A revealing comment from a finance chief
30 June 2020
Long-time financial operator Henry Kaufman, a former senior executive at Salomon Brothers and now the president of his own firm, has written a comment in the Financial Times bewailing the transformation of capitalism.
“American capitalism is rapidly disappearing,” he writes. “Its demise has been under way for some time and the economic devastation wrought by the COVID-19 pandemic is the latest blow to our political economy.”
He maintains that capitalism is being replaced by statism, “a form of political economy in which the state exercises substantial centralised control over social and economic affairs.”
In making his assessment, Kaufman harks back to the doctrines elaborated by Adam Smith in 1776 in his book The Wealth of Nations, in which he argues that “humans innately strive for material progress and the best way to get there is through unfettered competition, the division of labour and free trade.”
Kaufman writes that this kind of capitalism has been shattered. Free trade treaties are being abrogated. The free movement of labour is being constrained by walls and edicts. The concentration of non-financial corporations is sharply increasing.
“In financial markets, concentration is even more glaring,” he notes. “Today, a shrinking number of financial conglomerates hold a tight grip on investment management and the underwriting and trading of securities. The enormous underlying conflicts of interest are tolerated by the authorities.”
Kaufman’s assessment has clearly been influenced by the massive and open-ended intervention of the Federal Reserve into the financial markets in response to the coronavirus pandemic.
“It is buying not only government but also corporate bonds—including low-quality issues, mortgage obligations, municipal bonds and exchange traded funds,” he writes. He notes that since the start of the year, the Fed’s balance sheet has swollen by $3 trillion to reach $7 trillion, and that “financial markets have come to expect the Fed to intervene in response to any sharp decline in equity prices.”
As a prominent representative of the US financial aristocracy, Kaufman is motivated by two concerns: the fear that ever-widening social inequality in the US is fuelling an upsurge of social and class struggles, and that statism is undermining the central ideology of the US ruling class.
After invoking the godfather of free market capitalism, he notes that Smith “cautioned” against “sharp class division that might idle rich people and exploit workers.” He cites a passage from The Wealth of Nations: “No society can surely be flourishing and happy of which the far greater part of the members are poor and miserable.”
Smith’s depiction of competitive capitalism operating via the free market—a veritable Eden of the innate rights of man, as Marx put it, where all work together in accordance with a pre-established harmony or under the auspices of an omniscient providence working together for the common good—never really existed.
The initial resources for capitalist development in England, its birthplace, came not from entrepreneurial individuals saving their money and then applying it to production, but from looting and plunder internationally, inherited fortunes, and the stripping of the mass of the population of access to the means of production and their transformation into a propertyless class with nothing to sell but their labour power.
And the course of capitalist development soon swept aside the independent entrepreneur. This took place through two processes: first, the inexorable logic of competition, which is not to perpetuate competitive struggle, but rather to compel each producer to drive out his rivals, with the aim of becoming a monopoly; and second, the expanded scale of production, which meant it could no longer be organised by individual entrepreneurs, but required the mobilisation of capital by corporations resting on a vast credit structure.
However much his depiction of capitalist market society passed into history, through the very development of the capitalist economy itself, Smith has been continually utilised to provide the ideological justifications for the present order.
These are based on claims such as:
- Market society provides opportunity for initiative; profit, whether in the sphere of production or finance, is the reward for risk.
- Social inequality is the result not of the inexorable logic of the system itself but flows from an inherent failure of individuals to avail themselves of the opportunities that this best of all possible worlds provides.
- Capitalism is the only possible form of socio-economic organisation.
Over the past period, especially since the financial crisis of 2008, these nostrums have been shattered as the agencies of the capitalist state—governments and the central banks—have provided trillions of dollars to the banks, hedge funds and corporations, a process that has now reached new heights.
This transformation of capitalism into what he calls “statism” worries Kaufman because it reveals too clearly the real nature of social and economic relations and represents a “great departure from the vision of the founding fathers.”
While Kaufman’s focus is directed to ideological questions, the increasing drive to statism does have an objective economic significance as well. Both the health crisis produced by the pandemic and the resulting economic crisis have revealed the utter bankruptcy of the market system and the objective necessity for state control and organisation in order to ensure the very functioning of modern society.
At the same time, the crisis has exposed the malignant contradiction between the global character of economic life and the need for an internationally planned and coordinated response to the pandemic, on the one hand, and the virulent national antagonisms and disorganisation resulting from the nation-state system upon which capitalism is based, on the other.
The crucial question is in whose hands state power is to rest and in whose interests it is to be exercised.
This is not the first time that we have seen the state-isation of finance. In World War I, capitalist governments issued massive amounts of paper money and debt to finance their military operations. In an analysis of the consequences of this process, included in the manifesto he authored for the First Congress of the Communist International in 1919, Leon Trotsky wrote:
The state-isation of economic life, against which capitalist liberalism used to protest so much, has become an economic fact of life. There is no turning back from this fact—it is impossible to return not only to free competition but even to the domination of trusts and other economic octopuses. Today the one and only issue is: Who shall henceforth be the bearer of state-ised production—the imperialist state or the state of the victorious proletariat?
In words that have acquired even greater relevance for today, as world economy moves into the deepest recession since the Great Depression, Trotsky added that the task of the working class was “to take in hand the disrupted and ruined economy to assure its regeneration upon socialist principles,” through the establishment of workers’ states that do not look back to the past and respect neither inherited privileges or property rights, but mobilise all the resources of society to meet the needs of the masses.
BIDEN WAS SELECTED BY BANKSTER-OWNED OBAMA BECAUSE OF HIS LONG
HISTORY OF SERVING THE BANKSTERS!
Biden backed brutal bankruptcy bill in 2005
In 1999,
then-Sen. Joe Biden (D-DE) declared, “I’m not the senator
from MBNA.” Apparently, Biden felt it was necessary to clarify that he did not
exclusively represent credit card giant MBNA because his constituents were
thoroughly confused, based on his track record of being a shill for credit card
companies located in the First State.
Then,
six years later, Biden inserted his foot directly into his mouth (again) when
he championed the notorious (and ill-named) Bankruptcy Abuse Prevention and
Consumer Protection Act (BAPCPA). A more appropriate name could have been the
Act to Protect Credit Card Companies and Shaft Students and Workers.
In
short, BAPCPA was a terrible bill that favored credit card companies, big
banks, and millionaires over working-class borrowers. It also is solely
responsible for the fact that student loan debt is totally impossible to
dismiss -- even after one has declared bankruptcy.
Wait
a minute, I thought Joe Biden was the consummate defender and advocate of the
working class and oppressed. Far from it. In reality,Biden’s political career of more than four decades was predicated
upon protecting the interests of credit card companies.
And
he and his son, Hunter, were compensated handsomely for doing so. According to
a 2019 GQ article titled “How Biden
Helped Strip Bankruptcy Protection From Millions Just Before a Recession” --
“one of the biggest credit card companies in Delaware, MBNA, hired Joe Biden's
son Hunter in 1996. Even after Hunter became a federal lobbyist in 2001, he
stayed on at MBNA as a consultant at a fee of $100,000 per year, meaning he was
pulling in a six-figure salary at the same time his father was pushing for the
industry's top priorities.” Can you say, quid pro quo, Joe?
According
to Adam J. Levitin, professor of law at
Georgetown University, BAPCPA “was perhaps the most anti-middle class piece of
legislation in the past century.” And, as Levitin writes, “Biden used his clout
to push for the law’s passage and to defeat amendments to shield
servicemembers, women, and children from its harsh treatment. When votes were
taken, ‘Middle-Class Joe’ was no friend to the middle class.” It sure seems
that Biden abandoned his Lunchbox Joe persona when it came to voting in favor
of BAPCPA, not to mention that he strongly supported amendments that made the
bill even more hostile to the middle class!
And
adding insult to injury, Biden also voted against several amendments that were
specifically meant to help several “underprivileged” groups. As Levitin
writes, “He voted against three amendments to ease
bankruptcy requirements for consumers whose financial troubles stem from
medical expenses. He voted against an amendment
that would have helped seniors keep their homes. He voted against
exempting servicemembers and widows of servicemembers killed in action from the law’s
eligibility restrictions. He voted against an amendment to
exempt women whose financial troubles stemmed from deadbeat husbands’ failure
to pay child support or alimony. And Biden even voted against an amendment
that would have ensured that children of debtors could still be given birthday
and Christmas presents. Biden also voted against
allowing debtors to pay their union dues during bankruptcy, potentially imperiling
their employment and ability to achieve financial rehabilitation.” Could
Biden’s voting record on this bill get any worse? Actually, yes.
Not
only did Biden strongly oppose BAPCPA amendments aimed to help “disadvantaged”
groups, he voted for two giant loopholes that effectively allowed millionaires
to shield their assets from collectors after they filed for bankruptcy. What a
joke, Joe.
As
a senator, Biden vigorously voted for several similar bills. In short, based on
his voting record, Joe Biden is not (and never was) a champion of disadvantaged
Americans, unless you consider multi-billion-dollar credit card corporations
and millionaires “disadvantaged.”
Stop Seizing Paychecks, Senators Write to Capital One and
Other Debt Collectors
Wage garnishments ordered before the pandemic started have
continued for many workers during the recession. Senators Elizabeth Warren and
Sherrod Brown have demanded an end to the practice.
by Paul Kiel
Sen. Elizabeth Warren, D-Mass., on Jan. 29. Warren and Sen.
Sherrod Brown, D-Ohio, wrote in letters that the nation’s largest debt
collectors should suspend seizing wages “immediately.” (Samuel Corum/Getty
Images)
The nation’s largest debt collectors should suspend seizing
wages “immediately,” two prominent senators demanded in letters sent Wednesday.
The letters came in response to a ProPublica story this month
that focused on how the most prolific filers of debt collection lawsuits,
Capital One and large debt buying companies, continue to garnish paychecks amid
the COVID-19 pandemic. While most courts shut down to new hearings in March,
wage seizure orders obtained before then were allowed to continue in most
places. That left some essential workers and others desperately searching for
relief amid the economic downturn.
“Filing collection lawsuits and garnishing the wages of
consumers already struggling to pay for basic necessities will only exacerbate
the economic and public health crisis,” Sens. Elizabeth Warren, D-Mass., and
Sherrod Brown, D-Ohio, wrote.
Brown and Warren sit on the Senate Banking Committee, which
oversees financial services companies. Brown is the ranking member.
Capital One largely stopped filing new suits after mid-March,
but other large collectors did not stop filing new suits. Warren and Brown also
wrote to Encore Capital Group and Portfolio Recovery Associates, two of the
largest debt buyers in the country. Both of them continued to file suits into
April and May, according to ProPublica’s review of online court databases.
In the letters, the senators also request an accounting from
the companies of how many suits and wage garnishments they’ve filed this year.
Because collection suits are filed in state and local courts, it’s impossible
to arrive at a full accounting of such suits (although ProPublica has tried to
shed light on the practice by rounding up data from various states). This makes
an aggressive form of collection that affects millions of people each year
largely invisible to the public. Answers from the companies may help to reveal
the scope of the biggest plaintiffs’ activity.
In a statement in response to the letter, a Capital One
spokesperson said: “Since the pandemic first began, we have been committed to
working with all of our customers who are experiencing financial hardship as a
result of COVID-19. In addition to deferring payments, offering tailored
payment plans and waiving fees, we have stopped the filing of all new bank
garnishments and lawsuits and have taken action to prevent the garnishment of
any stimulus funds. We recognize that these are exceptional times and our
policy is to work with any customer who needs help and is impacted by
COVID-19.”
A spokesperson for Portfolio Recovery declined to comment,
saying the company was reviewing the letter and preparing its response.
Sheryl Wright, an executive from Encore Capital's subsidiary
Midland Credit Management, said, "In keeping with the long-standing
hardship policy in our Consumer Bill of Rights, we suspend collections when a
consumer tells us they’ve been directly impacted by COVID-19, and we stopped
bank garnishments for all consumers in mid-March. For any bank garnishment that
was initiated prior to the stoppage, if the consumer informs us that we
inadvertently levied exempt funds, including CARES Act relief payments, we
immediately initiate a refund."
Capital One and Other Debt Collectors Are Still Coming for
Millions of Americans
As the COVID-19 pandemic hit, Americans got protection from
evictions, foreclosures and student debt. But debt collectors have continued to
siphon off their share of paychecks from those who still have jobs.
by Paul Kiel and Jeff Ernsthausen
Capital One recovered hundreds of millions of dollars of debt
beyond any other card issuer last year and has continued collecting despite a
global pandemic. (Drew Angerer/Getty Images)
Since 2018, Capital One has been a looming presence in Julio
Lugo’s life, ever since the company sued him, as it did 29,000 other New
Yorkers that year, over an unpaid credit card. But when the coronavirus hit the
city this March, it wasn’t on his mind.
At Mount Sinai in Manhattan, where he works, he’d been
drafted into the hospital’s frenzied effort against the virus. He normally
gathered patient information at the front desk of a radiology clinic in orderly
shifts, 9 to 5. Now he was working 16-hour days, often overnight. At one moment
he might be enlisted to help a team of doctors or nurses put on their full-body
protective equipment and then he would rush to disinfect another team. He lost
track of the days, only orienting himself by the need to juggle care with his
ex-wife of their two young children who were now out of school.
But despite a global pandemic, Capital One didn’t forget
about him. The company began in late March to seize a portion of his wages to
collect on that debt — one that he says wasn’t even his.
Federal, state and local officials have all taken some steps
to protect Americans from the ravages of the economic crash due to COVID-19.
Congress halted a substantial portion of evictions, foreclosures and collection
on student loans. And when it sent $300 billion in stimulus checks out to
families, many states took steps to make sure that debt collectors didn’t grab
the money. But one of the most aggressive and common forms of debt collection
has generally been allowed to continue: seizure of wages for old consumer
debts.
The main protection Americans have gotten from debt collectors
has been inadvertent, a byproduct of state courts being closed to most
hearings, including those pushed by debt collectors. But this didn’t help
people like Lugo who were the target of actions that began before the closures.
Wage garnishments can run indefinitely once begun. As a result, essential
workers and others who were lucky enough to keep their jobs have still been at
risk of forfeiting a portion of their paychecks.
No one tracks wage garnishments either federally or at the
state level, and that’s a key reason they get little public attention. But
ProPublica has found that it hits workers earning $40,000 or less the hardest
and is particularly common in predominantly black communities. Because
garnishments are set at a percentage of income (25% in most states) regardless
of whether someone can afford it or not, they often provoke a financial
emergency and cause the debtor to let other bills go unpaid.
While new collection activity has dropped off, some major
debt collectors have been laying the groundwork for a return to normal by
filing suits by the thousands, according to a ProPublica review of online court
records from county and state court websites. For example, in Maryland, two
major debt collectors alone filed over 2,000 suits in April.
When the courts fully reopen, as they already have in some
states, these companies will be first in line to win new court judgments. Those
debtors who still have jobs will be forced to either make payments or risk
their wages being seized. With 48% of American households having experienced a
loss of employment income in the past few months, many will have no wages to
take. But debt collectors can be patient and wait until they do.
Even more worrying to consumer advocates is what lies ahead.
Households often rely on credit cards during moments of financial stress. In
recent months, more have been paying rent with their cards. Eventually the bill
will come due, which could lead to a wave of collection suits as the nation
attempts to recover.
“There’s going to be a whole swath of people who never
thought they’d be in a position to default,” said Pamela Foohey, a law
professor at Indiana University who argues in a recent paper with two
colleagues that Congress should impose a debt collection moratorium to allow
for recovery. “It’s not productive to be garnishing people’s wages when they
need to pay for food and get back on track financially,” she said.
Get Involved
Having Trouble With Your Rent, Mortgage or Debts? We Want to
Hear From You.
Will banks, landlords and other debt collectors work with
people who’ve lost income because of the coronavirus crisis? Help us find out.
Over the past couple decades, Capital One, Lugo’s pursuer,
helped lead the way in transforming the nation’s local courts into collection
machines. As recently as the 1990s, these courts conformed to the picture most
people have in their heads, primarily working as a venue where a judge resolved
disputes between two sides represented by a lawyer. Now the most common type of
case is debt collection, a recent Pew Charitable Trusts report found. Lining up
against debtors who are almost never represented by an attorney, debt
collection companies win millions of court judgments each year, which then
allow them to seize debtors’ wages for years into the future. An old unpaid
bill will fall off a credit report after seven years, but a court judgment can
haunt someone forever.
While different types of plaintiffs may flood the courts in
different areas (from payday lenders to nonprofit hospitals), those collecting
on credit card debt have driven this trend over time, according to ProPublica’s
review of court data from several states.
The change has been obvious in courts everywhere, from New
York to Las Vegas (where the local court decided to give such cases their own
category, “Civil – Credit Card Collection”) to rural Iowa.
“It does bother me that courts have become sort of a tool for
credit card companies. We’ve just become part of their business machinery,”
said Judge Chris Foy, who presides over the district court in the small town of
Waverly, Iowa.
The most common plaintiffs don’t tend to be household names
that advertise with bold TV campaigns: Most are debt buyers, companies that buy
up bad debts in bulk. The exception is Capital One.
Aggressive debt collection is key to Capital One’s
profitability. Last year, the same year the company reported $5.5 billion in
net income, it recovered $1.4 billion from its card accounts that had been
previously charged-off, or recognized as losses. It was a haul hundreds of
millions of dollars beyond any other card issuer, even much larger ones like
JPMorgan Chase.
In a statement, a Capital One spokeswoman said the bank files
more suits than other banks because it makes riskier loans. According to public
filings, as of the end of this year one-third of Capital One’s cardholders had
a credit score under 660, generally considered the threshold that identifies
those most likely to have trouble paying debts back. The bank’s current card
offers for such customers carry an annual interest rate of 27%.
“Most regional, community and especially large banks
retreated from the subprime segment to focus on more affluent customers,
resulting in a growing population of people with less access to the banking
system,” the spokeswoman said. “Capital One remains a full spectrum lender.”
“Debt collection for us is about helping customers resolve
their delinquent debt and reducing losses, not making money,” she said, and the
bank always attempts to work with borrowers before suing. As for Lugo’s case,
the company said it couldn’t comment because it was currently in litigation.
The best estimate of the national scope of garnishments comes
from ADP, the nation’s largest payroll services provider. At the request of
ProPublica, ADP first undertook a study of payroll records six years ago. It
followed up with a second survey in 2017. Both times, it found that 2.9% of
workers had their wages garnished for consumer debts in the previous year. That
works out to about 4 million nationally. Notably, both surveys were done during
a period of economic expansion. In the Great Recession, between 2007 and 2009,
the number of suits skyrocketed, according to ProPublica’s review of filings
from several states.
Court judgments also allow collectors to seize money from
bank accounts, often emptying them. But taking a portion of a paycheck is far
more common, according to a ProPublica review of court data in Missouri and
Georgia.
When the coronavirus outbreak hit, New York, like many other
states, took several steps to protect vulnerable people, such as halting
evictions or new garnishment orders. But the state let existing wage
garnishments continue. Consumer advocates and the New York City Bar called on
Gov. Andrew Cuomo to fill that gap and suspend all garnishments. So far, he has
not, despite moves by some other states, such as Nevada, to do so. In New York,
plaintiffs can take up to a tenth of a debtor’s pay.
Cuomo’s office did not respond to a request for comment.
U.S. hospitals are in the spotlight for being on the
frontline of fighting the pandemic. But in the shadows, debt collection
operations continue, often by the same institutions treating coronavirus
patients, all while unemployment and uncertainty soar.
Lucian Chalfen, a spokesman for the New York State Courts,
told ProPublica that garnishments were allowed to continue because “existing
orders were considered essential matters.”
Those burdened with a garnishment amid the pandemic could
request an emergency court hearing to have it suspended, according to guidance
given to the city’s marshals, who administer garnishments. Michael Woloz, a
spokesman for the marshals, said they “do everything they can to accommodate”
people with hardships.
Susan Shin, legal director of the New Economy Project, a
legal aid organization in New York City, said her group has been getting calls
since March from New Yorkers asking for help with ongoing wage seizures.
Capital One was often the plaintiff. People were afraid of risking their health
to go out and seek help from the courts. “Why put someone in that position?”
she said. Relatively few people who need help find their way to legal aid.
ProPublica spoke with three New Yorkers who struggled to
address seizures of their pay after the pandemic hit. Although all three
managed to eventually halt the garnishments with the help of a legal aid
attorney, the cases show how such suits can hang over people’s lives for
decades. Two of them asked ProPublica not to use their last names out of fear
it would displease their employers.
Capital One, asked about the cases, said, “Our policy is to
work with any customer who needs help and is impacted by COVID-19.”
Capital One sued Robert in 2007 for about $1,900. He is HIV
positive and fell behind because of health issues, he said, and has been in and
out of work over the years. For almost a decade, he said, he didn’t hear from
Capital One. But last fall, soon after Robert began a new job, he received
notice telling him to arrange payment on the debt or he would be at risk of
garnishment.
He eventually struck a settlement to pay Capital One a total
of $300 on a payment plan of $20 a month. But shortly after he made his first
payment, he was shocked to find that his wages had been garnished anyway. The
seizures continued for weeks, well into March of this year. Both Capital One
and the marshal’s office told ProPublica that Robert’s employer had been sent
notice not to execute the garnishment, but that it had done so anyway in error
and that the checks had been promptly mailed back to the employer.
Capital One sued Grace, a social worker in Queens, in 2013
after she lost her job and fell behind on her payments. Like Robert, she said
she hadn’t heard from Capital One for years. In February, she received a letter
from the marshal warning her that her pay would be garnished if she did not
make other arrangements to pay off her debt of $2,800.
When the virus hit and the courts largely shut down, she
assumed it was a problem that could wait. “I was just trying to get by,” she
said. After the garnishment started, she searched online for help and found her
way to Shin, the legal aid lawyer. The money has since been returned, but Grace
knows the seizures could start again when the courts reopen.
Given Lugo’s hectic days and nights working at the hospital,
it wasn’t until mid-April, when 500 New Yorkers were still dying every day from
the virus, that he discovered $168 missing from his latest paycheck. Although
he was sued in 2018, he didn’t find out about the suit until his wages began to
be garnished last year, he said. One reason is that the debt is not his, he
said.
In a legal filing, with the help of a legal aid attorney, he
argued that his now-deceased father likely stole his identity to take out the
card. A process server falsely claimed to have served his mother with notice of
the suit, he said.
The filing stopped the garnishments last year, but in early
March, he missed a court hearing because it conflicted with a parent-teacher
conference at his child’s school, he said. He thought the hearing would be rescheduled,
but unbeknownst to him, it triggered a new garnishment.
“Being that the courts were closed, I couldn’t understand how
they could just start taking out money again without letting me know,” he said.
Eventually, again with help from a legal aid attorney, he was
able to stop the garnishment and get a new court date, currently set for
August.
After the virus hit in March, Capital One largely suspended
filing any new debt collection lawsuits. But other big debt collectors did not,
including Encore Capital, the nation’s largest debt buyer. ProPublica reviewed
online court filings in eight states where courts had largely stopped hearing
new cases and found that Encore still filed over 1,600 lawsuits in April.
Encore reported collecting $1.3 billion in old debt in the
U.S. last year and was looking forward to another good year when March came.
Encore CEO Ashish Masih told analysts last month that the
company is still optimistic. Widespread unemployment and the courts closing
hurt the company’s near term prospects, but Masih said this would only cause a
“delay, not a permanent loss” in what the company hoped to collect in 2020.
Eventually, he said, “the court processes will start working,” and “we hope to
recoup about 90% of collections over time.”
In response to questions from ProPublica, Encore said that
according to its company policy, “We’ve suspended collections for any consumer
who lets us know they’ve been directly impacted by COVID-19.”
Across the country, courts are taking steps to resuming full
function. In Arkansas, where the virus did not initially hit hard, but has been
spreading faster lately, the state supreme court announced in early May that
all courts could reopen to hearing any type of case starting May 18. How
exactly to do this is up to local courts, and solutions range from video
hearings to in-person hearings with a limited number of people in the courtroom
and temperature checks before entering.
Wage garnishments in the state never stopped, said Susan
Purtle, an attorney with Legal Aid of Arkansas, which serves almost half the
state. That’s partly due to the large number of meat processing plants there,
she said. “Those clients have continued to work,” she said, and so had wages to
take.
But recently, she said, calls about new suits have been
coming in. Typically, she’s seeing court hearings scheduled for July or August.
Once they begin again, collectors will resume winning judgments that can be
used to collect on the debtors who still have jobs. For the ones who don’t, the
companies will wait until they do.
Ellis Simani contributed reporting.
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