The US central bank – the Federal Reserve Bank (Fed) – has come up with programme after programme to try to fix the credit crisis by devising solutions to problems as they show up. Each has its own acronym. We’ve had the TAF, the PDFC, the ABCP MMMFLF, the TSLF, the MMIFF, CPFF, the TALF and the TARP. Now we’ve got PPIP, the ‘Public–Private Investment Programme’. This is the magic programme, the final solution, supposed to fix everything by removing what it calls ‘legacy assets’ from banks’ balance sheets once and for all, thereby strengthening the credit-worthiness of the banks and restarting lending.
What, you may ask, is a ‘legacy asset’? Family heirlooms? Valuable antiques? Nope. It is just a polite way of referring to a pile of poop, around $1,000bn, sitting on the banks’ balance sheet and masquerading as an asset – the mortgage-backed securities. At the moment, banks say these are worth around 80c per dollar, while realistic buyers are talking 20-30c per dollar.
PPIP has been devised by the Obama administration to use taxpayers’ money to fill the gap between buyers and sellers. Although it paints the programme as if there is equal sharing of risk and reward (‘equity co-investment on a side-by-side basis’), the bulk of the risk falls on the taxpayers. In its own example of how the programme works, the government shows how a capitalist can purchase these assets by contributing just over 7% of their price – the government provides the rest. This is yet another leveraged asset – at a ratio of about 14:1. Now, instead of private capital participating in a leveraged hedge fund, the US government is the one supplying the financing. The profits will be shared on an equal basis. In the official example, if the assets can be sold with a 10% profit, then the private investor will have a return of about 70% on their capital, while the government will receive less than 6%.
It gets better. Banks with ‘legacy assets’ are going to pull out the ugliest, sickest, most worthless assets out of their portfolios to sell. They can even participate as investors. So, if they have $1bn of ‘legacy assets’ they need to unload, they can join PPIP, put down some $60m and get paid say, $840m from the PPIP to let their poop be carted away. So, instead of taking a loss of $1bn, they lose around $200m at worst. Clever, eh?
We have now arrived at the highest stage of imperialism: State Monopoly Finance Capital. Imperialism is now so rotten that Finance Capital cannot survive without being propped up by the state. Economically, the state has become a giant investment bank digging deep into the people’s pockets to provide funds for the private banks. The US government has now taken over the world’s largest insurance company, AIG; the world’s largest mortgage securitisation companies Fannie Mae and Freddie Mac; it has Citigroup and Bank of America on life support; it has bent over backwards, month after month, to bail out the investment banks, to sell them to other banks or to let them go under.
While ordinary citizens have been turned out of their houses, fired from their jobs and left to rot in tent cities, ‘their’ government has been hard at work propping up the bloodsucking parasitic banks. No involvement in these policies – no ‘democratisation’ plans, nor even the seemingly so-radical demand to ‘expropriate’ the banks – can be considered. ‘Expropriation’ of the banks, far from challenging the power of the financial oligarchy, does the exact opposite: by throwing the burden of resuscitating the bankrupt institutions onto the shoulders of the working and middle classes it helps strengthen finance capital and imperialism.
The entire policy of the state has become a hunt for ways of passing on the costs of the capitalist crisis onto the ordinary working people in the United States and onto people outside the country. There is nothing the imperialists want more than for us to get dragged into the details of how to save their dying and diseased economic system and caught up in arguments about how much to pay them as they leech us dry. When Treasury Secretary Geithner talks about ‘our financial system’ he means ‘their financial system’, the imperialists’ financial system.
Instead, we have to concentrate on defending ourselves, our lives, our homes and our jobs from the relentless onslaught which is just beginning. Capitalist profits in the US have dropped sharply: total corporate profits in the fourth quarter of 2008, at an annual rate in billions of dollars, were $1,264.5, an absolute fall of 16.5% from third quarter profits of $1,514.8. This is the steepest quarterly fall in profits in more than 50 years. Some 38% of these profits were from the rest of the world, up from 26% in 2006. In order to survive, imperialism has to grab all this back by sucking more profit out of the US working class and by looting it from others.
The middle classes are going to be squeezed dry, like a piece of fruit, and tossed into the gutter alongside the working class. State expenditure is going to be ruthlessly cut. The imperialists will be demanding pay cuts and threatening to cut our jobs, trying to speed up work and get us to work longer hours. US unemployment has leapt almost 70% in the last year, from 7.4 million in February 2008 to 12.5 million in February 2009.
These kinds of attacks cannot continue forever without the working class spontaneously rebelling against them. When it does, it will have to get rid of the whole system if it is to defend itself. This is the only real solution to this wretched crisis of imperialism.
Steve Palmer
US correspondent
FRFI 208 April / May 2009
