By JEFF MACKLER
The recent wild U.S. stock market gyrations have stunned virtually all observers. “Stocks Tumble and the Fallout is Going Global,” headlined The New York Times on July 23.
As measured by the Standard and Poor’s 500-Index, the market lost more between July 15 and July 25 than in any comparable period in history. The Dow lost 1500 points in the same period, or 16 percent of its value, only to gain 900 in the days that followed. The Nasdaq fared worse, losing 37 percent of its value over the past 18 months and 76 percent from its high in 1999. A full $7 trillion has been lost in the broad stock market in that period, the largest amount ever recorded.
Central to the decline in the stock market, according to Federal Reserve chair Alan Greenspan, is the fear that a return to “profitability” is far from assured.
Greenspan, at least on this point, is not far off the mark. The corrupt practices that have come to light at Enron were at base more a product of economic forces far beyond its control, centering on the worldwide crisis of overproduction and the related general decline in the average rate of profit, than on the illegal measures Enron employed to save its corporate assets.
The multi-billion dollar bankruptcies of major corporations like Enron, World Com, Global Crossing and K-Mart are associated with trillions lost in the U.S. stock market and comparable trillions lost in Europe and Japan.
Of course, the main victims are working people and the poor the world over, whose standard of living and very lives in many instances have been ruined forever.
In the U.S. alone $2 trillion has been lost in the telecommunications industry in the past two years. The inexorable operation of the classical features of capitalist production account for the collapse. With the introduction of state-of-the-art technology and the associated massive replacement of workers with machines and computers, average profit rates have plummeted, while 500,000 workers have been fired. And this is but one sector of the U.S. economy. Monthly job losses have averaged close to 300,000 overall.
Enron was not alone
Central to an understanding of the Enron affair and all the others is the fact that what Enron did is the rule, not the exception, in regard to corporate practices in the U.S. Hyping its bottom line to deceive investors and maintain the value of its stock is the rule not the exception.
In the six years before Enron filed for bankruptcy protection, a dozen major banks in the United States and abroad helped the company illegally camouflage more than $8 billion in loans-that is, debts-while allowing the money to appear as assets in Enron’s cash flow accounts.
J.P. Morgan Chase and Citigroup accounted for 12 and 14 of these crooked deals respectively. They allowed Enron to hide $3.7 billion and $4.8 billion in debts. One Citigroup deal allowed Enron to hide $123 million in debt. The full terms of the deal were consciously, according to U.S. Senate investigators, left out of the paper work.
J.P. Morgan Chase, another banking behemoth associated with Rockefeller money, structured a secret deal with Enron to set up phony investment groups like Mahonia, Yosemite, Delta, Stoneville, and Aegean to disguise loans as assets.
The Enron affair has now been surpassed in scope by the catastrophe at MCI/World Com, the long distance telecommunication giant that chalked up the largest bankruptcy in U.S. history. World Com’s debts are $41 billion. But it had only $200 million cash on hand when it declared bankruptcy, enough to cover only one week of its financial obligations to its subsidiaries.
A special government examiner was immediately appointed to oversee the bankruptcy. Unlike the Enron debacle, where the Bush administration took five months to bring in the heavyweights to make sure that the right creditors were paid first, the White House now acted with haste. No one in the media has bothered to draw the conclusion that the administration’s personal connection to Enron was a factor in the delay.
In the beginning, the major creditors made a pact to work together to help bring World Com back into operation so that they could all collect what was owed them or at least as much as possible. But when the magnitude of the sum involved, $41 billion, was revealed and the dire state of the telecommunications industry was factored into the calculations, their pact blew up, as each creditor scrambled to get what they could.
“It’s the economy, stupid!”
The fundamental weakness of the U.S. and world capitalist economies has frightened every sector of the ruling class. Rarely a day passes when Congress is not rushing to pass some piece of legislation intended to give a wary population the impression that the government is in control of the economy and able to rein in a corporate world plagued by corruption.
Following World Com’s bankruptcy filing, President Bush announced that Congress would soon pass “corporate responsibility legislation,” an oxymoron if there ever was one. World Com, you will remember, listed $3.8 billion in debts as profits, a minor $7.6 billion accounting error if the claimed plus is corrected to be a minus.
The flood of corporate corruption compelled Congress to act fast. Tyco International is charged with tax evasion. Imclone Systems and its friend Martha Stewart are charged with illegal insider trading. Xerox cooked its books to hide $6 billion in debts.
The head of the Rigas family, which controls Adelphia Communications, wasn’t even granted the courtesy of surrendering to federal police after it was learned that he ripped off at least $1 billion. He was dragged off in handcuffs in a stage-managed arrest designed to show that the government is serious.
President Bush hailed the new legislation and proclaimed on July 30 “an end to the era of false profits.” The Senate bill supposedly contains “stiff penalties” for offenders. The vote was 97-0 after the contented legislators learned that no enforcement mechanism was included. Instant legislation to placate an angry public became a priority.
A mid-July New York Times poll indicated that a two-thirds majority believes that the Bush administration favors big corporations as opposed to the people. The election-conscious Bush, whose father’s popularity was shot to hell in the face of a much less serious economic decline, remembers the “It’s the economy, stupid” slogan that figured in his father’s demise. “W” chose to engage in damage control early on.
“A little” stealing is to be expected!
A recent New York Times headline read, “Who should mete out punishment?” “As always,” said The Times, “Wall Street wants minimal government interference, figuring that the markets can mete out harsher, swifter penalties to offenders than Washington ever could.”
“The market,” as The Times sees it, is a survival-of-the-fittest mechanism, wherein the weaker competitors are automatically driven out of business. A little stealing here and there is to be expected in the shake-out process. Why punish your colleagues-especially when you may be the next in line for the axe.
A cynical Vice President Dick Cheney made the point quite well: “Even if Congress cannot figure out a way to make it impossible to lose money in the stock market, it will probably try.” Translated? What the hell good will it do to the stock market if we put a few of our friends in jail?
According to one U.S. Senator, “Average investors are looking for justice.” He continued, “Why else would we be obsessing about the length of jail sentences for C.E.O.’s rather than really thinking hard about the federal government’s role in setting accounting standards?”
In the past, of course, there were no real accounting standards, as evidenced by the mass of accounting scandals that daily hit the front pages. “Public” corporations aside, no one but friends, including those appointed to the Securities and Exchange Commission has access to the real accounts of the corporate elite.
The ruling class has always operated on the accurate premise that corporations, as with the capitalist system itself, is based on the private ownership of the means of production. When, a few hundred years ago, some capitalist geniuses invented the idea of issuing so-called public shares in private corporations, the fiction of public ownership was born and with it the fiction that real forms of corporate regulation existed. But there was never any doubt that Rockefeller and Mellon owned and controlled their private corporations regardless of the fact that the public owned shares.
It took a crisis of mammoth proportions to bring just a semblance of reality, not the real thing, to the fiction of the public corporation. “Just think,” the unnamed New York Times-quoted senator continued, “Just a month ago, the biggest threat to this nation was the al Qaeda. Now it’s uncontrolled stock options.”
“Uncontrolled stock options,” is a euphemism the observant senator employs for corporate executives giving away corporate money in excess of amounts that were previously acceptable. Simply put, stealing was perfectly acceptable when the amounts were in the context of a viable corporation whose profits were sufficient to satisfy investors and whose operations were in the black. When the capitalist market place drove even major players to ruin, and bankruptcy threatened the interests of ruling class elements, the game had gone a bit too far.
But executive pay is peanuts when compared to the wealth of the ruling class itself. There are some 50 billionaires in the United States, the real ruling layer. Millionaires, and multi-millionaires, including corporate executives, are a dime a dozen, so to speak, all proportions guarded.
Loss in pension funds
The fact that billions in pensions and other retirement investments of working people disappeared is not a prime factor in ruling class calculations. Some 50 percent of Americans have investments in the stock market either in the form of involuntarily having their pensions invested without their consent, or in employer-sponsored 401k plans, or through individuals who believed that they could beat the paltry bank savings interest rates by risking their savings in more speculative ventures.
An article in the July 17 New York Times made a key point in regard to the stability of corporate-backed workers’ pensions. It read, “GM profits double but worries on pensions hurt stock.” The article was unique in reporting because while it states that profits doubled it neglects to indicate from what to what.
But the facts are inescapable. In the context of a world capitalist economy where state-of-the-art auto plants become obsolete in months and overcapacity is the norm, profit rates remain low, sometimes below zero. General Motors, one of the most powerful corporations on earth, is no exception. And like most all corporations it cooks its books or otherwise maneuvers to reveal only what it wants to reveal.
But The Times article did mention that GM’s pension fund, covering 400,000 retired workers, is now underfunded to the tune of $12.7 billion as compared to being underfunded by $9.1 billion a year ago. Somehow, GM, which supposedly doubled its profits, estimated at one percent or so a year ago, lost $3.6 billion in its pension fund account.
While GM sales increased slightly, this was on the basis of selling cars that were subsidized to the tune of $2500 each through rebates and interest free financing. Without these subsidies that cut heavily into GM’s profits, GM could not effectively compete on world markets. If the loss in pension funds were officially factored into GM’s books, it is doubtful that there would be any profit at all. This is the real explanation for the headline reporting that GM’s doubling of profits was accompanied by a steep decline in the value of GM stock.
While the ruling class few has suffered significant and unprecedented losses, it is the working classes of the world that bear the brunt of capitalist decline. Capitalism’s victims are rapidly learning that the system under which they toil offers little or nothing in return.
It is only a matter of time until major class battles emerge to challenge and defeat the profiteers in the U.S. and worldwide. With these first victories under their belt, the basis will be laid for the construction of a new and revolutionary leadership of the fighting mass workers’ movement to come.