Stung by the shock defeat in the Massachusetts special Senate election, President Obama had proclaimed that he was prepared to curb the major banks and Wall Street. He referred to the bonuses in Wall Street –amounting to over $150 billion as “obscene.” “If these folks want a fight, it’s a fight I am willing to have… Never again will the American taxpayer be held hostage by a bank that is too big to fail,” he said.

No more than two months previous to this Obama, speaking on the $17 million bonus handed out to JPMorgan Chase CEO, said: “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free-market system.” We had already seen the reappointment of Wall Street darling Ben Bernanke as chairman of the Federal Reserve by the Obama administration in January. This was a heavy blow to all those who were entertaining illusions about a change in direction for economic policy, or reform of the financial system after the disaster of last year.

Bernanke’s reappointment was a clear signal to Wall Street and the financial sector that, despite Obama’s tough talk, policies like derivatives trading and speculation that led to disaster will continue. The public will continue to be gouged so that a tiny handful of Wall Street gangsters and hedge funds will continue to make obscene profits and bonuses from the bailouts and subsidies provided by the public.

Ironically, it was the right-wing Republicans who attacked Bernanke’s appointment during the Senate confirmation hearings with Jim DeMint of South Carolina warning that it was “a continuation of the policies that brought our economy down.” These statements are in preparation for attacks we can expect from Republicans in this year’s mid-term elections.

Federal Reserve Protects Big Banks
It is quite clear that the economic policies of the Federal Reserve have not worked. The $13 trillion in government bailouts and loan guarantees offered to large banks, while preventing a 1930s-type economic collapse, has clearly failed to increase employment, public services, or income for the vast majority of the population. Instead, the lowering of the lending rates to the banks has led to a new, massive increase in speculation, with Wall Street borrowing cheap dollars (estimated at $1.5 trillion), buying high-yield bonds and stocks, and making huge profits. Of course, this has no real impact on the real economy where, as of January, real unemployment continued to increase.

To a very large degree, the bank bailouts were intended to prevent a further decline or collapse of share prices. The Congressional Research Service estimates that from 1979 to 2003, while wages stagnated or declined for most workers, the share of income from rent, dividends, interest, and capital gains going to the richest top 1% (who do not work) exploded from 37.8% to 57.5%!

In reality, their argument is that the only way for the economy to work is to allow Wall Street to make billions for themselves while waiting for whatever little appears to trickle down.

Obama appears, at the moment, to be stepping back from the Consumer Financial Protection Agency that was at the center of his program for financial reform. Consumer advocate Elizabeth Warren testified repeatedly about the danger of financial lobbyists killing any attempt of reform of the financial system. Ben Bernanke is at the forefront of those warning that any anti-usury and truth-in-lending laws will “threaten bank profits” and force banks to raise costs to consumers. Wall Street and their lobbyists, who are entrenched in the Obama administration, are in effect arguing that any “government interference” will result in consumers having to pay more.

In effect, despite the trillions of dollars spent in the bailout, the economy continues to be in the doldrums. The financial screws are being tightened for working people on every front as basics become more expensive, jobs are scarce, wages are falling, foreclosures continue on a massive scale and public services are being cut in just about every state because of huge deficits. Instead of federal dollars going to bail out the states and support the creation of jobs and services, they are being spent on Wall Street so they can continue to speculate and enjoy huge profits.

Balancing the Budget on Whose Backs?
Meanwhile, rattled by the mounting debts, Obama, in the State of the Union address, urged the creation of a bipartisan working group (a Senate budget commission) to agree how to lower the deficit and proposed that starting in 2011, Congress will freeze spending for several programs. In other words, “fiscal responsibility” is for regular people while, for the rich, the gravy train will continue to arrive with truckloads of money.

It is stunning to think that the same politicians who handed Wall Street trillions of dollars – and a blank check to the Pentagon – are worried about Social Security or Medicare running a small deficit in a decade or two, and will not spend enough money to cover the deficits of states like California or New York, where tens of thousands of layoffs are threatened!

Traditionally, running deficits through government spending is supposed to help pull the economy out of the recession and avoid unemployment and poverty by increasing social spending and maintaining roads, bridges, health care, and infrastructure. Now, Obama has joined Republicans in demanding that deficit reduction be a primary economic policy. Yet, it is only the two-year $787 billion Obama stimulus package that is preventing the economy falling back into recession.

The massive increase in the federal deficit in the last two years was caused by the federal bailout of the capitalist system. Yet, both parties now plan to “balance the budget” by cutting funds for vital social programs at a state and federal level. We completely reject this approach: workers need a federal bailout, not cuts in vital services. Both corporate parties are fine paying for a further Wall Street bailout, and yet say they can’t afford any spending that helps workers and their families.

How to deal with the massive $1.3 trillion budget deficit points directly to the central problem of our time – the massive crisis of the capitalist system. With the economy in the doldrums, there will be lower growth. This poses the question: who gets what share of the shrinking pie? We have to expose corporate greed and the myth that bailouts are “incentives.” While resisting all cuts in the share of the pie going to working class people, we need to work for the replacement of capitalism and its false logic with an economic system that can provide for the interests of the majority of working class people: socialism.

Responding to President Obama’s turnaround on Wall Street, economist Paul Krugman said, “The point is that these bank executives are not free agents who are earning big bucks in fair competition; they run companies that are essentially wards of the state.” Krugman writes: “There’s good reason to feel outraged at the growing appearance that we’re running a system of lemon socialism, in which losses are public but gains are private.”

Billionaire fund manager George Soros expressed the unease of some of the ruling class when he contrasted the billions in bonuses and profits for the banks just a year after getting the bailout to most people, who are still suffering the effects of the economic crisis with mounting unemployment, poverty, foreclosures, etc.: “[T]he elections in Massachusetts sent Obama a powerful message that he is not doing the right thing –nationalizing the liabilities of the banks without nationalizing the banks.”

Public Ownership of Banks Needed
Socialists advocate the full nationalization of the banks and financial institutions, under the control of democratically elected representatives of workers and the broader public. This would be the only way to eliminate the obscene profits of the super-rich and make the financial system serve the interests of working-class people, homeowners, and small businesspeople. As long as the giant banks and Wall Street continue to have billions at their disposal, they will have the power to pay politicians and prevent any efforts for reform and regulation.

Capitalism will not easily escape from the present crisis. There will be some statistical economic growth this year in the US and Western Europe because of the injection of trillions into the banks and the financial system. But a majority of economists point to a possible double-dip recession. With capitalism in a depressed state, this will mean a further reduction in living standards for the majority of the population.

At the same time, the return of the risky speculative practices, which are endemic to capitalism, could trigger another collapse or serious crisis with a massive selloff in the stock markets. The economic situation is highly unstable, as can be seen by the jitters caused by the threatening crisis in the Eurozone in February and the threat of defaults by Greece, Portugal, Spain, and Ireland. While a 1930s-style depression seems to be averted, the prospects are not for a sustained economic upswing but a prolonged crisis, with high unemployment and increasing poverty. This is similar to what Japan suffered in the 1990s, with GDP growth reduced to an average of 1%.

On a world scale, 2009 was a decisive turning point, economically and politically. Twenty years after the collapse of Stalinism in Russia and Eastern Europe, capitalism has been shown to be a bankrupt system. An anti-capitalist mood is beginning to take shape as millions of workers internationally will be forced to fight in order to defend their living standards with strikes, mass demonstrations, and new political organizations.

It is a sign of the times when, according to a major Gallup poll in January, 36% of people in the US report that they have a “positive image of socialism” without a mass party campaigning for socialist ideas. While this only vaguely indicates increasing support for the idea of the state intervening in the economy, it is indicative of how consciousness will move decisively under the impact of economic and social shocks.

Socialist Program for Banks
If workers are to prevent the Republicans from posing as a fake populist alternative in the 2010 elections, it is urgent that the unions, central labor councils, community and youth organizations begin to organize mass demonstrations to demand an end to the unelected dictatorship of Wall Street, a return of the trillions of the bailout money they stole, and to prepare to run workers’ candidates that will challenge the politicians of big business – Democrats and Republicans – in 2010.

For such a movement to succeed, it is necessary to popularize demands like:

• Not a penny for the bankers’ bonuses.
• No bailouts for fat cat banksters.
• Tax the rich and big business not workers and the low paid.
• For full funding of public services.
• For a democratic nationalized banking and financial sector that can provide cheap mortgages and credit for small businesses and end foreclosures for working families.

A nationalized, democratic financial system (which would provide compensation to small shareholders on the basis of proven need) could become the basis for a real plan to invest in sustainable energy, clean up the environment, to rebuild the infrastructure, and to develop industry. Combined with public ownership of top 500 corporations, this would provide the possibility for the economy to democratically planned in the interests of the majority, not just a tiny group of rich shareholders as happens now.