Letter from the US: Fresh proof Wall Street owns Washington

The announcement by giant US bank JPMorgan Chase that it had lost US$2 billion in a shady deal shows the kinds of financial speculation that led to the 2007-2009 financial collapse continue to steam ahead.

It also underscores that both Republican presidential candidate Mitt Romney and Democrat president Barack Obama are in Wall Street’s pocket.

As the financial system was collapsing in the waning months of the George W Bush administration, it responded with huge bailouts of banks and other financial institutions.

The Obama administration continued the Bush policy in a seamless fashion. Some faces were changed, but policy remained in the hands of people from the banks and other big Wall Street firms.

This bipartisan effort of Democrats and Republicans was necessary and rational from the capitalists’ point of view. Without the bailouts, the collapse would have been far worse.

But the 99% would have been better off with a different policy. The banks, insurance giants such as AIG and the other financial institutions could have been nationalised and placed under publicly elected boards to squelch the speculative bubbles.

Since the immediate bubble was in housing, this would have allowed the cancellation of the mortgages and foreclosures that have hit workers the hardest.

The usurious credit card debt owed by millions of ordinary people could have been reduced or cancelled.

The Occupy movement has highlighted the fact that student debt on loans for college has skyrocketed to more than a trillion dollars. That could have been cancelled.

These and other emergency measures, such as a vast public works program to fight unemployment and rebuild the crumbling US infrastructure could have been carried out only by a workers’ government, even if under capitalism.

The speculative bubbles that mark late finance capitalism have been furthered by the lifting of any meaningful regulations of the financial institutions. This deregulation was put in place by Democratic and Republican administrations — especially Bill Clinton's.

The JPMorganChase debacle is a clear indication that no meaningful regulation of the financial sector has been put in place under Obama.

Nor have there been any prosecutions under Obama of the financiers whose actions have hurt the 99% in the US and elsewhere.

An article in the May 14 Newsweek, hardly a left-wing publication, was titled, “Why Can’t Obama Bring Wall Street to Justice?”

The article asks: “Maybe the banks are too big to jail. Or maybe Washington’s revolving door is at work.”

The revolving door refers to those who come from the stratosphere of high finance and then enter government, and then go back to where they came from.

One example Newsweek cites is Eric Holder, Obama’s choice to head the Justice Department. Holder was a Justice Department official under Clinton, who then “joined the Washington office of Covington & Burling, a top-tier law firm….”

The clients of this firm included “Goldman Sachs, J.P. Morgan-Chase, Citigroup, Bank of America, Wells Fargo, and Deutsche Bank America” — the list of some of the key illains of the Great Financial Crisis.

“But Holder’s was not the only face at Justice familiar to Covington clients,” Newsweek said. “Lanny Breur, who had co-chaired the white-collar defense unit at Covington with Holder, was chosen to head the criminal division at Obama’s Justice Department.

“Two other Covington lawyers followed Holder into top positions, and Holder’s principal deputy, James Cole, was recruited from Bryan Cave LLP, another white-shoe firm with A-list clients.”

So the lawyers who defended the big bank criminals then became government officials charged with investigating them. Small wonder zero charges have been filed.

Newsweek also documents the huge backing of Obama by the big banks in the 2008 elections.

Deregulation played a part in the financial crisis, but its roots go deeper.

An article by John Bellamy Foster and Robert W. McChesney in the May issue of Monthly Review shows a long-term slowdown in the growth rates of the key capitalist economies, Japan the European Union and the United States since the 1960s.

“The slowdowns were sharpest in Japan and Europe,” they wrote.

“But the United States too experienced a huge drop in economic growth since the 1960s to the present, and was unable to regain its earlier trend-rate of growth despite the massive stimuli offered by military-spending increases, financial bubbles, a growing sales effort and continuing exploitation of the privileged position of the dollar as the hegemonic currency.

“The bursting of the New Economy stock market bubble in 2000 seriously weakened the U.S. economy, which was only saved from a much larger disaster by the rapid rise of the housing bubble in its place.

“The bursting of the latter in the Great Financial Crisis of 2007-2009 brought the underlying conditions of stagnation to the surface.”

They also show the share of profits from the financial sector compared with industrial profits has sharply risen as a result. The great amassing of profits cannot find an outlet in industrial investment. Speculation is the alternative.

The pressure from finance capital against meaningful regulation is enormous. In fact, even with some new regulations, finance capital cannot be stopped.

There may be some window-dressing, but whichever candidate Wall Street ends up backing more, Obama or Romney, neither of these creatures of capital will do anything serious for the 99% — who remain in what should be called the new Depression.

[Barry Sheppard was a long-time leader of the US Socialist Workers Party and the Fourth International. He recounts his experience in the SWP In a two-volume book, The Party -- the Socialist Workers Party 1960-1988, available from Resistance Books.]