absolute chaos

Fiction, reality and the global crisis of capitalism
Joseph Kishore, David North, WSWS, Apr 7 2020

On Monday there seemed to be two different worlds: one based on reality and the other on fiction. In the real world, the COVID-19 pandemic continued its deadly rampage within Pindostan and around the globe. The news was dominated by reports of overcrowded hospitals, exhausted doctors, nurses and support staff, and sick and dying patients. But in the fictional world of global stock exchanges and finance, a mood of uncontrollable euphoria prevailed among investors, who, as if staging an orgy at a funeral, poured billions into equities and drove the Dow Jones Industrial Average up by nearly 7.5%. Substantial gains were also recorded by the German DAX (up 6%) and the British FTSE (up over 3%). What motivated this shameful and shameless celebration? On Monday, the Pindo death toll surpassed the 10,000 mark. Despite a very slight decline in the daily total of new deaths in NYC on Sunday, there is no clear evidence that the virulence of the pandemic has peaked in this critical urban center. Moreover, it is absolutely certain that other major urban centers, and more generally large portions of Pindostan are still to experience the full force of the pandemic. The level of testing remains so disorganized and primitive that there exists no objective data upon which reliable predictions can be made about when it will be possible for workers to return safely to their jobs. The economic situation is dire and is deteriorating. Former Federal Reserve Chair Janet Yellen said in a CNBC interview on Monday that Pindostan is in the midst of an “absolutely shocking” downturn. Unemployment is as high as 13%, Yellen estimated, and the overall contraction of the Pindostan economy is already at 30%. Yellen’s views were seconded by JPMorgan Chase CEO Jamie Dimon, who wrote in his annual shareholde letter that he expects a “bad recession.” According to Dimon, the GDP could fall as much as 35% in the second quarter, and the downturn will probably last through the rest of the year. Large sections of the global economy, beyond Pindostan and Western Europe are in free-fall. India, home to 17% of the world’s population, remains in lockdown, threatening global supply chains and food production. Former Reserve Bank of India Governor Raghuram Rajan said yesterday that the country faces “perhaps its greatest emergency since independence.” In Japan, a dramatic rise in coronavirus infections has finally compelled Japan’s PM Shinzo Abe to declare a state of emergency, which will result in a shutdown of large portions of the country’s economic activity.

To the economic and health care crisis is added a deepening political crisis. In the UK, PM Boris Johnson, having been infected by the Coronavirus, was hospitalized and placed in intensive care on Sunday evening. Almost simultaneously, the 93-year-old Queen Elizabeth grimly addressed the entire country in a televised speech for only the fourth time (outside of the annual Christmas event) in her 68-year reign. One might have expected that the hospitalization of an extremely sick PM in London, the financial center of Europe, would have sent the stock exchange into a tailspin when it opened for business on Monday morning. But nothing of the sort happened. Investors plunged into the market with gusto and did not pause for even a minute to shed a tear for their ailing PM. How can one explain the exuberance in global markets amidst such tragic and threatening conditions? First, whatever anxiety Wall Street may have about the spread of the pandemic is offset by the expectation that the Pindo government will continue to support its speculative activities with countless trillions. In fact, the direct transfer of resources into the markets, particularly by the Federal Reserve central bank in Pindostan, is well underway. The Federal Reserve balance sheet increased last month by $1.6t, approximately equal to the entire monthly GDP of Pindostan. Every day, tens of billions are being digitally manufactured to buy up assets and debt from banks and corporations. In other words, the policies that were implemented following the crash of 2008 are being taken to a new level. For more than a decade, the speculative mania on Wall Street has been financed through the infusion of cash from the Pindo Federal Reserve in the form of “quantitative easing” (money printing) operations and low interest rates. In the aftermath of the 2008 crisis, the Fed added $4t to its balance sheet by buying up mortgage-backed securities and other assets held by the banks. To this was added the unending stream of money plowed into the markets in the form of corporate stock buybacks. The WSJ writes in an article published over the weekend:

Corporate buybacks, in fact, have been the only net source of money entering the stock market since the financial crisis in 2008, according to Brian Reynolds, chief market strategist at research firm Reynolds Strategy. Buyback programs, through which companies repurchase their own shares on the open market, can help boost share prices by reducing the amount of stock outstanding and lifting a company’s per-share earnings, though not its overall profit. Since the beginning of 2009, Mr Reynolds estimates, buybacks have added a net $4t to the stock market. Contributions from all other sources including exchange-traded funds, foreign buyers, pensions, hedge funds and households netted out to roughly zero, he concluded, based on the Federal Reserve’s quarterly flow funds reports. The S&P’s 500 market value is $20.9t.

To sum up, through the mechanism of buybacks, the price of shares could be endlessly driven up even without an increase of profit levels. The new intervention of the Federal Reserve, following the bill passed by Congress, has reassured Wall Street that there will be endless liquidity available to support rising share values under conditions of severe economic contraction. The Fed is already buying up corporate debt, and Janet Yellen raised yesterday the possibility that it might begin direct purchases of stocks for the first time in history. Yellen also indicated that officials at the Federal Reserve, with whom she remains in contact, are thinking about purchasing very risky corporate “junk bonds.” The second factor behind Wall Street’s rise is its enthusiastic reaction to the international campaign by the political establishment and the media for a speedy return to work. In the final analysis, the edifice of fictitious capital, wealth created through the massive and inflationary expansion of credit and debt, cannot be entirely liberated from a real productive process involving and requiring the exploitation of the labor power of the working class. If that real process stops, for whatever reason, the structure of fictitious capital collapses. This is why, regardless of the state of the pandemic, the calls for a return to work have been taken up internationally by the capitalist media. The prospect of an early return to work, under conditions of intensified exploitation, generated Monday’s euphoria. Of course, the euphoria may not last long. Reality, not fiction, determines the course of events. The class conflict and the logic of the opposing classes is starkly posed. For the ruling class, it is a question of securing its wealth, returning the workers to the job under unsafe conditions, and tearing up whatever remains of social programs. For the working class, it is a question of saving lives, stopping all non-essential production, and restructuring economic life on the basis of social need, not private profit. The one path leads to authoritarianism, the other leads to socialist revolution. This is the irrepressible social and political logic of the fundamental reality of our epoch: the global crisis and death agony of world capitalism.

Share buybacks have been the “only net source of money entering the stock market” since 2008
Nick Beams, WSWS, Apr 7 2020

Like every great crisis, the coronavirus pandemic has laid bare everything rotten and degenerate in capitalist society. Nowhere is that exposure more pronounced than in the case of the stock market, that vast institutionalised mechanism through which the wealth of society, produced by the labour of the working class, is siphoned to its highest echelons at the expense of the mass of the population. Corporations are now lining up to receive a portion of the Trump administration’s massive $2.2t bailout. They are employing an army of lobbyists, lawyers and financial advisers (all taking a fat fee for their services) to maximise their gains as they plead that they are strapped for cash and must be provided with money to “save the economy.” But a report published in the WSJ at the weekend reveals that one of the main reasons for the cash shortage is the trillions of dollars spent by major corporations on share buybacks, particularly over the decade since the global financial crisis. According to Brian Reynolds, the chief market analyst at the research firm Reynolds Strategy, upon whose research the article is based, corporate buybacks have been the “only net source of money entering the stock market” since 2008. The sole purpose of buyback programs is to enhance the wealth of the executives who sit atop the major corporations as well as hedge funds and other traders in shares. By cutting the number of shares on issue, the stock of the corporation rises. Executives and others can then exercise their stock options to make a killing while hedge funds strike at the opportune time and rake in billions. The buybacks are financed by using the accumulated profits of the company or, in some cases, by the raising of debt, taking advantage of the ultra-low interest rate policies of the Pindo Federal Reserve. According to the economist William O Lazonick, the proportion of corporate buybacks funded through the issuing of bonds went as high as 30% in both 2016 and 2017. By Reynolds’ calculations, since the beginning of 2009, buybacks have added a net $4t to the stock market, an amount equivalent to one-fifth of the total $20.9t market value of the companies in the S&P 500 index. Calculations by Lazonick put share buybacks as equivalent to 52% of all corporate profits, with dividends on shares accounting for another $3.3t. According to the WSJ article:

Contributions from all other sources, including exchange-traded funds, foreign buyers, insurance funds, mutual funds, broker-dealers, hedge funds and households—netted out to roughly zero.

Last year, companies in the S&P 500 bought $729b of their own stock, just shy of the record $806b in 2018 that was fuelled by the Trump administration’s corporate tax cuts enacted at the end of 2017. Trump declared the tax cuts would bring a major expansion of productive investment and good-paying jobs. Of course, having emerged from seedy and corrupt financial world in NYC, he knew nothing of the sort was going to happen. The origin of share buybacks lies in legal changes made in 1982, at the beginning of the phenomenon now known as financialisation. This is the process in which the accumulation of profit has been increasingly divorced from productive activity in the real economy, becoming ever more dependent on stock market speculation and other forms of financial parasitism. Up until that time, buybacks had been considered a form of stock market rigging and insider trading. However, in line with the financialisation process that was getting underway, the Securities and Exchange Commission adopted a new rule giving corporate executives immunity from the charge of stock-price manipulation that would have previously applied. Standing at very heart of Pindo capitalism, there is probably no institution that has been surrounded by as many lies as the stock market. One of the biggest falsifications is that rising share values are necessary because they strengthen companies and enable them to carry out the development of productive activities through research and development. In fact, resources which could be made available for such purposes are diverted to share purchases that benefit only the firm’s top executives and share traders. As Lazonick has documented, in 2018 only 43% of companies in the S&P 500 recorded any expenditure on R&D. Most of this was on a very small scale because just 38 companies accounted for 75% of the spending by the 500 companies covered by the index. Another myth is that rising share values benefit small household investors. But in 2016, as Lazonick reported in an article published on the website New Economic Thinking last month, in 2016 the wealthiest 10% of Pindo households held 84% of the value of publicly-traded companies. He wrote:

Buybacks enrich an even smaller group of the richest people who are in the business of timing the sale of shares. Specifically, buybacks have overwhelmingly benefited a small number of stock market traders, including senior corporate executives themselves and corporate raiders (aka ‘hedge fund activists’), while leaving most Pindos worse off.

As a result of the economic lockdown, airlines have been in front line of corporations, with both hands out, demanding money from the government. They have also been among those most involved in share buybacks that have led to the running down of their cash reserves. Lazonick reported:

In the decade 2010-2019, the four major Pindo airlines (American, Delta, United and Southwest) plus the two largest cargo airlines (Fedex and UPS) together distributed just over 80% of their profits in the form of buybacks (56%) and dividends (25%). At these six airlines alone, buybacks over the past decade were $77b, with 71% of them done in 2015-2019.

The six CEOs received $19.6m/yr on average, with some 81% of their money coming from realised gains from the exercise of stock options and the “vesting of stock awards,” a process in which the recipient has to wait for a period of time before being able to exercise the option. And then there is the case of Boeing. As has now been established, Boeing went ahead with its 737 Max, putting a new engine on an old aircraft structure, leading to the death of 346 people in two crashes. The cost of developing a new aircraft architecture, estimated at $7b, would have been significantly less, as Lazonick notes, than the $11b it spent on share buybacks between 2004 and 2008. After receiving 2,500 orders for the MAX by the beginning of 2013:

Boeing went on a buyback spree that reached a total of $43b by the first week of Mar 2019.

The cost in human life goes far beyond the case of Boeing. It extends across the entire Pindo economy. The data on the scale of the buyback operations and the dependence on them for the plundering of the wealth of society discloses the source of the push for a return to work, whatever the dangers to the health of workers, so that the process of surplus value extraction and its distribution to the ultra-wealthy can resume. The case for the public ownership under democratic control of the entire financial system and the major corporations could hardly be clearer.

Trump nominates White House lawyer to oversee $500b bail-out slush fund
Patrick Martin, WSWS, Apr 7 2020

Trump announced on Apr 3 that he had picked White House lawyer Brian Miller to oversee the $500b slush fund for big corporations established by the coronavirus relief legislation enacted by Congress late last month. Miller is currently a senior associate counsel in the Office of White House Counsel and deputy assistant to the president, where he was involved in Trump’s defense during his impeachment trial. While Miller previously worked as an inspector general for 10 years in the General Services Administration, the agency that maintains most federal office buildings, his selection to serve in a senior position in the White House in Dec 2018, as the Trump administration was preparing to fight against a series of investigations after the Demagog Party won control of the House of Representatives, indicates that he is regarded as a Trump loyalist. His elevation to the formal position of Special Inspector General for Pandemic Relief is subject to Senate confirmation, but the 53-47 Thug majority has pushed through virtually every Trump nominee to high government office, with the Demagogs mounting only token opposition. If the tables were turned, and the Thugs were in the minority with a Demagog president, they would engage in scorched-earth tactics to block the selection of a presidential crony for such a critical position. The week before he selected Miller, Trump signed the $2.2t bail-out legislation into law, while issuing a signing statement that he would not abide by the provisions in the bill requiring the new inspector general to report regularly to Congress about how the $500b fund for corporations was being used. In particular, in a statement drafted by the DoJ’s Office of Legal Counsel, Trump claimed that a section of the law requiring the inspector general to notify Congress if the administration “unreasonably” withholds information sought by a congressional committee is unconstitutional. He wrote:

I do not understand, and my Administration will not treat, this permission as permitting the IG to issue reports to Congress without presidential supervision.

This is a corollary of the “unitary executive” doctrine long peddled by the political right, according to which all executive branch personnel must be regarded as direct instruments of the president, like fingers on his hands, who cannot respond to any congressional request if the president directs them not to do so. This doctrine was ignored by those officials in the State Dept and NSC who obeyed subpoenas from the House Intelligence Committee during the impeachment inquiry, despite Trump’s orders to the contrary. The effect of this signing statement is that Trump is asserting his right, not only to withhold information from Congress about the coronavirus bailout payments, but to deny Congress even the right to know what information is being withheld, or that a cover-up is under way. Trump has also said that he would ignore language in the bail-out bill which bars direct aid to cruise lines, saying:

We’re going to work very hard on the cruise line business and we’re going to figure something out.

Many of the cruise lines are ineligible because for tax purposes they have located their headquarters overseas and therefore are not “Pindo” companies under the terms of the legislation. Most of the $500b serves to backstop Federal Reserve loans to favored industries and corporations that can begin almost immediately. While the Treasury is moving quickly to dole out billions to big business, the provisions in the emergency legislation that are supposed to assist small businesses, workers and the unemployed are projected to take far longer to implement, if indeed they ever take effect. Labor Sec Eugene Scalia, son of the arch-reactionary late Supreme Court justice Antonin Scalia, said Mar 30 that federal funds to supplement state unemployment benefits would be distributed to the states by the end of last week, but on Apr 3 a dept boxtop pushed back the distribution to late this week. Many states have refused even to set the machinery in motion to deliver the $600/wk supplements until they have the money from the federal government. Federal funds are also required to finance the payments of benefits to gig and contract workers who have in the past been treated as ineligible by the various states. The benefits will be retroactive to Mar 28, the day after Trump signed the bill into law, but the actual payments may not be made until mid-May, and in some cases much later than that. Similar delays are expected in the $1,200 “relief” checks to be sent out to nearly all Pindo workers, as well as $500 for each child. The NYT reported Monday:

IRS boxtops have warned that $1,200 relief checks may not reach many Pindos until August or September if they haven’t already given their direct-deposit information to the government.

Small business owners are also experiencing delays and snags in getting approval for loans needed to keep their businesses from going bankrupt. The National Federation of Independent Business reported that its own survey found half of small businesses would close within two months without emergency aid, while 24% have already shut their doors at least temporarily. The loans from a $350b fund run by the Small Business Administration are not coming directly from the federal government, but are routed indirectly through the banks, which are frequently refusing to loan to non-customers or in other ways placing obstacles to the flow of funds. While the Trump administration expedites the flood of cash to the wealthy and slow-walks any assistance to workers and sections of the lower-middle class, the economic collapse is accelerating. More than 10 million workers have filed for unemployment compensation in just the past two weeks. In a single week, nearly 1 million retail workers were laid off by companies like Macy’s, JC Penney and the Gap, as more than 60,000 stores have closed, according to one study. The closures of retail outlets, restaurants and bars have had a disproportionate impact on young workers. An Axios-Harris survey made public Monday found that 31 percent of those between 18 and 34 years of age had either been laid off or put on temporary leave because of the pandemic. This compares to 22% of those aged 35-49, and 15% of those aged 50-64. In an interview Monday, former Federal Reserve Chair Janet Yellen said the economy is in the throes of an “absolutely shocking” downturn that is not reflected yet in the current data on the unemployment rate, saying the overall contraction is about 30% already. Responding to suggestions from the White House that the economy would experience a “V” curve, a sharp drop followed by an equally sharp rebound, she said:

I am worried that the outcome will be worse, and it really depends to my mind on just how much damage is done during the time that the economy is shut down in the way it is now. The more damage of that sort is done, the more likely we are to see a ‘U,’ and there are worse letters like ‘L’ and I hope we don’t see something like that.

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