Tuesday, May 25, 2010

John Bellamy Foster and Hannah Holleman: The Financial Elite

(I just got a subscription to Monthly Review and articles like this is why I support their efforts)

The Financial Power Elite
John Bellamy Foster and Hannah Holleman
Monthly Review Press

You mean to tell me that the success of the [economic] program and my reelection hinges on the Federal Reserve and a bunch of fucking bond traders?

—President Bill Clinton

Only twice before in the last century—after the 1907 Bank Panic and following the 1929 Stock Market Crash—has outrage directed at U.S. financial elites reached today’s level, in the wake of the Great Financial Crisis of 2007-2009. A Time magazine poll in late October 2009 revealed that 71 percent of the public believed that limits should be imposed on the compensation of Wall Street executives; 67 percent wanted the government to force executive pay cuts on Wall Street firms that received federal bailout money; and 58 percent agreed that Wall Street exerted too much influence over government economic recovery policy.2

In January 2009 President Obama capitalized on the growing anger against financial interests by calling exorbitant bank bonuses subsidized by taxpayer bailouts “shameful,” and threatening new regulations. Journalist Matt Taibbi opened his July 2009 Rolling Stone article with: “The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” Former chief economist of the International Monetary Fund, Simon Johnson, published an article in the May 2009 Atlantic entitled “The Quiet Coup,” decrying the takeover by the “American financial oligarchy” of strategic positions within the federal government that give “the financial sector a veto over public policy.”3

The Financial Crisis Inquiry Commission, established by Washington in 2009, was charged with examining “the causes, domestic and global, of the current financial and economic crisis in the United States.” Its chairman, Phil Angelides, compared its task to that of the Pecora hearings in the 1930s, which exposed Wall Street’s speculative excesses and malfeasance. The first hearings in January 2010 began with the CEOs of some of the largest U.S. banks: Bank of America, JPMorgan Chase, Goldman Sachs, and Morgan Stanley.4

Meanwhile, the federal government has continued its program of salvaging the banks by funneling trillions of dollars in their direction through capital infusions, loan guarantees, subsidies, purchases of toxic waste, etc. This is a time of record bank failures, but also one of rapid financial concentration, as the already “too big to fail firms” at the apex of the financial system are becoming still bigger.

All of this raises the issue of an emerging financial power elite. Has the power of financial interests in U.S. society increased? Has Wall Street’s growing clout affected the U.S. state itself? How is this connected to the present crisis? We will argue that the financialization of U.S. capitalism over the last four decades has been accompanied by a dramatic and probably long-lasting shift in the location of the capitalist class, a growing proportion of which now derives its wealth from finance as opposed to production. This growing dominance of finance can be seen today in the inner corridors of state power.

The Money Trust
Anger over the existence of a “money trust” ruling the U.S. economy reached vast proportions at the end of the nineteenth century and the beginning of the twentieth. This was the time when investment bankers midwifed the birth of industrial behemoths, launching the new era of monopoly capital. In return, the investment banks obtained what the Austrian Marxist economist Rudolf Hiferding, in his great work, Financial Capital (1910), called “promoter’s profits.”5 Hilferding and the radical economist and sociologist Thorstein Veblen in the United States were the two greatest theorists of the rise of the new age of monopoly capital and financial control. Veblen declared that “the investment bankers collectively are the community custodians of absentee ownership at large, the general staff in charge of the pursuit of business….[T]he banking-houses which have engaged in this enterprise have come in for an effectual controlling interest in the corporations whose financial affairs they administer.”6 In the prototypical merger of the period, the creation in 1901 of the U.S. Steel Corporation, the syndicate of underwriters that J.P. Morgan and Co. put together to float the stock, received 1.3 million shares and over $60 million in commissions, of which J.P. Morgan and Co. got $12 million.7

The 1907 Bank Panic, during which J.P. Morgan himself intervened in the absence of a central bank to stabilize the financial sector, led to the creation in 1913 of the Federal Reserve System, aimed at providing banks with liquidity in a crisis. But it also led to charges, first issued in 1911 by Congressman Charles A. Lindbergh (father of the famous flier), of a “money trust” dominating U.S. finance and industry. Woodrow Wilson, then governor of New Jersey, declared: “The great monopoly in this country is the money monopoly.”

To Read the Rest of the Essay

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