A tale of two bailouts

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By Bill Van Auken | [print_link] Dateline: 25 November 2008 \ World Socialist Web Site

“The source of these [Citigroup] huge losses is largely the
bank’s reckless speculation in the form of subprime lending and
securitization-all in pursuit of astronomical bonuses for Citigroup’s
traders and senior executives…”

Barack Obama used his press conference Monday to deliver a sharp
rebuke to the US auto industry, ruling out any “blank check” to rescue
it from bankruptcy. Virtually in the same breath, the president-elect
reiterated his support for just such a “blank check” to US banks and
financial institutions, insisting that he would do “whatever it takes”
to save them.
There is nothing unique in this blatant double standard. Obama’s
statements only underscore the essential continuity between the
policies of his incoming administration and those that have been
pursued by Bush. Obama’s remarks likewise dovetail with the stand taken by the
Democratic-led Congress, which last week turned its back on the auto
industry, preferring to risk the bankruptcy of the Big Three and the
potential destruction of three million jobs than approve a $25 billion
bailout package for the carmakers. Obama praised Congress for refusing
to vote on the package.

All are agreed: When it comes to Wall Street, no limits will be placed
on the amount of taxpayers’ money that will be doled out with no
strings attached. For the auto industry, however, any government aid
is too much, unless it is paid for through merciless concessions
imposed upon its workers.

In his press conference, Obama also vowed that his administration
“will honor the public commitments made by the current administration
to address this crisis.” He said a mouthful.

According to a report published Monday by Bloomberg News, the US
government has already committed $7.4 trillion—more than 10 times the
amount approved by Congress in the Wall Street bailout—to rescue the
banks and finance houses.

This gargantuan amount is equivalent to half of the entire US gross
domestic product and represents an outlay of $24,000 for every man,
woman and child in the country.

The lion’s share of that money has come from the Federal Reserve,
which has pledged $4.4 trillion. According to Bloomberg, the Fed is
now lending money at 1,900 times the average weekly rate of a year
ago. This flood of cash has been unleashed without so much as a vote
in Congress, much less the approval of the American people. The Fed
even refuses to disclose which banks have benefited, how much they
have been given and what the government has obtained as collateral to
secure this massive handout of credit.

The latest installment has come in the form of the massive bailout for
Citigroup announced on Sunday.

We hold no brief for auto bosses, nor do we support any bailout of
their profit interests. Nonetheless, the disparity between the disdain
accorded to the CEOs of GM, Ford and Chrysler and the solicitous
treatment accorded to Citigroup is noteworthy.

Unlike the auto CEOs, who faced two days of scolding at congressional
hearings before leaving Washington empty-handed last week, the head of
Citigroup, Vikram Pandit, didn’t even have to put in an appearance,
much less wait for a congressional vote. All of the terms for the
bank’s bailout were negotiated behind closed doors with Treasury
Secretary Henry Paulson, the former CEO of Goldman Sachs, and other
senior officials.

While the auto executives were lectured about everything from their
management failures to flying to Washington in private jets-and the
media shrieked outrage over the “gold-plated benefits” of auto
workers-no one grilled Pandit on how he could dare ask for a
taxpayer-funded bailout as head of a crisis-ridden bank that awarded
him a bonus of $30 million worth of stock at the beginning of this
year, on top of the $165 million it paid him for his hedge fund as
part of the deal to hire him. There were no sneering comments from the
cable news “pundits” about how someone living in an $18 million
apartment next to New York’s Central Park could come “cup-in-hand” to
the government.

Citigroup’s Vikram Pandit. No need for a tin cup.

And, while Obama and the Democratic leadership in Congress demanded
that the auto companies submit “a plan for future viability” before
they receive a dime, no such plan was forthcoming from Citigroup. All
that has been released to the public is a half-page joint memo from
the Treasury Department, Federal Reserve and FDIC which announces the
government bailout while committing Citigroup to nothing.

How is this blatant double standard and hypocrisy to be explained?
Some have suggested that the Big Three deserve to fail because of
gross mismanagement. But what can one say of the management at
Citibank, which managed to lose more than 90 percent of the company’s
value—from $244 billion to $20.5 billion-in the space of two years?
More importantly, the source of these huge losses is largely the
bank’s reckless speculation in the form of subprime lending and
securitization-all in pursuit of astronomical bonuses for Citigroup’s
traders and senior executives.


The claims that government bailouts are aimed at protecting average working people from the impact of the financial crisis is a lie. 


No, if the government-with the support of Obama and the Democrats-is
socializing Citigroup’s losses while leaving their profits private,
while at the same time leaving the Big Three to dangle in the wind, it
is on behalf of definite class interests.

In the impending bankruptcy of the auto companies, the ruling elite
sees an opportunity to carry out a massive attack on living standards,
working conditions and social benefits, thereby forcing the working
class to pay for the crisis.

The aim is to make an example of the auto workers, whose compensation
historically has been a benchmark for the working class as a whole.
This can be achieved either through outright bankruptcy and the
potential liquidation of millions of jobs, or through a so-called
rescue, extended in exchange for the decimation of wages, the ripping
up of health and pension benefits for those on the job and the
elimination of pensions and health insurance for hundreds of thousands
of retirees.

Such an assault would be used as a precedent for similar attacks
against every section of working people throughout the country.

This strategy is bound up with the decline of American capitalism,
deindustrialization and the increasing financialization of the US
, all of which have made the speculative activities of
Citigroup and other major banks a far more important source of profit
for America’s ruling elite than the manufacturing operations of firms
like GM, Ford and Chrysler.

The claims that government bailouts—both those freely offered to Wall
Street and the one being withheld until the Big Three, in tandem with
the United Auto Workers union, comes up with sweeping concessions—are
aimed at protecting average working people from the impact of the
financial crisis is a lie. They are being carried out to defend the
interests of the top 1 percent at the expense of the vast majority of
the population.

To defend itself against a return to the conditions of the Great
Depression of the 1930s, the working class must advance its own
solution to this crisis. In opposition to the bailout of the
capitalist owners, it must demand the nationalization of the auto
industry, taking it out of private hands and transforming it into a
public utility under the democratic control of working people.

Citigroup and the other major banks and financial institutions which
still threaten to plunge the economy into the abyss and throw tens of
millions into unemployment and poverty must likewise be nationalized,
without compensation to their executives and big shareholders.

Only in this way can the wealth created by the working class be
utilized to provide jobs with decent wages, housing, health care,
education and a secure retirement for all.

The political precondition for such a struggle is a decisive break by
the working class from the Democratic Party and the building of its
own party to fight for the establishment of a workers’ government.


Bill Van Auken is a senior analyst with the WSWS.

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