Imagine that a government summons the heads of two of the biggest corporations to its treasury headquarters in order to deliver an ultimatum – either they agree to a state takeover or have one forced upon them.
Was this Russia in 1917? No – it took place in the US last week when US treasury secretary Henry Paulson took over the country’s two mortgage giants, Fannie Mae and Freddie Mac.
Paulson was widely reported to have previously opposed any state takeover. His hand was forced when banks in Europe, China and elsewhere that had poured funds into the two institution’s bonds threatened to pull the plug on their investments.
That would have led to a collapse in the US economy and the destruction of its standing within the international financial system.
“Nationalisation by another name” is how it was summed up in the Financial Times newspaper. And it is nationalisation on a scale that makes the takeover of Northern Rock by Gordon Brown and Alistair Darling look like chicken feed – the cost is 25 times greater.
Fannie Mae and Freddie Mac own or back $5.4 trillion of home debt – around half of all mortgage loans in the US. That’s equal to the entire economic output of Britain for the next two and a half years.
The actions of the US treasury appear to stand in complete breach of free market ideology. Yet state intervention is a constant reality in the US.
The US gained industrial and financial hegemony in the world in large part due to massive state funding of industry during the Second World War, which powered the country’s corporations into a global lead.
In 1979 the Jimmy Carter administration intervened to rescue the car giant Chrysler from bankruptcy. Just over a decade later a Republican administration had to spend vast amounts of money to bail out “savings and loans” associations that provided low cost mortgages.
The decision of the Bush administration to take over Fannie Mae and Freddie Mac prompted an upturn on the world’s stock exchanges.
But there is considerable doubt over whether the treasury takeover can halt the decline in the US housing market. More US banks are expected to fail.
This is not simply a credit crunch or a financial crisis. Hopes of a US economic recovery rest on increasing exports, boosted by a weakened dollar. Yet as economic growth slows in Europe, Japan and China, that lifeline is falling from Wall Street’s grasp.
Last month unemployment in the US jumped to 6.1 percent, up from 4.7 percent a year ago.
In Britain there are warnings that unemployment could top two million by the end of this year.
Beneath all this is the simple fact that, despite much-vaunted record profits during the boom which preceded this crisis, profit rates failed to recover to levels seen in the two decades which followed the Second World War.
The financial panic has now exposed the poor health of the US economy, previously concealed by record personal debt, speculation and the property price bubble.
Such massive state intervention as this takeover of the two US mortgage giants does not address the fundamental causes of a growing crisis.
The one tried and tested solution for the ruling class is to hammer away further at our wages, jobs and working conditions. It is up to us to decide if we are willing to pay the price for their crisis.