A Financial Meltdown 30 Years in the Making

They break it, and we’re stuck with the bill.

In less than two weeks Congress lined up $700 billion to bail out the nation’s bankers, leaving millions of homeowners on the sidelines, facing foreclosure, bankruptcy, or both.

Somehow the argument that “it may seem unfair, but it was necessary” just doesn’t cut it. It’s no wonder that the most popular sign at labor’s September 25 protest on Wall Street said “Bailout = Bullsh*t.”

For union members, it sounds all too familiar. Management’s perennial argument for concessions—take the cuts or say goodbye to your job—hasn’t exactly saved U.S. manufacturing, whether in the 1980s or today.

In past recessions, it’s been each union for itself, and the companies always came out ahead. Corporations are already using the deep hole they’ve dug for themselves to demand even more from workers. Teamsters at the Minneapolis Star Tribune bucked the trend, refusing mid-contract concessions on September 10 and prompting newspaper executives to suspend a $9 million payment to their creditors.

“The company is asking us to slash our own throats to save their profits,” said Kevin Bialon, a 27-year pressman who served on the bargaining committee. “Management made the mistakes and they want workers to pay for it.”

CHICKENS HOME TO ROOST

Although today’s headlines don’t advertise it, the financial crisis is not a sudden surprise but the latest gloomy milestone in a 30-year drive to boost corporate profits, mainly by squeezing workers. The recent flurry of fast-and-loose home loans is a symptom, not the cause, of the problem.

Shifting the Risk

The way Economics 101 textbooks tell it, capitalism is about rewarding risk.

Entrepreneurs put money on an idea, and if they’re right, they rake it in. If they’re wrong, they lose their shirts. But over the last 30 years, corporations have been busy shifting risk—and debt—off their balance sheets and onto workers and taxpayers. Congress’s $700 billion reward to banks that gambled and lost is just the most recent case.

The biggest example is the boom in 401(k) plans as replacements for traditional defined-benefit pensions. With a traditional pension, the company shouldered the risk of making sure it could afford those pensions when they came due. With a 401(k), the risk is all yours. Employers pushed these plans onto unions when the stock market was recording double-digit increases. Now workers face the downside, with 401(k)s nationally losing $2 trillion in the past 15 months, a 20 percent decline. Similar problems face Voluntary Employee Benefit Associations, commonly known as VEBAs, programs that transfer existing pension contributions over to unions to manage but let companies off the hook for any future shortfalls.

For workers in traditional pension plans, there is still cause for concern. Large companies have seen their pension funds swing from a surplus of $60 billion at the beginning of 2008 to a deficit of $35 billion on September 30.

Experts fear that the Pension Benefit Guarantee Corporation could fall as much as $100 billion in the red, if more companies use bankruptcy to unload their pension obligations onto the federal government. The PBGC has shown no mercy when it comes to cutting workers’ pensions—as Republic Steel retirees found out this spring, when some Steelworkers learned their monthly check would drop by hundreds of dollars.

Faced with falling profits in the 1970s, corporations everywhere rallied to restore their bottom lines. They pressed to shift taxes away from businesses and onto individuals, sowing the seeds of today’s state and local budget shortfalls. Deregulation was also a top priority, as restrictions from an earlier era—put in place to protect the public good—were wiped away. Starting in industries like airlines, trucking, and telecommunications, then later in banking and financial services, government protections were lifted and oversight was relaxed.

In addition, corporations turned the tables on who pays for retirement, shifting the risk—and sometimes the burden—onto individual workers and taxpayers.

On the job, corporations launched a full-scale assault on unions, piling up concessions, breaking longstanding pattern agreements, and introducing two-tier wages and benefits.

In 1978 the average wage for production workers was $16 an hour in today’s dollars. The average was still $16 by 2007. Companies put the squeeze on working conditions, too, through lean production and quality schemes that were a smokescreen to make workers do more with less.

Corporate heads were rewarded handsomely for their efforts. CEO pay skyrocketed from 27 times what the average worker made in 1973 to 275 times in 2007.

Wall Street’s short-term mentality spread far beyond the financial sector. Every plant, even every work group became a “profit center,” and had to produce sufficient returns—or else.

Firms like General Motors and General Electric got into the money game directly, making more profits in recent years from financial activity than they did by producing goods or services.

LESS MONEY, MORE PROBLEMS

The working-class squeeze pushed inequality through the roof. Today the top 5 percent of American families—those with household incomes over $150,000—now claim 35 percent of national income. Thirty years ago the top 5 percent took home 21 percent.

With wages flat-lined for over three decades, families scrambled to prop up their living standards, first with more women entering the workforce and then by working more hours.

But there is a limit to how many earners each family can have, or how much overtime workers can schedule, so debt became the solution to anemic paychecks. Workers turned to credit cards or used their homes as ATM machines.

Once the housing bubble burst, the system finally caved in on itself. Bad home loans were the spark, but the fuel for this financial wildfire was a generation of stagnant incomes and overstretched consumers.

ADDICTED TO DEBT

It wasn’t just consumers who leaned heavily on credit. In recent years corporate debt skyrocketed, and as long as short-term loans were plentiful, companies were happy to operate with a thin cushion. Now that the credit markets are clenched up, businesses are feeling the pinch.

The Hawaii Medical Center was an early victim, for example, forced into bankruptcy in September when its creditors refused to roll over $5 million in short-term loans.

More than a third of its 900 workers have been laid off. Companies that survive today’s frozen financial markets will continue to struggle with the rising cost of debt, raising the possibility of concessions and bankruptcies to come.

On the watchlist is FairPoint Communications, the company that took over Verizon’s landline operations in northern New England earlier this year. The company borrowed heavily to close the $2.5 billion deal, and the Communications Workers (CWA) argued at the time that workers and consumers would bear the burden if FairPoint’s plans went awry.

That risk is growing, as the handover from Verizon is months behind schedule and millions of dollars over-budget. FairPoint’s customers are cutting back or switching to lower-cost competitors.

“What’s going to happen to our pension?” asks Darlene Stone, chief steward at CWA Local 1400 in Burlington, Vermont.

The Minneapolis Star Tribune’s next step is also uncertain. Pressure on the paper’s owner, private equity firm Avista Capital Partners, is mounting. Two other Teamster locals have followed the pressmen and cancelled givebacks. Bialon, the pressman, reports that on October 1 the company laid off 18 union members.

“They said they needed to save $20 million to fend off bankruptcy,” he said. “But they’ve already gotten rid of a third of the workforce and no one from management has been let go. They wanted the world from us and were offering nothing in return.”

Comments

Airbus A400m (not verified) | 05/12/09

Their greed is insatiable. Take our family’s health care. They do. They keep passing on their increased costs to us, or they just drop coverage for the worker completely. That means we either join the 50,000,000 who have no health care, or we end up having to buy it privately, thus eating up a huge portion of our family’s income. If we manage to hang on to our health care plans, our deductibles, co-pays, and out of pay contributions keep skyrocketing. This amounts to another massive transfer of wealth from our pockets into the overflowing pockets of our corporate bosses.

To further sweeten their own pots, they took full-time jobs and converted those jobs to part-time with no benefits, or they just made their employees line up and reapply for their exact same job at half the pay. Are we beginning to see what a true transfer of wealth looks like?

Charlotte (not verified) | 02/24/09

Although today’s headlines don’t advertise it, the financial crisis is not a sudden surprise but the latest gloomy milestone in a 30-year drive to boost corporate profits, mainly by squeezing workers.
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Agreed, but if you zoom out a bit, it's also a 30 year drive on the part of our government to boost GDP by concentrating on financial and other services rather than manufacturing. When the only thing that matters is corporate profits, the people in government didn't care where that money came from. So naturally they did everything they could to lend a hand to Wall Street, which is what led to all of this money being shoved into mortgages, derivates and other shady investments. It's the "easy money for nothing menality". And now what's the result? The stack of cards financial sector is crumbling and we realize there's nothing left. We have no manufacturing, and the workers who should've been making a living in the manufacturing sector have been right all along. Rather than being the complainers the media and news make them out to be, they're the backbone of a healthy economy that America tossed out a long time ago in favor of millinoaire MBAs doing magic tricks with paper.

rick kepler (not verified) | 11/11/08

I am an American worker, and you are damn right I want the wealth to be shared and spread. I am talking about the wealth my hard work helped to create, but was taken from me by George Bush’s base, the very rich, or as I know them, my corporate bosses. For the past eight years I have watched W.’s and McCain’s (Country Club First) base grab the largest share of our country’s wealth. Where did they take it from? They took it from my family’s pocketbook, and my co-workers’ families pocketbooks. They stole the wealth that I was trying to build for me and my family when they stripped my pension plan from me and told me to invest in a 401k. Then they stole most of that 401k and other workers’ 401k savings with this economic meltdown. This was a massive transfer of wealth from the workers’ pockets into the already stuffed pockets of the rich. My retirement savings and my coworkers’ savings all across America have been looted by the corporate bosses, who just got bailed out while we got left out. Again!
The American worker, whether they are black, brown, white, red, yellow, or rainbow color has been fleeced over these past eight years. We are the ones who go to work every day. We don’t own our places of work, nor do we help manage them. We just go in and do the job. And we must be doing one hell of a good job because we are told that we are the most productive workers in the world. We are working longer and harder, but our paychecks keep shrinking! Where are those productivity gains going then? Not into our pockets. Our standard of living has been going down these past eight years ($2,000 less in family income since W. took office) This is another damn transfer of wealth into the hands of the extremely rich.
Their greed is insatiable. Take our family’s health care. They do. They keep passing on their increased costs to us, or they just drop coverage for the worker completely. That means we either join the 50,000,000 who have no health care, or we end up having to buy it privately, thus eating up a huge portion of our family’s income. If we manage to hang on to our health care plans, our deductibles, co-pays, and out of pay contributions keep skyrocketing. This amounts to another massive transfer of wealth from our pockets into the overflowing pockets of our corporate bosses.
The list goes on for the American worker. We saw our overtime pay stripped from millions of workers during this past nightmare eight years. The worker was still working overtime, but due to a new “boss law” passed by W. and McCain’s party that assists these thieves, the workers didn’t receive overtime pay because they were declared exempt. They also weakened the workers’ health and safety standards or just plain didn’t enforce the laws already on the books. As a result, the American worker pays the price in lost days due to accidents from unsafe conditions or from the lingering, expensive illnesses suffered from unhealthy working conditions. This too is a massive transfer of wealth from our pockets into our corporate bosses bulging pockets.
To further sweeten their own pots, they took full-time jobs and converted those jobs to part-time with no benefits, or they just made their employees line up and reapply for their exact same job at half the pay. Are we beginning to see what a true transfer of wealth looks like?
So, do I want to see a spreading of the wealth? You bet your sweet hind-end I do. But all I ask of Obama is to give me and my co-workers the ability to retrieve some of the wealth that has been stolen from us. Strengthen the laws that give workers the right to organize and bargain for a contract with our bosses. The current laws on the books have been torn to shreds by W. and McCain on behalf of their base. This is just part of their attack on American workers. Under globalization, the bosses seek a much cheaper workforce, which always means non-union, which means ‘can’t fight back’. That is why they have gutted the laws that protect workers. The laws that once gave us a level playing field with our bosses have been rendered useless, including our legal right to strike. That law said I had a right to strike, and could not be fired if I exercised that right. But the bosses have redefined fired. The new law says I still can’t be fired if I strike, but I can be permanently replaced. Somebody tell me the difference between being fired and permanently replaced! Why are we the only industrialized country that allows this travesty?
The American worker doesn’t want a hand out. Never did. We do want a hand-up from our government. We still believe and have hope that this is still a government of, by, and for the people. We do want to know that our government will finally stand with us against this onslaught, this Robin Hood in reverse, being conducted by the bosses against the workers. The bosses know that W. and McCain have been on their side for the past eight years—and so do we workers. We just want our government to now stand on our side as we stand up against this corporate attempt to create third world working conditions right here in America. Restore our right to fight for a better living for ourselves and our families, and let the power of pissed-off workers, united in struggle, spread corporate America’s stolen wealth back into the pockets of those whose pockets got picked these last eight years, the American worker.

Rick Kepler Teamsters
1990 Connect Road
Barberton, Ohio
Cell: 216-401-2014