What We Stand For

The Communist Party of Indiana CPUSA struggles for socialism: to better the lives of Indiana's working families, to protect and extend labor's ability to organize, for the needs of women, children, immigrants (documented and undocumented), the disabled, LGBT, and all people who strive for affordable quality health care, housing, and education. We stand against racism in all its forms. We stand for jobs for all. We stand for peace. We support all who struggle world wide for the dignity and self-determination of the majority of their nation's people and against imperialism, occupation, and exploitation for private profit.

Sunday, January 18, 2009

Bailout Is a Windfall to Banks, if Not to Borrowers

In a New York Times article of January 18, 2009 entitled Bailout Is a Windfall to Banks, if Not to Borrowers, Mike McIntire reports on the fact that the banks that received federal bailouts have not used the money to make loans.

The chairman of one bank, the Whitney National Bank in New Orleans, in explaining how his bank was going to use the $300 million it received of bailout funds, said
“Make more loans? We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.”
Highlighting the systemic nature of the financial crisis, despite over a trillion dollars being distributed in various forms of bailout and supports to the financial industry, things continue getting worse.
[A]s mounting losses at major banks like Citigroup and Bank of America in the last week have underscored, regulators are still searching for ways to stabilize the banking system.
According to the New York Times,
[T]he Obama administration could be forced early on to come up with a systemic solution....
The capitalist economic system in which the banks function incorporates no sense of commitment to the needs of working families or the larger society. This is reflected in the behavior of the people in the banking institutions.
An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future.
Most financial institutions don't see increased lending as a responsibility associated with the acceptance of the bailout funds, in part because the law authorizing the bailout funds did not stipulate that usage. At least on banker, Walter M. Pressey of Boston Private Wealth Management, sees the bailout money as a cash cushion.
“With that capital in hand, not only do we feel comfortable that we can ride out the recession,” he said, “but we also feel that we’ll be in a position to take advantage of opportunities that present themselves once this recession is sorted out.”
In the initial discussion about the bailout, the funds were expected to be used to buy up bad mortgages. Then the focus shifted after the money was allocated and the funds were used instead to "direct investments in individual banks in return for preferred shares of stock".
But a Congressional oversight panel reported on Jan. 9 that it found no evidence the bailout program had been used to prevent foreclosures, raising questions about whether the Treasury has complied with the law’s requirement that it develop a “plan that seeks to maximize assistance for homeowners.”
The report concluded that the Treasury’s top priority seemed to be to “stabilize financial markets” by simply giving healthy banks more money and letting them decide how best to use it. The report also said it was not clear how giving billions to banks “advances both the goal of financial stability and the well-being of taxpayers, including homeowners threatened by foreclosure, people losing their jobs, and families unable to pay their credit cards.”
Mark Fitzgibbon, research director at Sandler O’Neill & Partners, which sponsored the Palm Beach conference, said banks seemed to be allocating the bailout money for four general purposes: increased lending, absorbing losses, bolstering capital and “opportunistic acquisitions.” He said those approaches made sense from a business perspective, even though they might not conform to popular expectations that the money would be immediately lent to consumers.
The bankers take different approaches, but in the end many of them
“...see TARP as an insurance policy,” he said. “That when all this stuff is finally over, no matter how bad it gets, we’re going to be one of the remaining banks.”
The priority of the banks for self-preservation by hoarding the federal bailout funds, or to use the money for opportunistic acquistions and expansion, directly contravenes the focus of the efforts to make the economy functional. However, the banks are acting totally logically from their own perspective. Here we have an example of the social contradictions built into capitalism that highlights the divergence between the needs of the great masses of the people in this country, the working families that include you and I, and the systemic needs of the financial institutions and the capitalists these institutions serve.

At a time when there is a growing acknowledgement that a restructuring of our economic system is required, it is important to present the socialist alternative. For example, rather than buying non-voting "preferred" stock in financial institutions, and thus effectively denying the Federal government a voice in the operation of the institution, it would save money for the society and bring the institutions under democratic control if they were bought at current market prices and absorbed into a single national bank under direct Congressional control. An alternative would be to seize the banks without restititution and create a national bank. Whatever the mechanism, and whatever the structure that emerged, the main structural differences that socialism would advocate would result in the financial institutions being under more public, democratic, control and having as a priority the needs of the vast majority of the people of this nation, the working families that actually keep our economy afloat.

To participate in a discussion on the question of structural change and meeting the economic challenges of our time, please join the Socialist Economics group at http://groups.google.com/group/socialist-economics/.

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