Vol. 72/No. 48      December 8, 2008

The bailout includes the purchase of $20 billion of preferred stock and government guarantees for $306 billion in potential losses. Citicorp received $25 billion as part of the broader bailout of banks earlier in the fall.

Prior to the bailout announcement Citigroup stock had plummeted to its lowest price in more than a decade, closing at $3.77 November 21. Citigroup holds billions of dollars of collateralized debt obligations: repackaged mortgages and other debts. Even after writing off billions in debts, the bank still holds $20 billion of mortgage-linked securities and $122 billion of “assets” linked to credit card debt.

Like home mortgages, credit card debt is repackaged and sold on the financial markets. It is no more reliable than any of the other complicated derivatives the financial wizards have invented, hoping to make huge profits without investing in production.

Credit card defaults are on the rise. An estimated $21 billion in credit card debts was written off in the first half of 2008 as more cardholders fell behind on their payments.

Meanwhile, owners of the Big Three U.S. auto companies, Chrysler, GM, and Ford, accompanied by the president of the United Auto Workers (UAW) union, came back empty-handed from their trip to Washington, D.C., to ask for $25 billion to avoid bankruptcy. But Democrats in Congress invited the auto giants to return by December 2 with more information on plans to make the auto industry more “competitive.” A vote on a bailout could come on December 8.

The Big Three, with close to a quarter million workers, say they used up nearly $18 billion in cash reserves in the last three months as auto sales plummeted. GM alone has $43 billion in debt.

Conservative columnist Bill O’Reilly favors using the threat of bankruptcy as a club to convince auto workers to make steep wage and benefit concessions. “The equation should be: if the unions won’t bend, we won’t lend,” O’Reilly wrote November 21 in the New York Post.

GM is already talking about delaying a $7 billion payment to a union retiree health fund, Bloomberg.com reported. The news service said the automaker is also pushing for the UAW to amend its 2007 contract, making further concessions on work rules.

A study by London’s Financial Times estimates that more than 80,000 jobs were cut around the world from November 17 to 21. More than half the cuts were at Citigroup.

The layoffs come in the midst of the turn for the worse in the financial crisis. After thawing somewhat, according to the New York Times, once again “the credit markets seized up as confidence in the nation’s financial system ebbed.”

Claims for unemployment benefits in the United States rose to 542,000 last week, the highest level since July 1992. Unemployment is also climbing worldwide.

As new unemployment claims in the United States hit a 16-year high, some states are reducing benefits. Unemployment funds shrank in 32 states over the last year. At the same time, the number the U.S. government considers “long-term unemployed”—those jobless for 27 weeks or more—rose by 249,000 in October to 2.3 million.

While more workers are finding it harder to get jobs, local governments are proposing slashing social services or are already implementing cuts.  
 
Pushing on a string
The hundreds of billions of dollars that Washington and other imperialist governments have poured into banks and other financial institutions in hopes of staving off the crisis has been like pushing on a string, what the capitalists sometimes call a “liquidity trap.” It’s not that the banks and corporations don’t have access to enough money. They are not willing to take the risk of loaning or borrowing it.

In September capitalist investors pulled $22 billion out of U.S. equity mutual funds and $24 billion from bonds.

Standard & Poor’s 500 stock index was down 52 percent on November 21 from its peak in October 2007. Whatever the momentary ups and down, some $8.3 trillion in stock market wealth has evaporated in the last 13 months. Hedge funds cut their stock holdings by almost two-thirds from a year ago.

The sales of gold coins and bars, however, reached their highest levels in more than a decade. According to the World Gold Council, $6.5 billion was spent on 232 tons of gold coins and bars in the third quarter of 2008, a 121 percent increase compared to the same period a year ago. Gold refineries and government mints are working at “full throttle” to keep up with demand, said the London Financial Times even before the latest figures were released.

“I have never seen a market like this in my 33-year career,” said Jeremy Charles, chairman of the London Bullion Market Association. “The gold refineries cannot produce enough bars.”
 
 
Related articles:
Workers in Britain hit with layoffs, wage cuts  
 
 
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