The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Five Years after the Collapse of Lehman Brothers:
the Crisis Worsens

Sep 16, 2013

With the collapse of Lehman Brothers five years ago, the global financial and economic system plunged into the worst crisis since the Great Depression. Five years later, government officials and economists are patting themselves on the back for supposedly saving the world economy from an even bigger catastrophe. But the government rescue, which consisted of handing trillions of dollars in taxpayer money to the banks and big companies, only managed to further enrich and reward the very capitalists who had brought on the crisis in the first place and lay the groundwork for the next crisis.

The six biggest banks in the U.S. that emerged from the crisis – JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley – are certainly bigger and more dominant than ever. But they are also in much greater debt.

Growing Debt and Speculation

Collectively, these six banks owe close to nine trillion dollars – more than half the size of the entire U.S. economy. Since their debt is only slightly smaller than what these banks say they are worth, even a small drop in the value of their holdings risks a disastrous run on the bank – that is, mass deposit withdrawals and refusals to extend new loans to these banks.

Thus, if anything would happen to any one of these six banks, the financial crisis that broke out in 2008 could begin all over again.

Of course, the top bankers say the opposite. They claim they’ve eliminated the risk of another crisis breaking out. “The probability of it happening again in our lifetime is as close to zero as I could imagine,” Morgan Stanley CEO James Gorman reassured Charlie Rose in a recent television interview.

The reality is that one of the things keeping the banks afloat is 85 billion dollars that the Federal Reserve is lending them interest-free – every single month! The banks then try to make a quick profit from this money by fueling the same kind of speculation as before the last crash. “In fact, they want to keep placing new bets at the poker table...” wrote Stanford Professor Anat R. Admati in the New York Times (August 25). That means new speculative bubbles in real estate, the various stock and bond markets, and such commodities as gold, oil, and wheat ... not to speak of the continued growth of highly risky financial instruments known as “derivatives.”

Government officials, bankers and economists may point to a supposed economic recovery as proof that their policies are working in the interests of ordinary working people. But just look at two of their biggest supposed success stories: housing and auto sales.

Behind the Supposed Housing Recovery

To believe the happy talk of government officials, a quick increase in housing prices over the last two years has practically erased the old foreclosure crisis of five years ago. Yet, more than three million households are in or near foreclosure – not at all an end to the foreclosure crisis.

So, with huge numbers of people still losing their homes, why are housing prices suddenly increasing rapidly? Big pools of foreclosed homes were sold to companies set up by Wall Street. These companies began buying and renting these homes in bulk. The suburbs of Southern California, Arizona and Nevada saw a virtual land rush, creating frenzied demand that pushed up prices more than 20 per cent in a year. Individual speculators seeking a quick profit also got in on the action, by buying and flipping houses.

Of course, rapid price increases are making it harder for ordinary people to afford a house and qualify for a home loan. As one housing industry consultant told the Los Angeles Times (September 13), “Flippers are selling to other flippers, until there is nobody to flip the home to. That is when you have a big downturn.”

The supposed housing recovery is just another speculative bubble fueled by the banks that can burst at any moment.

Subprime Loans and Jobs

Bigger and longer car loans are also fueling the big increase in auto sales. The average length of time people are borrowing to buy a new car is now up to 65 months, or almost six years. And many new car loans are for eight, nine and even ten years! Of these new car loans, about 25 per cent are considered “subprime,” with much higher interest rates. That’s a higher share of subprime auto loans than in 2007, right before the financial crash. Of course, the longer the loan, the higher the finance charges, thus guaranteeing fat profits for the banks and finance companies.

By burying the consumer in increasing debt – not only are the capitalists sowing increasing misery, they are also laying the groundwork for a new subprime debt crisis coming out of auto loans.

Neither has a big increase in auto production brought any new auto jobs. In Michigan, which is still at the heart of the U.S. auto industry, while auto production increased by 22 per cent over the last five years, the auto companies cut the number of auto jobs by 9 per cent!

In order to squeeze out higher profits, the auto bosses have been using the extremely high unemployment as a club against the auto workers, forcing them to accept more speed-up and worse working conditions. This includes horrendous alternative work schedules so that the companies can run the plants flat out, practically 24 hours a day, seven days a week.

Of course, this is no different from what capitalists are doing to increase their profits throughout the economy. And it is one reason why the job situation is getting worse, even in the cases of increases in production and construction. One other indication of this: of the one million jobs created over the last year, more than 80 per cent of them have been part-time, that is, with pay so low and benefits non-existent, a worker cannot survive on them.

So, five years after the disastrous collapse at Lehman Brothers, the capitalist class’s hold over the economy is more destructive and dangerous than ever.