Legalized theft Capitalist economics, U.S. style

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T ing institutions holds its collective breath every he multi-trillion-dollar world of American bank­ month and fine tunes its eyes and ears when Federal Reserve Chair Janet Yellin issues her report assessing the progress, or lack thereof, of the U.S. economy.

For several years now, and especially since the 2008 massive recession/depression that shook world mar­ kets to the point of near collapse and shattered the lives of countless millions who lost their homes and jobs, the Federal Reserve, in association with the U.S. Treasury Department, has been central to bailing out failed banks. The recipients include virtually all of the largest U.S. banks, not to mention many of the lesser such institutions that were also “too large to fail.”

Note the emphasis here on the word all. This is no rhetorical excess. Having invested all but their last pennies in a myriad of super-high-yield speculative ventures (the financialization of capital as opposed to the investment of capital in commodity production), U.S. “casino capitalism” suffered from a liquidity cri­ sis of major proportions. That is, when the 2008 crash hit, almost all banks had little if any cash on hand to cover the massive and mushrooming mortgage de­ faults and related obligations.

This fact was largely hidden from public view when the top banking officials found themselves rushing to develop “stress tests” wherein even the largest of the failed banks were granted an official clean bill of health to avoid public panic, massive withdrawals, and a 1929-style crash.

The subsequent bailout mechanisms, to the tune of an unprecedented $30 trillion over the following years, focused on the government’s essentially buying failed banks’ near worthless defaulted mortgages at full value, essentially infusing trillions of dollars into the corporate pockets of the top institutions of the ruling rich.

Of course, the government had little or no “real money” on hand, so it printed money, bonds, and other financial instruments that were based on little more than the “good faith and credit” of the U.S. gov­ ernment. They “sold,” or better, “exchanged” these pieces of paper or computer-rendered equivalent transactions to foreign investors and governments around the world, who purchased them on the theo­ ry or hope that the world’s greatest capitalist power would not default and would also pay a modicum of interest as well. Hence, the U.S. debt has mushroomed to unprecedented levels.

To make sure that the stricken system of the rich stayed afloat, the Federal Reserve and Treasury De­ partment continued this process by regular infusions to the banks, averaging $89 billion monthly for sever­ al years until very recently, when the gifted amounted was “tapered” off a bit.

“Quantitative easing” was the new term applied to giving away money to stressed corporate America. The essence of this fix amounted to the Federal Re­ serve’s making sumptuous funds available to the rich at interest rates close to zero.

The recipient banks, in turn, invested this “free money” in new speculative ventures—not in the real economy that might have created jobs by investments in updating obsolete plants and hiring workers. The banks grew richer than in any time in history while working people received virtually nothing other than massive cuts in social expenditures, pensions, wage, benefits, and the like. Workers sunk further into the quagmire that is inherent in the for-profit-above-ev­ erything capitalist system. In short, workers paid to bail out the rich! The gap between the rich and every­ one else has widened as never before.

When, in late March, Janet Yellin’s monthly pro­ nouncement omitted the constantly inserted and banker-assuring word “patience” with regard to the government’s being patient before it begins increas­ ing interest rates, and thus cutting into the profits of the super rich, the stock markets responded with huge gyrations—that is, until Yellin felt pressed to say that removing the word “patience” did not necessarily signal that the government was impatient.

Accordingly, the threat to turn off the free money spigot subsided for the moment, but Yellin’s “linguis­ tic forensics,” as one New York Times staff writer not­ ed, did not go unnoticed. A March 19 Times headline concluded, “Fed creeps closer to raising key [interest] Tony Savino / Socialist Action rate.” Yellin’s “words accompanying her announcements,” according to The Times, “conveyed the message that the Yellin Fed had no intention of taking the support struts of low interest rates away until she is absolutely confident that economic growth will go up with­ out them.”

This perhaps inadvertent Times statement confirmed once again that the “self-regulating free-market capi­ talism” has always been a myth. The truth has been confirmed for the zil­ lionth time that the elite ruling-class .0001 percent own the government, this time with hard facts that include gifting $30 trillion to the capitalists in times of “need.”

Yellin’s machinations and delicate language served as a warning coming from the highest circles of the U.S. rul­ ing class, who understand fully that the government’s unlimited and un­ ending printing of “fake” money must inevitably lead to massive inflation.

For now, the fact that this fake money is being pumped into the pockets of the super-rich only, and for specula­ tive purposes as opposed to the pro­ ductive commodity-producing sectors of the economy, has held the inflation rate to two percent, considered suffi­ cient for the time being by the ruling rich to guarantee a steady bite out of what remains of workers’ frozen or declining real incomes.

But the spigot of “free money” to the rich is but one of a myriad of devices to keep the predatory system afloat. A prime example is the misleading March 15 New York Times “Business Section” headline, “S.E.C. [Securi­ ties and Exchange Commission] Wants The Sinners To Own Up.” The reference is to the hundreds of corporations and financial insti­ tutions, including some of the nation’s larg­ est—like Bank of America and J. P. Morgan Chase—who broke the law in multiple ways to insure that government bailouts would be forthcoming. This included overstating the value of failed mortgage portfolios sold to the government, massive accounting fraud employed by the four major firms employed to “cook the books” of the corporate giants, and a host of insider trading violations—in­ creasingly the norm in corporate functioning.

The Times notes, “For decades the S.E.C. has allowed companies and individuals to make settlements with­ out admitting any wrongdoing. Even a company com­ mitting an egregious sin that cost investors millions of dollars could walk away from the proceedings with­ out ever acknowledging its role.”

The S.E.C., very tentatively for sure, is now contem­ plating a “seismic shift” or “about face” in its previ­ ous policy of allowing crooked companies, among the world’s largest, to simply pay a modest fine for what had amounted to million-dollar, if not multi-billiondollar, violations of the “law.” The S.E.C., exercising ex­ treme caution, will now seek “admissions of wrong­ doing” from these corporate offenders who previous­ ly had been immune from criminal prosecution.

But the S.E.C. is undoubtedly fully aware of how the “legal system” works in capitalist America. Here’s how The Times subtly explains the S.E.C.’s dilemma: “After two years [since 2013] the S.E.C. has generated ad­ missions of culpability in 18 different cases involving 19 different companies and 10 individuals. Given the hundreds of settlements struck by the S.E.C. over this time, it is clear that most of the time defendants are still being allowed to settle without admitting to or denying the agency’s allegations.”

The “kicker” comes in The Times conclusion: “S.E.C. officials say this age-old practice saves it from hav­ ing to bring—and possibly lose—a case in court and allows the agency to return money to victims more quickly and conserves resources for other investiga­ (continued on page 9, in “Memoirs of a French revolutionary”)

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6 SOCIALIST ACTION APRIL 2015 When billions of dollars are at stake, legal niceties are ignored to facilitate the gift­ ing of lavish sums to those who play the profit game.