Lessons from the Collapse of Wall Street
by James Petras
October 4, 2008
Introduction
The ongoing collapse of the stock market and the loss of hundreds of billions of dollars managed by Wall Street investment banks illustrate the pitfalls and danger of free market capitalism facing the entire working population of the United States.
- The near bankruptcy of Social Security
"It is the private pensions, which have gone bankrupt - not the publicly managed Social Security fund"
The attempt by the White House and leading Republican and Democrat congresspersons as recently as 3 years ago to 'privatize’ Social Security - essentially turning over the management and investment of trillions of dollars in Social Security funds to Wall Street - with the argument that private investors would earn more, would have led to the bankruptcy of the entire Social Security fund. Privatization would have allowed the major private investment banks to speculate and leverage even riskier financial instruments with the disastrous results we are witnessing today. While private pension funds go belly up - Social Security continues. It is the private pensions, which have gone bankrupt - not the publicly managed Social Security fund, contrary to the experts and critics of Social Security. Clearly the current private debacle argues for public control and management of pension programs.
- All the major private pension funds for public and private employees, including TIAA CREF, CALPERS and labor union pensions have lost anywhere between 23% to 30% since January and show negative growth over the past 5 years. Clearly linking pension funds to the stock market has severely reduced the living standards of retirees, forcing many to remain in the labor force into their seventies and beyond or to sink into poverty. Pensions linked to publicly funded productive activity would avoid the losses and risks embedded in investing in the stock market.
- The bipartisan strategic decisions to convert the US into a 'service’ economy as opposed to an advanced and diversified manufacturing economy is the root cause of the collapse of the US financial system and the emerging long-term recession. From the 1960s onward, the political elite adopted policies that promoted finance, real estate and insurance, the so-called FIRE sectors which raised rents, redirected subsidies, provided tax concessions and subsidies, and destroyed and displaced industry. The re-conversion of the FIRE economy back to a balanced manufacturing economy and welfare state, essential for reversing the collapse of the US economy, will require a major political upheaval.
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