Keith Spencer
Wall street is furious over Obama’s proposed new banking laws. Keith Spencer takes a look
President Obama has declared war on Wall Street, saying that “never again will the American taxpayer be held hostage by banks that are too big to fail”. He has proposed new laws to regulate banks, splitting off high street banking functions from more risky investment and trading activities.
These would prevent banks owning or working with hedge funds, stop them using deposit accounts – i.e. our money – to fund ‘proprietary trading’ (the speculative buying and selling of financial instruments for profit), and exclude high street banks from involvement in mergers and acquisitions (the buying and selling of whole companies).
But beyond this, the plan remains very vague. Even so, Wall Street has reacted with panic, with the Dow Jones market index falling by 5.2 per cent in three days.
Obama’s strong rhetoric over his banking proposals- declaring that “if these folks want a fight, it’s a fight I’m ready to have” – is clearly a response to the loss of the Massachusetts to the Republicans in the recent senate election. This was a massive blow to the Democrats, as it was a previously safe seat in their historic East Coast heartland.
It follows a huge, right wing populist campaign against Obama’s health reforms by the Republicans, who succeeded in channelling anger at the banks, unemployment and recession into attacks on taxation and big government.
Only the week before, Obama had demanded that the banks repay $120 billion given to them during the credit crisis. “We want our money back, and we’re going to get it…My determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at some of the very firms who owe their continued existence to the American people.”
But the tax he proposed to recoup this cash is stretched out over 10 years! This prompted the Wall Street Journal to label it, “Obama’s gentle bank tax”.
Then, adding insult to injury, the banks announced record profits. The Wall Street Journal estimates that pay on Wall Street reached a record $145 billion last year – the year of the biggest crisis since the 1930s! JP Morgan had $11.7 billion in profits and paid staff $27 billion, while Goldman Sachs earned $13.39 and paid out of $16.9 billion.
The US Glass-Steagall Act of 1933
The proposed regulations, however, fail to touch the fundamentals of the system that brought about the crisis in the first place – much like previous attempts to legislate against crisis.
They have been likened to the Glass Steagall Act, introduced by President Roosevelt in 1933 as part of his “New Deal” measures to combat the Great Depression. This also prohibited high street banks from owning other financial institutions, like insurance or investment companies, or from being involved in speculative activity. It also had the aim of heading off popular anger.
US Trotskyists at the time explained how the capitalist state was reining in some capitalists for the benefit of the whole ruling class:
“Individual capitalists have got to be taught that they must occasionally give up a few sweetmeats as individuals to preserve the basic interests of their class as a whole, and its position. And the state – in the days of monopoly capitalism most directly representative of the class as a whole – will be their teacher.”
The act lasted unto 1999, when it was repealed under Democratic President Bill Clinton, whose wife and many of whose advisers now work for Obama. But it did not shorten the Great Depression, prevent the recessions of the 1970s and early 1980s, or prevent the collapse in 2000 of the much-vaunted “dotcom” bubble of the late 1990s.
Socialism not populism
It has been proven time and again that capitalism cannot legislate itself out of crisis.
The massive expansion of credit because of demand from capitalist and consumers alike; the expansion of various forms of speculation, when sufficient profits can’t be realised through production – this is the dynamic we have seen over the last decade with booming equity and property markets.
Moreover, the capitalists always seek new and ever more intricate ways to bet on the future moment of prices – in this boom taking the form of new markets in the most apparently ‘sophisticated’ derivative instruments. This is what Marx referred to as the “insane” forms of money that get out of control at the end point of a cycle.
While socialists should shed no tears for the bankers if these proposals go ahead – in fact, we will enjoy their misfortune and participate along with millions of others in expressing anger at their greed and indifference – we must point out that Obama’s act will do nothing to help the masses impoverished by the recession. The workers don’t need a watered down New Deal or other tokenistic measures – we need investment in schools, hospitals, and public works, funded by taxing the rich, to end the scandal of unemployment.
Indeed socialists should demand that the banks, finance companies and all the big corporations are taxed to the hilt. The money raised by taking their profits and bonuses should be used to stop evictions, job losses, and fund full and unending benefits, decent minimum wage, free healthcare for all and pull the troops out of Afghanistan and Iraq.
In short, we want measures that actually challenge the bosses’ control over our lives. We should also demand the nationalisation of the banks without compensation and the creation of a state banking monopoly. A huge, single US bank under a workers government could be part of a democratically planned economy – a real socialist alternative to the chaos and profiteering of the market.