Barrack Hussein Obama became the 44th president of the United States, vowing to restore the nation’s leadership in the world and calling on Americans to take responsibility for rebuilding the faltering economy together.
In a brilliant and sombre inaugural speech, President Obama signaled that his presidency probably will bring even more widespread changes to a nation confronted by problems of historic significance:
Forty-four Americans have now taken the presidential oath. The words have been spoken during rising tides of prosperity and the still waters of peace. Yet, every so often the oath is taken amidst gathering clouds and raging storms.
At these moments, America has carried on not simply because of the skill or vision of those in high office, but because We the People have remained faithful to the ideals of our forbearers, and true to our founding documents.
So it has been. So it must be with this generation of Americans.
That we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet.
These are the indicators of crisis, subject to data and statistics. Less measurable but no less profound is a sapping of confidence across our land - a nagging fear that America's decline is inevitable, and that the next generation must lower its sights.
Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America - they will be met. On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord.
This is the journey we continue today. We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished.
But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions - that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.
For everywhere we look, there is work to be done. The state of the economy calls for action, bold and swift, and we will act - not only to create new jobs, but to lay a new foundation for growth.
We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost.
We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. And all this we will do.
And these are the parts I particularly want to highlight:
Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control - and that a nation cannot prosper long when it favors only the prosperous.
The success of our economy has always depended not just on the size of our Gross Domestic Product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart - not out of charity, but because it is the surest route to our common good.
Our challenges may be new. The instruments with which we meet them may be new. But those values upon which our success depends - hard work and honesty, courage and fair play, tolerance and curiosity, loyalty and patriotism - these things are old.These things are true. They have been the quiet force of progress throughout our history.What is demanded then is a return to these truths.
What is required of us now is a new era of responsibility - a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving our all to a difficult task.
It looks like Wall Street wasn't thrilled with President Obama's speech. Despite footing the bill for the Presidential Inauguration, all this talk of 'responsibility' and 'regulation' was met with another market selloff:
Shares of major banks plunged as investors feared that Washington's bailout efforts were stalling, potentially forcing President Barack Obama's newly installed government to take far more dramatic steps to prop up the U.S. financial system.
No major bank was spared the carnage. Bank of America's shares plunged 29 percent; Citigroup's 20 percent. State Street Corp., which reported sharply lower earnings, saw its shares plummet 59 percent.
"The financial stocks got murdered," said Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago. "They were basically cut in half."
At the core of the free fall in bank shares were concerns that U.S. officials would need to overhaul their program of shoring up financial institutions, a day after Britain announced its second financial bailout package for its own struggling banks in three months.
Investors are also becoming disheartened that banks such as State Street are continuing to report sharply worse results despite all the bailout efforts to date. The broader economic downturn is only compounding the pain by sapping demand for loans.
The country's economic problems were already high on Obama's priority list, but the breakdown of confidence in the country's banks, occurring on the same day of his inauguration, gave the matter fresh urgency. Attention will remain focused on the banking system on Wednesday as Obama's choice for Treasury Secretary, Timothy Geithner, begins Senate confirmation hearings.
"The honeymoon is already over for the new administration with the way these stocks were beaten down," said Edward Yardeni, an independent market analyst. "This is not a vote of confidence."
The market's faith in the outgoing Bush administration's $700 billion bailout effort was already waning, with critics in Congress and on Wall Street saying there was little to show so far despite the massive outlays of taxpayer money. The government had already veered from its original goal of buying up toxic assets from banks, choosing instead to make direct injections of capital into banks, with few strings attached.
"The fear is that the government will come first and shareholders will come last," Joe Battipaglia, market strategist for the private client group at Stifel, Nicolaus & Co. "It's a de facto nationalization because the government has run out of choices."
Many experts believe Obama's administration will have little choice but to pump more money into the banking sector or create an entity to buy banks' soured assets such as subprime mortgages so they'll start lending again.
Both moves would signal a dramatic increase in the government's involvement in the banking sector, possibly threatening shareholders whose holdings could be wiped out in the event of a government takeover.
Evidence that the banking crisis is worsening overseas also rattled investors. On Monday, the Royal Bank of Scotland forecast a loss of $41.3 billion in 2008, leading the British government to increase its stake in RBS to nearly 70 percent and launch a new round of bailouts for the country's banking industry.
And as bank shares plummet, so do the retirement accounts of ordinary investors and the assets of pension funds:
It is not just wealthy investors with large share portfolios who are feeling the pain of this latest stock market rout.
Despite the fact that bank shares have collapsed over the past two years, they still account for almost 10pc of the FTSE 100, so investors who have money in a tracker fund or a pension that broadly mirrors the stock market have substantial exposure to this troubled sector.
According to the Association of Investment Managers, 12m investors have equity Isas, and 1.9m people invest in a Child Trust Fund. The association estimates £338bn is tied up in these funds.
This is on top of the millions who invest in stock market plans through company and private pension schemes. Those who invest in these funds face the double blow of losing dividend payments.
Pension funds have traditionally relied on the healthy dividend payments paid by banks twice a year to shareholders.
In 2006, before the credit crisis struck, financial companies accounted for 27pc of the dividends paid by FTSE 100 companies, according to data from Thomson Reuters.
As recently as last September, analysts were predicting bank shares to produce double-digit yields, compared with the average yield on a FTSE 100 share of less than 4.8pc.
It is not hard to see why the many pension funds that previously relied on bank shares will now pay the price.
No wonder Dr. Doom is now predicting that U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent”:
“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”
Losses and writedowns at financial companies worldwide have risen to more than $1 trillion since the U.S. subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg.
President Barack Obama will have to use as much as $1 trillion of public funds to shore up the capitalization of the banking sector, following the $350 billion injection
by the Bush administration, Roubini told Bloomberg News. Congress last year approved a $700 billion rescue fund, of which half remains to be disbursed.
The financial crisis has also led to renewed calls from the Left for flat out nationalization of banks:
Less than four months after Congress passed the Bush administration’s Troubled Asset Relief Program (TARP), authorizing the Treasury Department to spend $700 billion in taxpayer money to bail out the banks, the same banks that received the government handouts are reporting massive losses and the incoming Obama administration is preparing to funnel hundreds of billions in additional funds to Wall Street.
In the interim, the financial crisis has deepened and precipitated a global recession that is acknowledged to be the worst since the Great Depression of the 1930s.
Millions more workers, told last fall by Bush and Obama that the government bailout, supposedly designed to benefit “Main Street” and not “Wall Street,” would avert a financial meltdown and mass unemployment, have lost their jobs, their homes and their life savings. Meanwhile, the bankers have refused to use their windfalls to lend to businesses and consumers and have instead either hoarded the government cash or used it to buy up smaller firms.
None of the CEOs and speculators whose corrupt and reckless policies brought their own institutions and the global economy to ruin, while they rewarded themselves with seven- and eight-figure compensation packages, and none of the government regulators who colluded in the plundering of the economy have been called to account. The bankers, with the complicity of the government, flatly refuse to reveal what they have done with the money they received from the Treasury.
The vote by the US Senate on Thursday, after intensive lobbying by the Obama transition team, to release the second $350 billion installment of the $700 billion slush fund sets the stage for an even more massive bailout.
In a taste of things to come, the day after the Senate vote, the Treasury agreed to hand over another $20 billion to Bank of America as part of a new rescue package that will have the government absorb up to $118 billion of the bank’s losses. Economists and Federal Reserve officials are openly saying that TARP will have to be followed by many more such bailout funds.
All of this adds up to a colossal fraud perpetrated on the American people—who overwhelmingly oppose the bailouts—for the sole purpose of protecting the interests of the financial aristocracy. There is not now, and there never was, a considered, worked-out plan to solve the financial crisis and avert a social catastrophe.
When Treasury Secretary Henry Paulson, the former CEO of Goldman Sachs, and Federal Reserve Chairman Ben Bernanke called an emergency meeting of congressional leaders in mid-September to demand that they sign off on their proposal to authorize the use of $700 billion in public funds to rescue the banks, the document they presented was less than three pages long.
Just three weeks after Congress passed the TARP legislation, Paulson announced that the plan he and Bernanke had put forward as the solution to the crisis was being scrapped. Instead of using the money to buy “troubled” subprime and other asset-backed securities from the banks, he decided to simply hand the banks billions in cash, with virtually no strings attached.
Suddenly a political and media establishment that had for decades lambasted the notion of “throwing money” at social problems and opposed any government intervention into the market spoke with one voice of the need for massive government action to place the resources of the people in the hands of the Wall Street elite. When it came to protecting the wealth of the bankers and big shareholders, the operative phrase was “anything goes.”
The reality of class relations in America is being mercilessly exposed. The cost of the multi-trillion-dollar handout to Wall Street is to be borne by the working class. Obama cites the vast rise in budget deficits and government debt as a result of the bailouts as justification for sweeping cuts in social programs—including Social Security, Medicare and Medicaid—upon which tens of millions of workers and retirees depend.
The new wave of bank bailouts will do no more to solve the crisis than the last one. None of the measures being devised can seriously address the deepening economic catastrophe because they leave untouched the basic interests of the ruling class, which are rooted in its private ownership and control of the financial system.
For the same reason none of the financial wizards on Wall Street, in academia or in government can give a coherent explanation of the crisis. As defenders of the capitalist system, they dare not acknowledge that the global financial meltdown is an expression of the breakdown of the capitalist system itself.
The current crisis is the inevitable outcome of two inter-related processes: The protracted decline of American capitalism and a crisis of profitability in basic production that is rooted in fundamental contradictions of the capitalist system.
Behind the colossal growth of financial parasitism and outright criminality is the attempt by the American ruling elite to overcome the mounting contradictions of its system by shifting investment from manufacturing to ever more exotic forms of financial speculation.
Particularly over the past three decades the financial power brokers, supported by the government, have dismantled much of the industrial base of the United States to seek higher rates of profit from various forms of financial manipulation. The creation of wealth for the ruling class has been largely separated from the creation of real value in the production process.
Now the countless trillions of paper values are collapsing, leaving in their wake an economic and social disaster. To even begin to offset these losses the ruling class must intensify its exploitation of the working class, spreading unemployment, poverty and social misery.
No progressive economic plan to solve the crisis can be developed apart from taking the major banks and financial institutions out of private hands. They must be nationalized and transformed into public utilities under the democratic control of the working population. The vast financial resources that the banks control must be used to provide decent education, housing, health care, retirement benefits and well-paying jobs for all.
This should be carried out without compensation to their former owners, while securing the deposits and savings of working people and small business owners.
The books of the major banks, financial firms, insurance companies and hedge funds must be opened to public examination to lay bare their illegal and socially destructive activities. [add pension funds to this list!]
There must be a public accounting of the fraud and corruption that have fueled the crisis, and those responsible must be held accountable, including by means of criminal prosecution.
The billions of dollars in social wealth diverted into the private accounts of speculators and bankers must be recovered, to be used for the expansion of social programs that benefit the masses.
This is not merely, or even primarily, a technical task. It is a political and revolutionary one. The power of the financial aristocracy must be broken.
As with the ancien régime before the French Revolution, the continued sway of the American financial elite stands as an absolute obstacle to any socially progressive and rational economic policy. The financial elite adamantly opposes any measures that impinge on its wealth and prerogatives, regardless of the cost to society at large. Indeed, it is plotting every day, in league with its bribed agents in the Democratic and Republican parties, to exploit the crisis of its own making to monopolize an even greater share of the national wealth.
The prerequisite for the nationalization of the banks and their subordination to the needs of society is an independent political movement of the working class on the basis of socialist policies.
It is a question of state power. No capitalist government can or will carry out this task. What is required is a political and revolutionary struggle to establish a workers’ government.
Before you dismiss the above article as 'socialist nonsense', I warn you that if we do not deal with the gross economic inequities of the past and the ones that will follow from the pension crisis, then we are sowing the seeds for another major social rupture.
The honeymoon is over. Starting tomorrow, President Obama and his new administration have their work cut out for them.
Importantly, beyond dealing with the financial crisis on Wall Street, they must deal with the housing crisis on Main Street. They will also have to address the pension crisis that threatens the financial security of millions of workers and pensioners looking to retire in dignity.
These difficult times require brave decision makers. Let's hope President Obama and his team are ready and willing to carry out these tough decisions.