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Paulson plan - a kick in the face for capital

Marxist Analysis · 2008-09-29

Core Argument

The article argues that the rejection of the Paulson $700 billion bailout by the US House of Representatives on 29 September 2008 represents a momentary rupture in the normal functioning of capitalist crisis management, revealing the class character of the state's intervention. The central thesis is that whether the bailout passes or not, the working class loses: either depression through the uncontrolled collapse of the financial system, or stagflation through massive state-backed transfers of public wealth to private capital. The bailout is not a solution to the crisis but a redistribution of losses from the capitalist class onto the backs of working people, and the popular revolt against it — however temporary — exposes the bankruptcy of both major parties and the entire political establishment.

Theoretical Grounding

The analysis draws on the Marxist theory of the state as an instrument of class rule, applied concretely to the 2008 financial crisis. It does not treat the state as a neutral arbiter or a Keynesian saviour, but as the executive committee of the bourgeoisie — specifically, of finance capital. The article implicitly deploys the concept of the fiscal crisis of the state: the contradiction between the state's need to socialise the losses of private capital and its need to maintain legitimacy with the electorate. The refusal of Congress to pass the bailout is understood not as a victory for democracy but as a symptom of the breakdown of bourgeois political management under the pressure of overaccumulation and fictitious capital.

The piece sits within the Trotskyist tradition's insistence on the permanent character of capitalist crisis and the impossibility of reformist solutions. It rejects the notion that the bailout could be made acceptable through "safeguards for taxpayers" or regulatory conditions, treating such proposals as illusions that obscure the fundamental class nature of the operation. The analysis anticipates the long-term consequences — depression or stagflation — in terms that echo Marx's discussion of the tendency of the rate of profit to fall and the periodic devaluation of capital that crisis entails.

Conjunctural Relevance

The article is written in the immediate aftermath of the Lehman Brothers collapse (15 September 2008) and the near-collapse of AIG. The specific conjuncture is defined by:

  • The failure of three major banks on the same day as the Congressional vote.
  • The Dow Jones Industrial Average falling by the largest single-day point drop since 9/11.
  • The US housing market in freefall, with foreclosures accelerating.
  • Corporate profits already falling at over 10% per annum.
  • The approaching presidential election (November 2008) creating a five-week window of electoral vulnerability for Congress members.

The article correctly identifies the structural choice facing US capitalism: either allow the uncontrolled destruction of fictitious capital (depression) or socialise the losses through state debt and money-printing (stagflation). This binary — depression versus stagflation — proved prescient. The eventual passage of TARP (Troubled Asset Relief Program) on 3 October 2008, followed by quantitative easing, produced exactly the stagflationary outcome the article predicts: stagnant growth combined with asset price inflation, rising inequality, and a decade of anaemic recovery for working people.

Where the Argument Continues

This article is a snapshot of a single dramatic moment — the Congressional rejection — and does not develop the longer-term dynamics of the bailout's implementation. The argument continues in several directions within the IDOM corpus:

  • Mick Brooks, "Bail-out blackmail" (25 September 2008) and "Bradford & Bingley nationalised – let's take the rest" (29 September 2008) develop the British dimension, showing how nationalisation of failing banks is not socialism but the state absorbing private losses.
  • Alan Woods, "World capitalism in crisis" (26 September 2008) provides the broader theoretical framework, situating the 2008 crash within the long-wave downturn of global capitalism since the 1970s.
  • Michael Roberts, "Financial meltdown deepens" (16 September 2008) offers the pre-history of the crisis, tracing the build-up of fictitious capital and the housing bubble.
  • Rob Sewell, "Capitalism has failed. Period" (22 September 2008) draws the political conclusion: the crisis is not a malfunction but a systemic failure requiring revolutionary socialist solutions.

The article does not address the question of working-class strategy in the crisis — how to move from spontaneous outrage to organised resistance. That argument is developed in subsequent IDOM articles on the Greek and Spanish indignados movements, the Occupy wave, and the broader discussion of the need for a revolutionary party.

Connections

  • Marx, Capital Volume 3, Part III — the tendency of the rate of profit to fall and the counteracting factors, including the devaluation of capital through crisis.
  • Hilferding, Finance Capital — the fusion of industrial and banking capital and the role of the state in managing financial crises.
  • Trotsky, The Transitional Program — the demand for nationalisation of banks under workers' control as a transitional measure, not a reformist programme.
  • Ernest Mandel, Late Capitalism — the theory of long waves and the structural crisis of the 1970s-2000s as the backdrop to the 2008 crash.
  • David Harvey, The Enigma of Capital — the concept of accumulation by dispossession and the state's role in absorbing surplus capital through debt.
  • Michael Roberts, The Great Recession: A Marxist View (2009) — the book-length treatment of the 2008 crisis that this article anticipates.

Key Quotes

  1. "Paulson wanted to take $700bn of taxpayers' money, equivalent to 6% of America's annual output, and not spend it on new hospitals, Medicare, more schools and better education; No, not on that. Paulson wanted to spend it buying up the bad and rotten debts of the big banks and financial institutions so they could start making profits again."

  2. "The fat cats of Wall Street were led by the Treasury Secretary Hank Paulson, the former head of Goldman Sachs, the most powerful investment bank in the world. Paulson used to get $40-50m a year in salary and bonuses. He wanted to save his former bank and all the others."

  3. "Paulson represents just 1% of the population, those 450 billionaires in America and 3m millionaires who between them own 25% of all America's wealth. The credit crunch was losing them money big time. He aimed to get taxpayers' money to bail them out."

  4. "Paulson is right: Failure to bail out his friends will mean a strike of finance capital; another squeeze of credit and then companies will stop producing, profits will fall (they are already falling at over 10% a year now) and jobs will be lost, as the housing market dives further."

  5. "So the alternatives are depression worldwide or stagflation worldwide. Americans are beginning to see the reality of capitalism."