Obama defends bonuses to AIG executives
By Barry Sheppard, in San Fransciso
The huge bonuses — some US$210 million — that insurance giant American International Group (AIG) paid out to its executives from the end of last year through to March sparked a renewed explosion of anger among working people. AIG has received some $170 billion in bailouts from the US government since last October, when then Treasury Secretary Henry Paulson announced the first wave of bailouts of banks and other financial institutions. Current Treasury Secretary Timothy Geithner, head of the New York Federal Reserve at the time, worked hand in glove with Paulson in arranging these bailouts. Geithner is carrying on his predecessor’s policies.
TV talking heads, others in the capitalist media, as well as Democratic and Republican politicians from President Barack Obama on down, are chastising working people for their anger, pointing out that the bonuses are a small percentage of the hundreds of billions in bailouts already paid out. They are also a small fraction of the $1 trillion Geithner proposes in new give-aways through his plan to subsidise speculators’ buying up of the banks’ “toxic” debts — the same speculators (hedge funds, bank-operated “special investment vehicles”, “mono-line” insurance brokers) who operated the now-collapsed $10 trillion shadow banking system.
The warped logic behind the capitalist politicians’ defence of the AIG executive bonuses goes like this: The bonuses are needed at AIG and other insolvent financial corporations in order to keep the executives on the job, and their expertise is needed to find a way to “fix” the financial institutions, otherwise the trillions spent to keep them going will have been in vain. But the anger among large sections of the population is not about the bonuses — they were just the spark.
The real anger is directed against the bailouts themselves, while the standard of living of most Americans continues to plummet. Unemployment officially climbed to 8.5% for March. Official unemployment now stands at 13 million, with 5.1 million jobs having been wiped out since the start of the US recession in December 2007 — the largest decline since troops were demobilised at the end of World War II. Almost two-thirds of those job losses have been in the last five months. In addition to cutting jobs, companies also reduced hours for those still on payrolls. The average number of hours worked fell to 33.2 per week, the lowest amount since records began in 1964.
Real unemployment, taking account of those working part-time, those whose unemployment benefits have run out and those who tell pollsters that they have become discouraged at finding a job soon, is at 15.6%. And those in prison, the majority of whom are black or Latino, aren’t counted at all (and the US, with 5% of the world’s population has almost a quarter of the world’s imprisoned people).
Young people are being hit especially hard. Some 2.2 million between the ages of 16 to 29 have already lost their jobs since the recession began. Unemployment among black people is officially almost double that for whites. For young blacks, who were already suffering massive unemployment during the preceding boom, the situation is a social catastrophe. Latinos, too, are in a similar fix.
Official figures from the federal Department of Labor showed that the rate of unemployment rose 0.4 percentage points in March as 663,000 jobs were shed. Most business economists expect an additional 2.4 million jobs will disappear by the end of the first quarter of next year.
Home foreclosures are mounting. Foreclosure filings totaled 3.6 million last year, up 81% on 2007. A total of 8.1 million US homes, or 16% of all households with mortgages, could fall into foreclosure by 2012, according to a report by Credit Suisse. Foreclosure affects not only homes of working families who have mortgages, but also renters whose landlords are being foreclosed on, some 40% of total affected families. These landlords took out mortgages in order to gouge their renters, and then just absconded.
In the last three months of 2008, according to the Federal Reserve, households lost $5.1 trillion, or 9%, of their wealth. Since the recession began, industrial production in the US has dropped 11%. This isn’t as bad as Japan (31.0%) or the eurozone (12%) but still quite steep.
The trillions being spent by the US government on deficit spending will be inflationary, certainly in the longer run, but perhaps sooner. The champion of such spending, John Maynard Keynes, once quipped back in the 1930s, that while his proposals would eventually be inflationary, “we’ll all be dead in the long run”. This wisecrack epitomised capitalism’s primary concern for short-term profits. But there may be a danger sooner.
When Geithner floated his new proposals for more deficit spending, the US dollar’s exchange rate fell. The Chinese government has nervously asked Washington to assure the $1 trillion the Chinese central bank has already lent the US government, particularly during the Bush era. Obama responded not with any concrete guarantees pegging the loans to real value but with hot air about the soundness of the US economy.
During its eight years in office, the Bush administration ran huge budget deficits, more than doubling US public debt ($10.6 trillion by January this year). This raises the question that if this enormous amount of Keynesian “pump priming” didn’t prevent the current deep recession, will Obama’s deficit spending work, even to stabilise the credit system? Or might inflation start to creep up? Will we end up down the road with high inflation and economic stagnation (“stagflation”) if the recession is reversed, or something much worse — “slumpflation”?
There is another danger, one which the editorial writers for the New York Times have begun to warn about — a turn toward nationalist protectionism. There has already been a slick if ugly series of ads on major TV stations claiming that immigrants are taking the jobs of US workers “in this worsening economic situation”. The fascist-minded Lou Dobbs on CNN, who claims to speak for the “little man”, rails against immigrants daily.
The problem in the US and elsewhere is the lack of a strong workers’ movement to fight for the defence of working people from the ravages the capitalist system is wreaking upon us. We have no choice but to try to rebuild such a movement, building upon the anger against the system being manifest every day.