But the financial moguls in Wall Street went on in their selfish and merry ways in offering dubious credit arrangements to the general public, which were then packaged as enticing security papers to other financial institutions, like investment banks and brokerage firms. The increase of course in the credit values of the finance corporations would hike the prices of their stocks in Wall Street. Easy credits or the so-called subprime mortgage rate (the lowest interest rate in housing loans at five percent) were extended to ordinary Americans who were building their homes. At the center of this activity were the financial institutions Freddie Mac and Fanny Mae, whose mortgage loans, including those they grant to other banks for this purpose, was 70 percent of all housing credits in the US. Other investment banks, like Bear Sterns and the Lehman Brothers, the latter the 4th largest investment bank in the US, overextended their housing loans as this gave them a good leverage in the market, boasting the values of their stocks. The risk analyses that are supposed to be conducted by these finance institutions were haphazard since they were merely interested in raking in quick premiums from the public, and when mortgage came in due, millions of ordinary Americans defaulted. Real estate prices plummeted due to foreclosed homes, and the stock values of the big investment banks began their steep decline as they could not collect bad debts, many of which were bundled as bonds and other forms of securities and sold to other banks and financial institutions, both in the US and abroad. First to fall in March 2008 was the investment bank Bear Sterns which was bought by JP Morgan Chase & Co after the US government bailed it out with a $30 billion loan. Next was IndyMac, the largest thrift bank ever to go bankrupt in the US, and the Federal government had to seize this bank. Fearing the spread of bankruptcies among other large banks and financial houses, the US government nationalized Freddie Mac and Fanny Mae, which were after all first established by the Federal government in the 1930s to serve the housing needs of the American people, but later privatized in the spirit of American capitalism. But the tide that the financial capitalists had reaped due to their unbridled appetite for profit though they may be just paper capital could not be turned back, and Lehman Brothers with its $60 billion loans that went sour declared bankruptcy in September 2008. Due to the exposure of Merrill Lynch & Co, the biggest brokerage firm in the US, in Lehman Brothers, it arranged a hasty deal to be bought by Bank of America. And when AIG (American International Group), the biggest insurance firm in the world, was also tottering due to the unstoppable financial turbulence which decreased its stock worth, the US government bailed it out with an infusion of $85 billion. The chaos in the US finance market has spread to other countries since capitalist business interlock with each other through the buying and selling of securities and other financial papers with Halifax Bank of Scotland succumbing when its stock prices plummeted and the British Bank Lloyds TSB announced it would take over this imperiled bank for $21 billion. President Bush’s announcement that there would be a bail out of $180, which was increased to $700 billion in his appeal to the US Congress, together with the funding from other foreign central banks aim to restore confidence on the irrational and wobbling capitalist economy.

In the Philippines, seven banks, led by Banco de Oro and the government Development Bank of the Philippines(DBP) have a total exposure to bankrupt Lehman Brothers of $386 or about P2 trillion. This big amount is sure to translate to the slow flow of capital to the industrial sector, which will primarily affect small businesses, causing their bankruptcies. Thousand more workers can be laid off in the domestic economy, adding to the already high national employment rate of 11 percent.

The Finance Market is One Grand Casino

Speculative investment which has brought crisis after crisis to the US economy is now turning to be the leading method in which capitalist corporations all over the world are trying to make easy and quick profits without producing any commodity. Credit capital has also constantly wrought havoc to money capital and even the gold standard. Twice the gold standard has been abandoned by capitalist nations, the first time in 1920 and the second in 1971 since the values of money and credit have run riot. And at present money capital cannot keep pace with the increase of credit capital as financial capitalists become obsessed with increasing the value of their enterprises even it is only based on fictitious capital(credit) which have not yet been converted to money, much less have equivalent values to productive capital expressed in the capitalist’s GDP. Global financial assets which include equities, private and government debt securities, stocks, bonds, treasury bills and other forms of financial derivatives and bank deposits have bloated sixteen-fold from US$12 trillion in 1980 to an estimated US$190 trillion in 2007, over a third which are in the US. The value of global financial assets in 2006 was equivalent to 350 percent of global gross domestic product (GDP).

The milieu of speculation on finance capital is the gambling world where fortunes are supposed to be realized through chance, but in practice are gained more through deceptions and frauds. Even the accepted legal practice of gaining profit through the buying and selling of stocks is based on putting one over the public. Take the simple example of a company selling stocks to the general public. Say we have a company founded with a capital of P10 million, divided into 1000 shares each of P10000. This company is expected to earn an annual profit determined by the average rate of profit, say 15 percent or an annual profit of P1.5 million or P1500 per share. Say the average interest is five percent, thus, a money lent is not expected to bring more than five percent, and P1500 is regarded as the normal annual income on P30000. The founders of the company will therefore succeed in selling their shares on the stock exchange for P30000 each instead of P10000 and appropriates the difference, which is the capitalization of the difference between future average profit and the present average interest.

Another form of nefarious activities in the capitalist finance market is artificially jacking up the prices of securities, particularly stocks and bonds, by doctoring corporate books of account, dubiously showing a profit like what the oil company Enron did as well as other top computer corporations in the US 2000 financial crash. And there is inside trading which is conducted through buying your own stocks in massive amount to create a momentary surge of its value to entice the investing public who often follow the herd mentality in the stock market. And when the demand for their stocks suddenly increases, the insiders will immediately dispose of them to gain a quick profit, meanwhile leaving the gullible public holding the bag when their stock values begin to fall. Spreading rumors that a company has hit it rich can also momentarily push up the value of a stock. A company, for instance, can spread the false news that it has discovered a new source of oil or even a gold mine (this latter in fact happened when a company put up a makeshift gold mine in Indonesia and made press releases that it has discovered gold complete with fake pictures when in fact it was all a deception) to create an artificial rise in its stocks. Then there is the practice of short-selling
where A borrows stocks from B, sells it to C when their value go up, then waits for their value to go down, and returns them to B, pocketing the difference. Even the US Federal
Reserve wants to put a stop to this practice of short-selling stocks which are not owned by a firm or an individual, though this behaviour is considered legal and widespread in the stock exchange. Actually, short selling is betting on the stocks of a company losing its value, which means it subsists on the miseries of others. Thus, the capitalist finance market, especially the stock exchanges, is like one grand casino where the unscrupulous and the manipulative thrive and most of the times win edging out the trusting and hopeful general public who merely desire to increase the values of their lifetime savings, their pensions and other liquid assets. In the history of finance capitalism the public is played for a fool, and the capitalists often also get burned themselves with the heat of their greed as we are witnessing at present.

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