The Current Economic Crisis and the Way Out

piglet banker

by Anthony Monteiro

Wall Street rule has created a kind of “vampire economy,” a parasite on the “real” economy of work and production. Government acts as servant to the plunderers, deeming them “too big to fail” and bailing them out “to the tune of $12 trillion” of the people’s money. Although progressive white economists like Joseph Stiglitz often “don’t get it,” liberating the “masses of black folk from the plunderous combination of white supremacy and finance capitalism is fundamental to solving the crisis.”

The Current Economic Crisis and the Way Out

by Anthony Monteiro

A silent coup d’état has occurred and Wall Street controls the White House and other mechanisms of financial and economic decision-making.”

Nobel prize winner for economics Joseph Stiglitz’s book Freefall: America, Free Markets, and the Sinking of the World Economy surveys the devastation wrought by finance capital on the nation and the world and the role the George W. Bush and Obama Administrations and Fed chairmen Alan Greenspan and Ben Bernanke played in facilitating the plunder. It is an ideological critique of finance capital and free market economic theory. Stiglitz argues that finance capital and Wall Street control the commanding heights of the US economy. He points to the Washington-Wall Street connection, where Wall Street’s class interests consistently trump those of Main Street. In fact, as Simon Johnson shows (“The Quite Coup”, The Atlantic, May 2009), a silent coup d’état has occurred and Wall Street controls the White House and other mechanisms of financial and economic decision-making. He further points out that Goldman Sachs has been the dominant player in the Clinton, Bush and Obama Administrations. Democrats and Republicans deregulated finance capital, unleashing the predators of big capital and Wall Street on the people. After plundering the people they were deemed “too big to fail” and bailed out to the tune of $12 trillion with taxpayers money.

The bailouts, subsequently, failed to restructure the financial system, or to place serious regulations upon the largest banks and investment houses. He declares, “The full consequences are not yet known. But almost surely, the failures of the Obama and Bush administrations will rank among the most costly mistakes of any modern democratic government at any time. In the United States the magnitude of guarantees and bailouts approach 80% of the US GDP, some &12 trillion (110).”

The failures of the Obama and Bush administrations will rank among the most costly mistakes of any modern democratic government at any time.”

The Great Recession began in December 2007, brought on by the collapsing the financial system. The 9/11 of the financial collapse was September 15, 2008 when the venerable Lehman Brothers went down. Though the financial system has been stabilized the real economy and working people remain mired in recession. Stiglitz fails to mention that African Americans and many Latinos, the victims of finance capital and structural racism, are in a depression. Stiglitz insists the economic crisis cuts much deeper then the economy. He argues, “the failures in our financial system are emblematic of broader failures in our economic system and the failures of our economic system reflect deeper problems in our society. We began the bailouts without a clear sense of what kind of financial system we wanted at the end, and the same political forces that got us into the mess have shaped the result. We have not changed our political system, so we should perhaps not be surprised by any of this. (295).” We have created, Stiglitz says, “a society in which materialism dominates moral commitment, in which the rapid growth that we achieved is not sustainable environmentally or socially, in which we do not act together as a community to address our common needs, partly because rugged individualism and market fundamentalism have eroded any sense of community and have led to rampant exploitation of unwary and unprotected individuals and to an increasing social divide. “

The wealth and income divide is the widest in the world and that between whites and African Americans is so immense that it makes the African American community appear like a neo-colony. Africans Americans are experiencing a transfer of wealth and income from their families and communities to the wealthy, and white people generally, on a scale not seen since slavery. We are in the throes of de-development. There is no way to avoid the racist foundations to the economic crisis. Stiglitz, like other progressive economists, neither grasp nor factor racism into their analyses. In historical terms, racism, slavery, Jim Crow and the new forms of black oppression have always distorted the economy and predisposed it to crisis. Among the multiple determinates of the current situation, race is a huge factor. Liberating the masses of black folk from the plunderous combination of white supremacy and finance capitalism is fundamental to solving the crisis.

Africans Americans are experiencing a transfer of wealth and income from their families and communities to the wealthy, and white people generally, on a scale not seen since slavery.”

The crisis is systemic, meaning it affect the deep structure of the economy and society and has features of a general crisis of American capitalism and the free market model. These symptoms were present in almost exact form in past capitalist hegemons, i.e. Spain in the 17th century, the Netherlands in the 18th century and Britain in the late 19th and early 20th century. Each of these nations was an imperial empire. Each, like the US, experienced imperial overreach, the domination of the nation by bank and finance capital and imperial arrogance, expressed in wars for resources and markets.

Stiglitz’ examination at once forces the reader to think in historical terms and consider the long trajectories of national development and decline. We are drawn to look at systemic causes and solutions, rather than merely policies and Presidents. Lastly, he demands of the reader that we suspend the traditional pragmatic approach to problems and examine the place of ideology and class and race interests in creating the crisis. Stiglitz argues that ideology and policy have actively created conditions and contexts for this crisis. In particular, he shows the ideological role of free market fundamentalism, in shaping economic policy.

Twenty-first century American capitalism is essentially two economies, a real economy and a virtual economy. The real economy is the economy of goods and services, the virtual or fictitious economy is the economy driven by hedge funds, investment banks and is driven by fictitious capital and derivatives, like Credit Default Swaps and Credit Debt Obligations. Globally the real economy is about $70 trillion dollars, the fictitious economy is $700 trillion. Wall Street is about the fictitious economy. The Bush and Obama Administrations socialized the banks’ losses and allowed the banks to privatize profits, and working people are paying for the whole bloody mess. We will pay for this in closed schools, hospitals, libraries, firehouses, and police protection and so on for generations.

The Bush and Obama Administrations socialized the banks’ losses and allowed the banks to privatize profits, and working people are paying for the whole bloody mess.”

The financial crisis first appeared as a problem of the subprime mortgage market. Yet, risky and unmanageable debt went beyond subprime mortgages. Working people, the middle class and the poor were encouraged to go into deeper and deeper debt. Big banks and Wall Street made unheard of profits from this indebtedness. Realizing from the start that large numbers of people would default on their mortgages and credit card debt, the banks invented ways to spread risk widely. This is known as securitization. At the same time Wall Street invented new ways to make profits at the expensive of the productive, or real economy. These new instruments are called derivatives. Derivative have exotic names like Collateralized Debt Obligations, Credit Default Swaps and are managed by Hedge Funds and special units of investment and commercial banks. The virtual, or fictitious economy traded in debt and leveraging debt and betting on whether debts could be repaid or not. This can also be called a vampire economy, which lives off of and sucks the life from the real economy. The economy in deratives, the fictious economy is at the root of the current crisis and the deeper systemic crisis. Aline van Duyn, writing in the Financial Times (“Financial markets: Derivative dilemmas”,August 11, 2010) points out, ”The root cause of the financial crisis involved losses on risky US mortgages. The entire global financial system was exposed to these mortgages after hundreds of billions of dollars of complex securities linked to them were sold to investors from Illinois to Iceland. Derivatives were the building blocks for those securities.” She argues the derivative markets and the players in this market might be too large to regulate. “The cast of characters embraces not only big banks such as Goldman Sachs, JPMorgan Chase, Morgan Stanley, Barclays Capital and Deutsche Bank but exchanges such as CME Group, Nasdaq OMX, NYSE Euronext and Intercontinental Exchange, which want clearing business. It also includes smaller banks and brokers that are trying to expand their derivatives business, for instance Nomura and Jefferies, as well as inter-dealer brokers including Icap, and other financial groups that want to get into clearing or trading, from Tradeweb to State Street to tiny start-up brokerage firms.”

This can also be called a vampire economy, which lives off of and sucks the life from the real economy.”

For Stiglitz, a Keynesian economist and Social Democrat, the way out is a social market economy, where the state plays a central role in managing the economy and regulating finance capital. This is similar to the European model, especially in nations like Sweden and France. It is opposite of the American and British small government, free market approach. Stiglitz argues that the Obama Administration has done too much to save the banks and too little to help Main Street.

What is missing from Stiglitz’ analysis is a definition of the current stage of US capitalism. His analysis, however, closely fits Rudolph Hilferding’s in the book Finance Capital (1909). Hilferding’s Marxist analysis shows the transformation from competitive and “liberal capitalism” into monopolistic “finance capital.” Finance capital creates an oligopolistic system, where the banks and the state operate as one. As a description of the structure of the US economy Hilferding’s analysis and Stiglitz’ agree.

Lenin, appropriating Hilferding’s analysis into his own, suggested the capitalist system could not reinvent itself in a progressive way. Finance capitalism could neither go back to earlier forms of capitalism, or forward to a more “progressive” brand of capitalism. It would seek to export its crisis to its colonies, creating a global market. However, Lenin insisted that the crisis of finance capitalism made necessary the movement to a new economic system. The banks, he said, were parasites upon the real economy and working and middle class people, and especially the poor.

Stiglitz’ radical critique is less bold when seeking solutions. He proposes Keynesian and New Deal answers to the economic crisis. However in the eighty years since the New Deal began the capitalist system has evolved and the banks are far more powerful today, debt is much greater and social breakdown is more profound. More is required.

Finance capital creates an oligopolistic system, where the banks and the state operate as one.”

In 1994 Stiglitz published a book titled Whither Socialism. It came in the wake of the failure and collapse of socialism in the Soviet Union and Eastern Europe. He felt that socialism was destined to fail, because it was overly centralized and too much authority was in the hands of the state. He was correct in seeing the crisis of state socialism as a crisis of over centralization and too much decision-making from the center and not enough in regions and local areas. At another level the lack of a market made the system over-bureaucratized. Stiglitz wisely opposed the policies of rapid and brutal transition to free market capitalism being proposed by conservatives in the US and Europe. He called for a social democratic regulated market system. Sixteen years later the crisis and failures are now in the heart of global capitalism, the US. He proposes answers to this crisis not unlike those he proposed for Eastern Europe.

However, the social market economy can only be a transition to a socialist market economy and ultimately to advanced forms of 21st century socialism. In this new type of economy, finance capital would be completely eliminated. Banks would exist, but they would either be highly regulated or state owned. There would be planning of industrial, social, cultural, environmental, energy and infrastructure development. Planning should be factored into even Stiglitz’ social market economy. In the social market transitionary economy and the socialist economy the emphasis would be upon the social and cultural development of people and civil society. Education, health care and housing would be social rights. The moral foundation of society would anchor in the welfare of people. In both the transitionary and socialist stages of development the struggle to eliminate institutional and personal racism from social and cultural life would assume utmost significance.

Twenty first century Keynesianism in the social market transitionary stage would occur as what Professor Robert N Rhodes terms a Keynesian-Socialist synthesis. As he puts it, Keynesianism hedged with conditions of going over to socialism.

The Obama team opted to muddle through, rather than adopt bold and purposeful measures to restructure the financial system and the economy. I would suggest that in terms of solutions we must be bolder than Stigliz. To adequately address the now time of US capitalism, we have to imagine and plan for the future of humanity. We are in a crisis, but we are possibly on the cusp of a transition from what is to what is necessary and inevitable.

Anthony Monteiro is a professor of African American Studies at Temple University. He can be contacted at tmon(at)



There will never be a "National Movement" for a "just," "social," economy. It's not in the Amerikkan DNA. Don't believe me? Then go to any article on white middle class Americans--the "99er's"-- who've had the economic rug pulled from under them, and after reading about the pitiful plights, read the comment section. Talk about some unsympathetic, cold-blooded m***therf***kers. Don't be shocked at the commentators dismissing their White counterparts as lazy, despite the stories of educated, fifty-something, workers in terrible plights, dismissed after 10, 15 or 25 years with a company. These "exceptional Americans" don't want once cent of their precious earnings going to programs to assist their fellow Americans, notwithstanding our exhortations about being a "Christian Nation." They plead for austerity which is why it resonates so loudly on the political landscape. The attitude is "I got mine, get yours."

This fact, in addition to others, is a major reason African Americans need to ditch the system and create their own alternative market economies, sustainable ones. All Americans need to do this, but I'm skeptic about Whites, for too many "capitalism" is the sine qua non of their existence, more important than their "religion" (because they are in fact irreligious) Don't believe for a second that the economy is going to "naturally grow" out of this "depression" because neither the mechanisms, economic "architecture," vision nor political will exists on the national level, and in most instances the same pertains to the state level.

The best one can hope for are regional solutions. Many economists on the Left cite the example of the North Dakota State Bank as a model for localized, regional development. Why not look at other structures such as Islamic ones that frown on usury?
There is nothing magical required about adopting capitalist forms that eschew lavish interest rates, the root of the "rentier class" and economic waste and exploitation.

In doing so, we all need to keep in mind what we are dealing with, the environment and sustainability, required changes in lifestyles. I harken back to the cautionary tale expressed in the enlightening essay below. Kozy warns us that there are neither Keynesian nor "free market solutions":

"Global industrial capitalism will continue on the gradual downward descent to collapse. The Golden Age of industrial capitalism that lasted from 1945 to 1970 cannot be recreated merely by applying the right mixture of spending, subsidies, re-regulation, and international agreements. Because the economic advantages of industrialization rely on the two ingredients mentioned above, overproduction and profit, balanced trade is impossible if the advantage is to be preserved; it entails no economic profit. Ultimately too many nations will be too poor to be importers, and the machines in the exporting countries will cease to function. Industrialism is a Hegelian synthesis which embodies the forces for its own destruction. The greatest threat to the Western Way of Life is the Western Way of Life itself. Patches may prolong it, but they cannot remove its contradictions."

The Collapsing Western Way of Life
The greatest threat to the Western Way of Life is the Western Way of Life itself.

by John Kozy

Is it not clear that the (weak and poorly targeted and structured) "stimulus" has not worked, has it not resulted in greater consolidation of wealth? The banks heretofore "to big to fail" are now bigger than ever. That should come as no surprise given the architects of this disaster, many of whom hold high positions in the Obama Administration.

Anyone who thinks the economy will magically recover, that unemployment is not structural, who believes that the solutions lie in the current economic and political system is crazy. It won't happen and isn't designed to happen. I submit it's a waste of time to convince the average White person to adopt an fairer and more efficient economic system, and therefore encourage African Americans to chart their own path. After all, are there any African American delusional enough to think the current system is going to bail them out??? Think somebody is feeling your "pain"? Fuhgetaboutit, go back and read the comments regarding the salt of the earth Whites who got "jobbed" like so many other millions out of work, if they ain't getting no sympathy, what you think you gonna get???

Remember, "patches may prolong it, but they cannot remove it's contradictions."

amen buddy. an entitlement

amen buddy. an entitlement mindset disallows that common struggle between whites and non-whites on some levels. it is this entitlement mindset that is going to allow the republicans to ride back into office on a wave of discontent(vis-a-vis the tea party.) however - i am hoping for cracks in the facade. wealth extracted from local communities to benefit people who do not share the interests of said communities is the modus operandi of the system. most of the wealth generation in this country is via small business. and there currently exists a roadblock for people to invest in their own communities because of archaic great depression era federal laws(i.e. the Securities Act of 1933) which has successfully concretized a system whereby anyone with a 401k or pension is likely diverting their savings to investments in Wall Street and multi-national corporations.

appreciating your thoughts on the regional economic self-sustaining blocks. here is some more info on that.

Capitalism is a fraud, Oligarchs are putting on squeeze

Any sound and simplistic, I stress SIMPLISTIC, economic policy moving forward would focus HEAVILY on small biz. It's a friggen no brainer by any stretch.

Amazingly, the "Smart Power" idiots in the current administration have done little to nothing to encourage capital investment by small biz. The strategic failure is both glaring and pathetic.

Right now corporations are sitting on over a trillion in cash reserves, refusing to spend, invest or hire because of not only uncertainly in the general economic scheme of things, but uncertainly as it relates to capitalism. I.E. the commercial system in this country depends upon some level of trust, anyone who's taken a course in the Commercial Code understands this, what is evident is the lack of trust in the capitalistic system is actually another factor impeding capital investment as much as macro-economic uncertainty.

Only a political amateur would fail to have a small business policy, it is not only the most feasible way to grow ourselves out of this depression, it's where job growth occurs, but equally, it is a political WINNER!!! Period, point blank. It not only appeases the Independents and Middle Class, it appeases literally all segments of the social strata. I mean, who's going to argue and bitch about true entrepreneurship? But the "Smart Power" idiots can't grasp this. Utterly Amazing, utterly stupid, utterly beholden to the monopoly powers.

Just like the "surge" failed in bringing political stability to Iraq, it's vaunted objective, the "stimulus" and TARP failed to loosen credit flows. Wasn't this the sine qua non of the bailout???

Not only has the Administration transferred literally trillions in wealth to the monopoly powers, the monopoly powers are now wringing every penny out of us and out of the US economy they can. "Change you can believe in" NOT!!!

Capitalism is a fraud, it's evident to anyone who cares to look at it.

Let's try that again. . . .

Since my comment was deleted. Here it is again . . .

. . if so - let me clarify my comments. When referring to entitlement- I was referring to white entitlement which seems to many times get in the way of white people making common cause with others when it comes to making common bonds for equal rights and justice.
As for archaic Depression era laws. You are right about Glass-Steigel(at least to my knowledge). However the Securities Law of 1933(a different law altogether) has actually had a lot to do with centralizing investments into Wall Street. Although it may have been passed with a different intent in mind - it has over the decades become a huge stumbling block in terms of people being able to invest in their local communities and not in 401ks and pensions that are inevitably routed to investments in Wall Street. Local stock exchanges were phased out in favor of a national stock exchange - centralized on Wall Street after the Great Depression. "The real reason small public offerings and local stock exchanges do not flourish today is that the Securities and Exchange Commission (SEC) has essentially banned them. Existing laws place huge restrictions on the investment choices of small, “unaccredited” investors—a category in SEC vernacular that includes all but the richest two percent of Americans. The regulations prohibit the average American from investing in any small business, unless the firm is willing to spend $50,000 to $100,000 on lawyers to prepare private placement memorandum or public offering—thick documents with microscopic, ALL CAPS PRINT that no human being has ever been observed actually reading. Which brings us to the second anomaly of today’s financial system. Suppose you wished to play blackjack in one of the more than one thousand casinos operating across the United States. Do you first have to prove that you’re an accredited gambler? Must you read a thick disclosure statement letting you know the risks of blackjack before you place your first bet? Everyone understands that these would be silly requirements.
We have two fundamentally contradictory legal regimes operating today. One, called gambling, allows every adult, irrespective of income, to risk everything for a probable loss. Another, called small-stock investing, prohibits 98 percent of us from investing in the local businesses that are essential for the well-being of community, unless businesses pay prohibitively
expensive lawyers’ fees to prepare the unreadable disclosure statements.
Something is deeply wrong here. Outdated federal securities laws have left Main Street dangerously dependent on Wall Street, and overhauling them may well be a key to economic revitalization."
Hope that clarifies my point.

Obama refuses to back small business bill that helps legit biz

"The bill is designed to stop the federal government from diverting over $100 billion a year in federal small business contracts to Fortune 500 firms and many of the largest businesses in Europe.

Since 2003, a series of federal investigations have found billions of dollars a month in federal small business contracts have been diverted to firms like Lockheed Martin, Boeing, Northrop Grumman, Raytheon, General Dynamics, Bechtel, Dell Computer and Xerox. Corporate giants from around the world that have received U.S. government small business contracts include Rolls-Royce, British Aerospace (BAE), French giant Thales Communications, Ssangyong Corporation headquartered in Seoul, South Korea and Finmeccanica SpA, which is located in Italy and has 73,000 employees. A recent investigation by Stars and Stripes Magazine found the federal government had awarded over $41.6 billion in small business contracts to "miscellaneous foreign contractors." "

Shameless or Criminal, or both?

What more proof is needed to see that Obama is a big business corporate whore. The oligarchs and corrupt politicians are stealing us blind. There are literally billions being stolen by the month. The sheeple are so distracted with tabloid t.v. and tabloid news, and distractions like the Mosque madness to monitor the criminal conduct of the majority of elected officials, be they state, local or federal.

The United States has turned into a kleptocracy.

Looks like the rappers had the Elites peeped along time ago. No difference between drug game the political game, and the corporate world.

Is Obama shameless or just plain stupid? The illogical though process, I can't figure it out. I surmise a substantial number of the so-called "Independents" he gets a hard on for are small business owners. And he's willing to rob them too? Is this Administration clueless or criminal?

No wonder you have otherwise rational and educated people calling him a "Socialist," me thinks some of them don't know what else to call him. It's a function of confusion. They see a wealth transfer taking place, but are so fucked up about it, they can't articulate it's contours.