you’ve never had it so good

Wall Street celebrates biggest quarterly surge in more than 20 years
Nick Beams, WSWS, Jul 2 2020

The end of the second quarter, Jun 30, must surely go down as one of the stranger days in financial history. With the Pindo economy in the grip of the deepest recession since the Great Depression, having experienced an even more rapid contraction than in the 1930s crisis, Wall Street recorded its best quarter for more than 20 years. The S&P 500 finished up by 20%, its best result since the last three months of 1998. The Dow was up 18%, its largest increase since 1987. The tech-heavy Nasdaq index saw an even bigger surge, rising by 31% for the quarter and 12% since the start of the year. The turnaround came after financial markets hit a low in mid-March, when they effectively froze, including even for secure government debt. The Fed then intervened, announcing a series of measures to become the backstop for Wall Street and the entire financial system. According to calculations by the political economist Robert Brenner, market capitalisation was $21.8t on Mar 23, rising to $28.9t by Jun 4.

In the course of less than three months, the actions of the Fed in all corners of the financial markets, its reduction of interest rates to zero and purchases of debt across the board, including even junk bonds, put $7.1t into the hands of stock investors and speculators. Between Mar 18 and Jun 4, the wealth of Pindo billionaires increased by $565 billion, reaching $3.5 trillion in total, an increase of 19%. The owner of Amazon, Jeff Bezos, increased his wealth by $34.6b, up 19%, while Facebook chief Mark Zuckerberg gained an additional $25b. Over the same period, tens of millions of Pindo workers lost their jobs and a vast part of a generation of students and young workers saw their future educational and employment prospects wiped out. Millions of people now face economic devastation when the very limited government assistance they have received is cut off, scheduled for the end of this month. At the same time, the COVID-19 pandemic continues to rip through cities, towns and rural regions in the US, the result of the homicidal return-to-work to drive initiated by the Trump administration and dictated by Wall Street on the basis that nothing must prevent the extraction of surplus value. The Pindo economy is now characterised by looting and plunder, with the rise on Wall Street the equivalent of war profiteering.

In testimony to Congress on Tuesday, Fed Chairman Jerome Powell made clear that the flow of money to the financial markets would continue. He painted a gloomy picture of the Pindo economy, noting that the downturn in the second quarter is likely to come in as the worst on record, and warned that the outlook is “extremely uncertain.” But he reassured Wall Street that the flood of money would continue “at least at the current pace,” and more would be provided if deemed necessary. The Fed has expanded its balance sheet by $3t in the past three months. he said:

We will closely monitor developments and are prepared to adjust our plans.

Figures released over the weekend are revealing. They show how Fed intervention into the corporate bond market, both through Exchange Traded Funds (ETFs) and direct purchases of corporate bonds, backed by money provided by the Treasury and leveraged ten-fold by the central bank, is benefiting some of the biggest Pindo corporations. Among the corporate bonds directly purchased are those of Microsoft, Visa and Home Depot. Indirect purchases, via ETFs, include bonds issued by Apple and Goldman Sachs. The Fed has laid out $430m on individual bond purchases and $6.8b on ETFs. The program is only just beginning and much more is to come. The purchase of corporate debt in the secondary bond market does not directly benefit the companies that issued the debt, but rather the bond traders and speculators who purchased it in order to make a capital gain. The major corporations do benefit indirectly, however, because the Fed’s purchases mean they can take on debt at a lower interest rate than would otherwise be the case. So stark is the contrast between what the Fed is actually doing and its endless claims that its actions are designed solely to boost the American economy and secure the public good that it has raised a few eyebrows, even in financial circles. As one financial executive tweeted:

Aaron Klein of the Brookings Institution said:

Why is the solution buying Apple, Microsoft and Comcast debt? Or eBay or Google? Is the problem in America that the holders of Apple stock need more help? Is the problem that investors in Google debt are likely to suffer catastrophic and unexpected losses from the COVID shutdown?

But the Fed’s interventions into financial markets have many defenders, above all those who have benefited most. According to Goldman Sachs, market capital would have gone “awry” had not the Fed stepped and acted to stabilise the markets for corporate debt. In other words, the Fed’s actions were necessary to enable continuation of the speculation and looting that played a major part in creating the conditions for the market crash of 2008 and the massive injections of money that enabled these criminal practices to continue thereafter. These actions set up the financial markets for potentially an even bigger disaster when the pandemic struck than in 2008. As Wall Street, via the interventions of the Fed, continues to suck up money at an accelerating rate, the condition of the underlying Pindo and global economy is worsening. In its annual report issued on Monday, the Bank for International Settlements said:

The past year has felt like an eternity. It is probably too early to tell, but future economic historians might consider the Covid-19 pandemic a defining moment of the 21st century. … Many economies shrank by an annualised 25–40% in a single quarter, and some saw unemployment rates soar into the teens within a couple of months… Just like a virus, the crisis has been evolving. In some respects, the success of central banks in calming markets and shoring up confidence has even helped spark some market exuberance: at the time of writing, equity prices and corporate spreads in particular seem to have decoupled from the weaker real economy. Even so, underlying financial fragilities remain: this feels more like a truce than a peace settlement. And more fundamentally, what first appeared to be a liquidity problem, more amenable to central bank remedies, is morphing into a threat to solvency. A wave of downgrades has started, alongside concerns that losses might cause widespread defaults… The condition of the business sector has deteriorated significantly over the past decade. Corporate indebtedness has tended to increase in many countries, even as unusually low interest rates have helped keep debt service costs in check. Granted, some firms have built up large cash holdings, in part as they have shied away from physical investments. But even so, the cash holdings of many firms, even large ones, are small relative to the scale of the sudden stop they face. Except in China, half of the companies held cash and equivalents of less than two months of 2019 revenues.

In a comment published yesterday, SMH business columnist Stephen Bartholomeusz pointed to the parlous state of much of the Pindo economy, writing:

The proportion of zombie companies in Pindostan, listed companies that only survive because ultra-low interest rates and continuing access to very cheap debt allows them to cover their interest costs,is now estimated at close to 20%.

This means that the economic crisis triggered by the pandemic, but whose underlying cause lies in the internal rot and decay of the capitalist economy, has only begun to unfold, threatening to bring devastating social consequences. But whatever the course of events, one thing has already been clearly established. The Fed, together with other arms of the state, will work to place the burden of this crisis onto the working class, while pulling out all stops to protect the profiteering and looting of the Wall Street financial oligarchy it represents.

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