all the heat is about in the struggle over the financial reform bill. At this moment, the capitalist government and capitalist bankers have divergent interests. But neither of them is taking any real action to alleviate the deep crisis of the working class and there is no real sign of a reversal of the mass suffering and hardship any time soon.

The fundamental problem: capitalism

The present proceedings in Congress are being compared to the financial reform of 1935, when the banks were reined in. The Securities and Exchange Commission was created. The Glass-Steagall Act was created, forbidding commercial banks from dealing in the stock market.

But even though that New Deal bank reform was far stronger than the meager attempt now going on in Washington to limit the swindling, the reforms of the 1930s did not fundamentally do anything to help the workers or change capitalism. Financial reform could not overcome capitalist overproduction during the Great Depression.

The fact is that three years after the reform, in 1938, there was an economic crash almost as great as the crash of 1929-33. The only way the U.S. economy got out of the Depression was through war. In fact, unemployment was 17 percent before the war buildup started.

An examination of the present crisis also reveals that financial reform is not the fundamental problem. The problem is the profit system itself.

The “recovery” of business is now at least seven months old. Yet 30 million workers still can’t get full-time jobs. Some 6.4 million workers have been out of work for more than 27 weeks, a record in the period since World War II. This is a “jobless recovery.”

During the last several decades the bosses, in order to boost their profits, have broken unions, demanded concessions, instituted speedup and outsourced jobs to places where they can super-exploit low-wage workers. But, above all, they have ruthlessly and relentlessly used every form of new technology to destroy jobs, jobs that will never come back.

They have increased the productivity of labor and reduced the skills needed for jobs by using robots of all kinds, sensors, automated production, computers, management software, bar codes and every technological device to eliminate jobs and reduce the wages of those workers who remain.

By making workers produce more and more in less and less time and lowering wages across the board, the corporations make it harder and harder to find buyers for the goods and services that workers create.

This results in capitalist overproduction. This is what was underneath the recent financial crisis. After the crisis hit, it was revealed that 8 million housing units were built between 2000 and 2007, but the population could afford to buy only 6.5 million. The auto industry had built up the capacity to produce 19 million cars but the population could only afford to buy 10 million, at most.

This is because the capitalists compete with each other to get a larger market share so they can get more profit. When the market cannot absorb the goods and services, profits cannot be made and the bosses reduce production and lay off workers.

The so-called recovery is illustrated by Ford Motors, which recently declared itself to be profitable again. But Ford achieved this by laying off 53,000 workers, shutting down 15 auto plants, and negotiating a two-tier wage system in which new hires get $14 an hour and few benefits — less than half what the autoworkers were making previously. Of course, GM and Chrysler did the same thing during bankruptcy and before.

In other words, for the capitalist, profit is the only thing that matters. Capitalist overproduction means that more is produced than can be sold at a profit. It is not that people do not need cars and houses. Millions of people need cars and the homeless population in the U.S. is growing. Just as millions need food while agribusiness gets paid not to grow food, in order to keep prices up.

Workers, communities, students and youth must fight for working-class reform. That means getting the government to provide jobs on the scale of the Works Progress Administration of the 1930s. Eight million jobs were created under the WPA.

Above all, we must mobilize and build class unity against the bosses. The ruling class is trying to divide us in Arizona by passing racist, fascist pass laws worthy of apartheid. Class unity and class struggle is the road to real working-class reform of the capitalist system of exploitation.

The writer is author of the book “Low-Wage Capitalism,” a Marxist analysis of globalization and its effects on the U.S. working class. He has also written numerous articles and spoken on the present economic crisis. For further information visit www.lowwagecapitalism.com.

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