Labor Advocate Online


Les Leopold

The Casino Class
The Looting of America
by Les Leopold. Chelsea Green. Paper, $14.95.
Reviewed by Bill Onasch

If you want to know why it was necessary to give over a trillion dollars to big banks and insurance companies over the last year Les Leopold’s new book is for you. Carrying on the tradition of the Labor Institute he helped found and now directs, Leopold manages to explain the most complex shenanigans of finance capital in language the average worker can understand. To keep us going off the deep end in to despair he sheathes the sharpest edges with some humor. He even closes with some suggestions of what to do.

The reader finds out about derivatives; collateralized debt obligations, including their squared and cubed variations; credit default swaps; and, most inventive of all, synthetic collateralized debt obligations. You’ll also be equipped to impress the counterman on your next trip to the deli by instructing him to tranche your corned beef thin and extra lean. If, like me, you at first find yourself having trouble keeping these byzantine terms straight you can bookmark a handy glossary included by the author in the back.

It wasn’t intended that even mere stock brokers or politicians, much less workers, would ever understand this strange new lexicon, with its underlying definitions of finance. The author quotes former Senator Phil Gramm (of Gramm-Rudman fame) “politicians don’t know a credit default swap from a turnip.” This is the brave new world of “fantasy finance,” exceedingly complicated, not possible before powerful computers started appearing on bank desktops.

But once those PCs arrived, and the old firewall between investment and savings banks was scrapped, thousands of creative hustlers at banks big and small started designing new custom-made over-the-counter securities for customers eager to get more bang for their buck. Leopold explains how early perceived successes in this completely unregulated arena ultimately led to their handling of trillions of dollars–mostly other people’s dollars–like they were playing Fantasy Baseball.

There were a few sticks-in-the-mud who warned early on, even fifteen years ago, the potential for disaster and urged regulation. They were dressed down not only by Greenspan and Bernanke but Obama’s financial gurus as well–Volcker, Rubin, Summers, Geithner. All are free marketeers who likely review a few pages from Milton Friedman before going to bed every night.

If the gambling casinos had been risk takers on a par with the financial casino Las Vegas and Atlantic City would have become ghost towns long ago. With no one–not even the vaunted credit risk evaluators such as Moody’s and Standard & Poors--telling the bankers about their evolving nudity they lost their shirts and got caught with their pants down when the housing bubble burst. Their delicately layered tranches–“insured” by those turnip-like credit default swaps-- forced them to coin yet a new term–toxic asset. The U.S. meltdown also had ramifications throughout the world, even bringing down the government of Iceland.

Suddenly the banks not only had to suspend their fantasy finance; loaded with toxic assets they could no longer carry out their day job of providing basic credit for the day-to-day operations of industry and commerce. Plants and stores started closing. Blue chip companies geared to just-in-time cycles started looking at bankruptcy. That’s what led the free marketeers of both parties to unite around the extraordinary measures of the TARP bailout and even defacto nationalization in some cases.

Leopold writes,

“At least a trillion dollars was handed to big bankers in 2008 and 2009, with very little debate. This is borrowed money that we, the taxpayers and our children, are on the hook for. It’s an immediate transfer of wealth from present and future generations to the largest financial institutions in the world. It may well be the largest wealth transfer since African-Americans built the South. We went along because the financial markets had a gun to our heads. No bailout, no lending. No lending, no economy.”

Nobody tells this story better than Leopold. He also does a great job of explaining the decline of the working class in the USA. The decoupling of productivity and wages, that had moved in tandem through the Fifties and Sixties, mirrored the decline in unionization–especially since Bill Clinton’s NAFTA gave new impetus to offshoring unionism’s manufacturing base.

Unfortunately, the masterful job in looking at the grand scale of class relations and class crisis in the earlier chapters, that left us hungry for the solutions, becomes diluted in to a rather thin soup in the concluding ones. Some regulatory reforms, nationalization of banks, increased minimum wage, passage of labor law reform such as EFCA, are not bad things but hardly seem up to the epic struggle now required. Leopold says,

“…the choice is not between total socialism and unfettered capitalism. Given the vast complexities of our global economic system, we need to make room for more nuanced alternatives.”

I’m not sure what “total” socialism would be. The woman who cuts my wife’s hair in a salon in her home probably doesn’t have to be part of a nationalized planned economy. But there’s no long term future for peaceful coexistence of planned and market economies in any nuanceed setting in my opinion. The meltdown of the financial market might have been ameliorated by regulation but it was still driven by the basic internal laws of capitalist markets.

Merely preventing market catastrophes is not good enough. The market economy--especially with its vast global complexities–will continue to transfer more and more of the wealth we produce to the ruling class. And it is a obstacle that must be removed for the huge job of economic conversion essential to saving our biosphere from destruction by global warming. Only a democratically planned economy can handle that urgent task.

But answers to these questions are more than we have a right to expect from one book–or one book review. All in all, Les Leopold has done a commendable job with the Looting of America. Every worker trying to sort out the mess we find ourselves in should read it.

May 28, 2009

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