[This is an edited version of my remarks delivered on the panel, ”Nationalize the Banks! What Does it Really Mean?,” organized by the Socialist Register, at the Left Forum, New York City, April 19, 2009.]
The title of our session reminds me of that glorious week in Seattle back in December 1999. At that time, and for a little while afterwards, it seemed like a new movement had been born, and there was some real potential for transforming, or even overthrowing, capitalism. One of my favorite chants of that moment of carnival came from the unfairly maligned Black Bloc:
Capitalism? No thanks!
We will burn your fucking banks!
Not constructive, perhaps, but inspiring nonetheless.
But, it’s also a reminder of a couple of things. One is that that Seattle moment came at the end of the 1990s boom, not unlike the way the upsurge of the 1960s came late in the post-World War II boom. Though it’s something of an article of faith on the left that crisis is full of radicalizing potential, it may be easier to argue that good time are even more so. After all, the U.S. unemployment rate December 1999 was 4.0%, the lowest it had been in almost 30 years. Real hourly wages had been rising for more than four years, the best streak since that measure peaked in 1973. In such an environment, expectations rise, and it’s a lot easier to tell the boss to “Take This Job and Shove It” (which, by the way, hit the charts in January 1978, when the unemployment rate was falling from its 1975 highs, and the real wage was, unusually for the period, picking up some steam—not to be too vulgar Marxist about explaining culture materially or anything).
Sure, everyone remembers the 1930s Depression as a time of radical agitation, but that was a very extreme case. The economic troubles of the 1970s were hardly a fertile period for radical organizing.
Where’s the outrage?
Which brings me up to the present. It’s amazing to me how little protest there has been, despite the longest, and by some measures, nastiest recession in 70 years. (Putting it in some perspective, the contraction in GDP so far is nowhere near the worst post-World War II recession, and the decline in employment, while harsh, was worse in the recessions of the 1950s. What’s scary is that it should have all turned around by now, and hasn’t.) But when people are scared, they hunker down, and even long for a restoration of the status quo ante, rather than thinking about radical rethinks of the whole set-up.
Speaking of restoring the status quo ante, that’s pretty much what it looks like the Obama administration looks to restore—from the big picture structure of Wall Street domination of economics and politics down to the details of securitization. Waxing geeky for a moment, so we really need to relaunch the securitization of everything? Haven’t even the very orthodox learned that the packaging of smallish, individual credits into large, tradeable securities increases systemic risk and eliminates any incentive to scrutinize borrowers carefully?
Obama gave a rather pretty speech the other day. Some of the things he said: “It is simply not sustainable to have a 21st-century financial system that is governed by 20th-century rules and regulations that allowed the recklessness of a few to threaten the entire economy. It is not sustainable to have an economy where in one year, 40 percent of our corporate profits came from a financial sector that was based on inflated home prices, maxed-out credit cards, over-leveraged banks and overvalued assets. It’s not sustainable to have an economy where the incomes of the top 1 percent has skyrocketed while the typical working household has seen their incomes decline by nearly $2,000. That’s just not a sustainable model for long-term prosperity.” No, it’s not, but what does he propose to do about it? Next to nothing, so far.
Status quo ante
And the portents of the future aren’t so great, either. His top economic advisor, Larry Summers, earned something like $8 million last year from Wall Street, where, by his own admission, he learned to think like a hedge funder. His financial bailout scheme consists mainly of writing unconditional large checks to large banks. Oh yes, he summoned a dozen top bankers to the White House the other week, and served each of them nothing but a single glass of water without ice, no refills.
Nice theater, but they’re still getting to run their banks as they like. The CEO of GM was sent packing—by auto czar Steve Rattner, a former private equity guy who’s under investigation for possible kickbacks for rights to manage the New York State pension fund. The UAW is likely to be effectively broken as a condition of the industry’s rescue. But what have the bankers sacrificed? So far, the Obama administration’s notion of change, when it comes to this bailout, is to replace the Goldman Sachs alum at the top of the Tarp apparatus with a Merrill Lynch alum. Wow, that’s change we can all believe in, eh?
Even a middle-distance look at the Obama administration’s revision of Hank Paulson’s Tarp doesn’t look all that change-y. The great innovation is to offer hedge funds and the like very low-cost federal financing to buy up troubled assets, with the Treasury bearing most of the risk and the speculators most of the possible gains, if any. Already, it looks like the banks have figured out ways to game the system, like setting up off-balance-sheet entities to buy their own toxic junk, clearing it off their books, and sticking Uncle Sam with most of the bill. Advisors to the program, like BlackRock, the private equity firm, and Pimco, the world’s largest bondholder not located in China, hold a lot of bad assets themselves, so their advice and their own speculative cash could easily be deployed to bail themselves out of some bad positions cheaply.
As we breathlessly await the results of the Treasury’s stress tests for our biggest banks, you have to wonder just how honest this exercise is going to be. Their initial worst-case economic scenario, which featured an unemployment rate slightly north of 10%, is now looking like the most likely trajectory—a realistic worst case could be more like 12% or 15%. How would even a more-or-less healthy bank like JPMorgan Chase fare with a near-doubling of the jobless rate?
And how healthy are Citi and Bank of America, really, even with last month’s 8.5% unemployment rate? Citi reported its first profitable quarter in over a year, but it was mostly the result of accounting gimmickry. Even the almighty Goldman Sachs, which is probably the healthiest of the household names (at least in some households), squeaked out a first quarter profit because, thanks to an accounting technicality (switching from a fiscal to a calendar year when it converted from being an investment bank to a commercial bank), it was allowed to forget about its huge loss in December.
Ah, maybe I’m wrong to worry about these things. Last week, Time magazine declared the banking crisis to be over. But this reminds me of Allen Ginsberg’s poem, “America,” in which he asks the title country, “Are you going to let our emotional life be run by Time Magazine?” Probably not a good idea to let our economic life be run by Henry Luce’s progeny either.
But aside from all these technical details, like whether our banking system is solvent or not and whether Washington is prepared to evalute the situation honestly or not, let me return to my original political point, which is that President HopeNChange has pretty much turned the federal government into a wholly owned subsidiary of Wall Street. It’s fashionable in some circles, even around these halls, to attribute this to misunderstanding, or some sort of Clintonian hijacking of a phantasmic transformative agenda, or even imagine this to be some clever feint before a New New Deal is announced. Ha. There’s a reason that hedge fund ubermensch Paul Tudor Jones threw Obama a fundraiser in April 2007, only two months after he announced his candidacy. He knows an ally when he sees one. Obama is a very intelligent fellow, and a masterful politician. He knows exactly what he’s doing. He didn’t appoint Summers and Geithner out of naivete or sloppiness.
A real New Deal
Just a reminder of what a New New Deal might sound like. Here’s FDR, in his October 1936 speech announcing the Second New Deal (which, it doesn’t hurt to remember, came just months before the return to fiscal and monetary orthodoxy that launched the second Great Depression in 1937):
We had to struggle with the old enemies of peace–business and financial monopoly, speculation, reckless banking, class antagonism [what’s wrong with that, exactly? - DH], sectionalism, war profiteering.
They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.
Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me–and I welcome their hatred.
You just can’t imagine Obama saying anything like that, can you?
Shameless public rituals
So, here we are, spending trillions in public funds in a perhaps futile, perhaps not futile, effort to restore the status quo ante. And the public seems largely dissociated from the entire process. Yeah, there were some bellows of rage when the bailout was voted on last year, and of course there were the teabagging
, ha ha, parties the other day, but basically the financial wing of the bourgeoisie has been given free rein. (And, as that list of exceptions to the passivity suggests, most of the critique has come from the right, often the far right, clad in headdress by Lipton’s.) That presents a major problem for what I’m about to say, since offering these sorts of high-minded suggestions in the absence of any popular mobilization, risks devolving into a rather unsatisfying form of public masturbation. But let me pretend, for a few minutes, that I’m a man without shame.
What would it mean to nationalize the banks? Well, there’s the orthodox version of that, which means to take them into government hands, put them on a drip infusion until they return to health, and then privatize them. That’s the Swedish model that people talk about, and while it’s probably more effective and cheaper than what we’re going through now, it’s probabluy not what Leo or many people in this room have in mind.
So in preparation for this panel, I read a book that Leo [Panitch, co-editor of the Socialist Register and organizer of the panel] recommended, Richard Minns’s slim 1982 volume, Take Over the City: The Case for Public Ownership of Financial Institutions. From the point of view of someone reading it in the USA of 2009, it starts with several serious problems. One is that the financial landscape has been totally overhauled. Then and there, a few giant banks dominated Britain’s financial system. Now and here, things are massively dispersed and complex.
And in the Britain of 1982, there were still some unions, and unions who were at least vaguely interested in this sort of thing. Here and now, we have almost no unions, and the ones we have aren’t the least bit interested in socializing finance. In fact, just last week, Leo Gerard, the president of the Steelworkers who, I’m told, longs to succeed John Sweeney at the AFL-CIO, explained to the New York Times that while (quoting the paper’s paraphrase of Gerard) “large labor demonstrations are often warranted in Canada and European countries to pressure parliamentary leaders. Demonstrations are less needed in the United States, he said, because often all that is needed is some expert lobbying in Washington to line up the support of a half-dozen senators.”
What does it mean to nationalize the banks when almost no one really wants to? It’s hard to imagine even a signfiicant attempt at re-regulating finance, given the predilictions of this Wall Street-besotted administration and the crush that most progressive forces still have on Barack Obama.
Ok, back to fantasyland. Minns had a couple of things in mind when he proposed taking over the City of London. One was providing the long-term funding necessary to re-industrialize Britain. That sounds appealing to a country, ours, that has lost 1.5 million manufacturing jobs since the recession began, and 5 million over the last ten years. But manufacturing what, exactly? And in competition with China? Or high-tech greeny stuff that doesn’t have to compete for shelf space at Wal-Mart? Can we revive manufacturing without erecting some high tariff walls? Are we really so sure that the mainstream isn’t right about the contribution of Smoot-Hawley to the Great Depression?
But Minns also looks to nationalizing the banks as a way to mount the commanding heights of British capitalism. The banks owned, either for themselves or on behalf of clients, large to controlling interests in the stock of UK Plc. Translating this approach to the U.S. in 2009 brings up several enormous problems. One is that stockholding here is widely dispersed among hedge funds, private equity funds, pension funds, mutual funds, and millions of individual investors. Banks own almost none of these shares. Pension funds own about 10%; mutual funds, about 20%; and individuals, not quite 40%. Pension funds are held in the name of workers, and they’re managed by and for Wall Street. It’s a major undertaking for a takeover artist to assemble enough shares to launch a challenge to the existing management of a single firm; how do we multiply this by the 500 stocks in the S&P index? And if I really wanted to lay it on, I’d ask who “we” are, anyway?
And, leaving aside all these details, financial assets are at the core of how the capitalist class is formed, and how its rights of ownership and control are exercised. Nationalizing the banks, and mounting the commanding heights, means attacking that class relation at its core. It would be insane, at our present level of political development, to talk in those terms.
It seems more promising to me to talk about things that we can almost imagine doing, at our present level of political development. Rather than taking over the banks, let’s use some of that bailout money to create new financial institutions. (There’s that “us” problem again, but let’s bracket that for now.) Cooperatives, nonprofits, community development groups. Here in New York City, it would be wonderful to create some sort of economic alternative to the Wall Street-dominated economy, like small-scale, specialized, environmentally friendly manufacturing or food processing; we’d need some sort of planning mechanism with a financing operation at the center to make that happen. I wish I could say there’s someone working on this sort of thing, an all they need are some fresh funds and encouragement, but that doesn’t seem to be happening.
Or, instead of foreclosing on a few million houses, we could create some sort of public corporation or corporations that would take title to the houses and create new ownership structures, like limited equity co-ops, or LECs. In an LEC, people buy their dwellings from the co-op, but can only sell them back to the co-op (and not on the open market), at a price reflecting only inflation and property improvements. This would satisfy the apparent mass need for homeownership, the appeal of which I have to say eludes me, at the same time it would take housing, one of life’s essentials, out of speculative markets forever. Such a scheme would probably work best where the properties are concentrated in a single geographical area, as they are here in southern Queens and central Brooklyn; not so well in exurban Nevada or Florida.
In other words, all I can do is stand here and call for what used to be known as “creeping socialism.” That’s rhetorically and politically very disappointing. I’m even disappointing myself. But these creeping interventions would change material relations and consciousness to at least some degree. Sad to say, though, even this compromised creepy agenda looks heroic under the current configuration.
Of course, maybe things will be different when we do next year’s iteration of this panel.