The flap about the AIG bonuses continues apace. The Wall Street Journal reports this morning that one recipient received $6.4 million, six got more than $4 million, fifteen received more than $2 million and 51 received more than $1 million. Some of these have left the company.
These bonuses, AIG management claim, are called retention bonuses because without them the company might be unable to these very special human beings who are needed to figure out the complex transactions that “are difficult to understand and manage.”
These are the same people, employees of the company’s finance department, who made the bad bets that the US taxpayer is paying for----AIG has received some $173 billion in taxpayer money.
The nationalist/protectionist card is also being thrown around as some of the taxpayer money that AIG received $5.4 billion, went to Germany’s Deutsche Bank last September. But Goldman Sachs, domestic moneylenders and speculators also received $8.1 billion of our money.
The intense media coverage of these bonuses, a tiny amount really when compared to the $173 billion AIG has been given so far, is a smoke screen. It is a conscious strategy to divert public anger away from any criticism of the system to blaming it all on individual behavior; it’s just some bad apples.
But what is AIG paying banks this money for? Imagine for a minute if Las Vegas started taking bets on how many Americans would die this week in Iraq. Or even how many Iraqi’s whose lives are worth less to the movers and shakers in Washington. There would be a massive public outcry. But the money that the US taxpayer is forking over to Goldman Sachs and other parasitical institutions both domestic and foreign is payment for insuring gambler’s who bet on such things.
Investors, through institutions like Deutsche Bank or Goldman Sachs, were able to bet on whether or not mortgage defaults would rise. They were able to do this through what the financiers call financial instruments, basically a tool for allowing such transactions. These particular instruments were called Credit Default Swaps. For anyone that bets on horses, they are simply like the many exotic types of wagers the bookies draw up to get their hands on the gambler’s money. We need see it as nothing much different than that except that the amounts involved are staggering as we are dealing with all the wealth created by global Labor.
Amid all these bets, there is insurance for bets, just like in Vegas when the dealer gets an ace in blackjack and asks if you want to buy insurance against her getting a face card with it. AIG, whose business was more traditional insurance, as the WSJ points out, “insurance policies to businesses and individuals to protect against everything from fires to lawsuits” saw the potential for easy money and became heavily involved in Credit Default Swaps.
AIG ended up in this gambling casino and found itself betting that the US housing market would remain strong. When it collapsed, those speculators who had bet it defaults would rise, called in their bets from the banks that had allowed them to make those bets, Deutsche and Goldman for example. AIG, the insurer that had insured the bank’s deals was called upon to make good on its contract to the banks.
“The investment strategies involved are perfectly legal maneuvers” the Wall Street Journal is quick to remind its readers. But why is that? What happened is that some “savvy” investors saw that people, workers, were coming under massive strain and that they would not be able to pay the moneylender’s fee for the right to live in a home. So they placed bets that mortgage defaults would rise and made a killing. They are now recipients of some of our money, some of it money paid by the very victims of this process.
This form of activity is legal because the laws of society are made in the interests of the class that rules in society, by representatives of the class that owns the means of production, distribution and exchange in society. In a capitalist society, the one in which we live, the rules are made by the owners of capital. Imagine watching a drowning man and taking bets on whether he’d survive or not. This is what they do. Capitalism rewards this behavior, it encourages this behavior, it is an inhuman system based on exploitation and the social and environmental destruction that comes with it.
The reason that the financial sector’s influence grew and such exotic bets accompanied that growth is that there is so much money they have to find a home for it, a use for it; as Marx pointed out, capitalists are not misers. Given that the productive forces, what they call the “real” economy are already burdened with overcapacity, produce more than workers can buy back, they resort to gambling and credit; they become what Lenin referred to as “coupon clippers”.
In the debates they are having within the pages of their serious journals like the Wall Street Journal, they all agree on one thing----that the allocation of capital is more efficient if done by private individuals and institutions that by government ones. AIG’s argument that it needs to retain these experts in order to basically get us out of the mess they created seems almost comical were it not so tragic.
AIG is now 80% owned by the US taxpayer but the same guys are still calling the shots. Incidentally, the US now has a bigger proportion of banking assets in state hands than China does, “and also more red ink.” * While nationalization by the capitalists themselves is yet another way of shifting the cost of their system on to the shoulders of the working class, it is positive in that it undermines the concept that the market has all the answers. But it will not prevent the theft------only stabilize it.
The 1997-98 Asian crisis was caused by “crony capitalism” the capitalists argue. This crisis, they claim is caused by similar forces, “extreme capitalism” “greed” “unscrupulous individuals”. But the reality is that this crisis is nothing new, it is endemic to capitalism.
Such a staggering waste of resources as predatory wars or gambling on whether or not a worker, or municipality (The Monolines---bond insurers----could be the next crisis) will be able to pay their pound of flesh to the moneylender, will only come to an end when the wealth in society, or the surplus value created by Labor, is collectively owned, managed, and distributed. A worker would not need a university degree to democratically decide that financial resources would be better spent on housing, education or other socially necessary functions other than betting that an individual or municipality will fail to pay back a loan and the exorbitant interest to moneylenders. Why borrow money off Warren Buffet or George Soros to build a school? It’s not their money anyway.
The state is but the executive board of the capitalism class to paraphrase Marx. It is their state just as the feudal state was the state of the kings and queens and the feudal aristocracy and Greek democracy was democracy for the slave owner not the slave.
The capitalist class has proven that they are incapable of running society. They are incapable of “allocating capital” as they say, in an efficient and useful way. From the Russian revolution prior to its degeneration in to Stalinist totalitarianism to the Seattle general strike in 1919, the examples for genuine socialism, for worker’s democracy are there for us to see. It is imperative that we understand our history if we are to build a future without hedge fund managers and their parasitical activities.
* Financial Times, Lex Column 3-16-09
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