Wall Street Wants to Milk the UC Cash Cow*
Steven Miller 26 November 2009 Oakland, California
*(This article is a slightly expanded version of “Wall Street Lurks Behind California’s University Crisis” written on November 22).
The same day that UC Regents announced a 32% increase in student fees, the California legislative analyst stated that the state faces at least 5 years of $20 billion+ deficits.
The conjunction of these two events dramatizes the central fact that Wall Street is calling the shots in the California crisis. California claims that the Wall Streets collapse meant that corporations couldnât pay taxes last year. Therefore ãwe have no choiceä but to make ãcuts across the boardä in 2009. So if Budget Crisis 2009 is as bad as this, what will Budget Crisis 2.0 through 6.0 mean?
Certainly one lesson of the Bail Our, a year ago, should be that there is no such thing as ãlocal financeä. Could it be that the Gobernator and the UC Regents are simply the local sheriffs who are supposed to enforce the will of high finance?
Here’s some background:
1) The regents raised fees for students because these increases had already been ãsecuritizedä and were necessary to provide collateral for loans, principally construction loans. The money had already been spent BEFORE the increases were made! (See Bob Meister, “They Pledged Your Tuition to Wall Street”. (http://www.reclamationsjournal.org/issue01_bob_meister_where_does_tuition_go.html )
Universities across the country took a huge financial hit in the Melt Down. Harvard University, last year, responded differently than UC to the economic crisis. They halted all construction. The UCs are continuing to build. At UC Berkeley, for example, the campus is undergoing massive construction to build a new world-class bio-tech college. This is a gift to the major corporations that fund and profit from UCB, namely Novartis and other Big Pharma corporations.
What exactly does “securitization” mean? During the Great Financial Bubble of 2002 through 2007, hotshot graduates from UC, the Ivy Leagues and many universities quickly found jobs paying six figures by inventing “securitization”. These so-called “financial instruments” were part of the Great Wall Street Ponzi Scheme; make speculative bets on credit, with no money up front. Just pay out of the profits!
Securitizing mortgages set off such a rush that by 2008 the whole thing collapsed. But Wall Street is still all about securitizing things since this produces a really hot profit on paper, if not in reality. Speculation still drives the Casino Economy and this drives Wall Street. Itâs all about creating the next bubble.
Securitization has recently been extended in all sorts of directions. Water in California is highly securitized. You can buy paper water promises upon delivery and then sell them cheap or dear. This is also what ENRON tried to do with California’s electricity in 1998. Even though the corporation went bankrupt, the state is still paying off the $40 billion owed. Securitizing mortgages broke the banks, but hasn’t ceased. The latest scam is to securitize and bundle life insurance policies. Wall Street Global Warming solutions are all about creating “a market” for the atmosphere. “Carbon Trading” is just a way to float paper to speculate on the rate of escalating pollution.
No one has yet publicized how often UC student payments have been “securitized”, but you can be that this wasn’t the first time. You can also bet that the process is accelerating. When 170,000 undergrads each pay $10,300, you wind up with $1.75 trillion. Thatâs a nice pool of revenue that corporations could divert to bigger things! Add in more increases for grad students, CSU and community college students and you are talking some real money.
2) On Friday, November 20, radio’s Democracy Now interviewed Bob Samuels, president of the University of California American Federation of Teachers and who runs the blog Changing Universities. He reported another example of how high finance drives the process.
BOB SAMUELS: “I think his (Chancellor Mark Yudoff – ed) main strategy is basically to blame the state for everything, while they try to privatize the university. And a very telling moment came. After the UC’s budget was cut by the state, the UC turned around and lent $200 million to the state. And people said, how can you lend $200 million to the state while youâre giving faculty furloughs and while you’re raising student fees and while you’re cutting classes? And he said, When we lend money to the state, we make a profit from interest. But when we spend money just on teachers’ salaries, that money just disappears. So, from his perspective, instruction is a losing proposition, and the university should just try to get out of the business of basically teaching students and hiring faculty.” (http://www.democracynow.org/2009/11/20/students#)
3) Wall Street’s notorious and supremely powerful FIRE Sector is behind the local budget maneuvers in every state. “FIRE” stands for Finance, Insurance and Real Estate, whose earnings are so intertwined that the Commerce Department reports their earnings as a composite. (Michael Hudson. The New Road to Serfdom, p 5).
The economic collapse emanates directly from this sector, Ground Zero of the financial collapse. Last year’s $13 trillion Bail Out went principally to this sector to provide debt relief for Wall Street by guaranteeing their predatory lending policies. At the same time, the power of lenders over debtors were increased unprecedentedly.
Schwarzenegger claims that the budget crisis comes from a collapse of taxes, since corporations had an unprofitable year. He hides the fact that Wall Street is shifting the crisis to the states by demanding rigorous debt payments in order to guarantee their cash flow. Suddenly over 40 states are finding themselves in the same situation as California.
FIRE and Privatization
Wall Street could not survive without credit for even a second. The UC fee increases simply are a guarantee that credit will be extended to these massive, multi-billion construction projects, thereby securing the profits of all corporations involved. Credit in the US rests on real estate. US Mortgage credit in this country is ten times greater than credit for industry. (Michael Hudson. KPFA 8-15-2008). No wonder the Regents are heavily controlled by real estate developers.
The UC Regents have been headed for years by billionaire developer, Richard Blum. Blum is the husband of Senator Diane Feinstein, the richest person in the US Senate. Blum joins the notorious Eli Broad as perfect examples of how the FIRE Sector operates and its new-found interest in all forms of public education.
More than anything else, Wall Street manufactures credit by creating debt; the debt guarantees a cash flow as long as the economy doesn’t meltdown. When it did last year, the Bail Out was openly designed to guarantee banks could start lending again, ie, manufacturing debt. Hence the $61.7 billion bail out of AIG Insurance. This open scam was simply a pass-through operation, so that AIG’s creditors could be bailed out.
AIG developed from Sun America Insurance, started by Eli Broad, with billions from his Southern California real estate projects. Broad was still in charge of the corporation’s retirement funds last year. Broad is also the country’s number one billionaire activist and philanthropreneur who pushes corporatization, privatization and securitization onto the country’s K12 schools. Executives, trained at Broad’s Academy, have taken over more school districts in more than a dozen major cities, including Oakland, Detroit and Washington DC, where they close public schools and open charters.
Wall Street intends to profit by seizing and stripping public assets as states find themselves in artificial debt crises and stampede into desperation fire-sales.
Last year, the so-called “pundits” openly marveled when Wall Street wasn’t spending very much of the trillions it received from the government “to restore the economy”. It is very convenient to perpetuate the myth that capitalists are flamboyant entrepreneurs, rather than exponents of interlocking global capital networks of investment banks, private-equity corporations and hedge funds.
The New York Times explained last year the real reason that Wall Street was holding back. According to an AlterNet story, “Wall Street investment banks and investors – such as Goldman Sachs, Morgan Staney, Credit Suisse, Kohlberg Kravis Roberts, and the Carlyle Group – are amassing an estimated US $250 billion “war chest” – to finance a tidal wave of infrastructure projects in the united states and overseas.” (Jo-shing Yang. “Why Big Banks May Be Trying to Buy Up Your Public Water System.” http://www.alternet,org/story/105083/. Posted November 17, 2008)
As the New York Times pointed out correctly, US federal, state and local governments are financially strained with Îmounting deficits that have curbed their ability to improve crumbling roads, bridges and even airports with taxpayer money, hence both the voting public and the governments are increasingly open to the idea of privatizing public infrastructure·ä (see Yang, above reference)
Public universities are also infrastructure.
Only they are not crumbling and collapsing like bridges all over America. They are potentially prime investment opportunities IF their mission is changed (as is being done in California) to eliminate the public from any control whatsoever. Hence, we hear the UC Regents moaning and rubbing their hands while they say that Californiaâs Master Plan for Education (which establishes a public mission for universities at both the UC and the Cal State levels) is simply antiquated. The Master Plan promises accessible, accountable high-quality higher education at nominal fees for the states’ three levels of higher-education.
Corporations fully understand they have a big stake in crafting the systems of public education. Public schools have always been configured to feed the labor market. Now that high technology is replacing routine labor globally, what corporation is going to finance a broad system that creates the educated workers it no longer needs? Such CEO’s can be bounced quick, fast and in a hurry, since they aren’t maximizing corporate profits. For corporations, public education – at all levels – is an unnecessary expense in the 21st Century, so they are privatizing it as quickly as possible. This means eliminating public rights and reducing it down to a cash cow.
Broad was last year’s FIRE sector’s poster child. Blum is this year’s winner for his efforts towards the increased privatization of higher public education in California. In addition to the financial maneuvering to drain the states of capital, these activist billionaires tell us all that “private corporations can take better care of public interests than can the public itself”.
This is a strange concept since, by law, CEOs must maximize private corporate profit even if it means at the expense of the public. Itâs really not about greedy moguls and avaricious tycoons. Yes, the system generates greed, but greed does not generate this system. Any corporation can mobilize its capital to attempt a hostile take-over. If you, the CEO, don’t try for maximum profit, you are out.
Enter the Gobernator
Governor Schwarzenegger’s immediate response to the report of 5 more years of massive budget crisis was to loudly proclaim that the problem will be solved with “no new taxes”. This line, of course, sets up the phony “Budget Crisis” as a means to turn state and local government into a permanent ATM for Wall Street.
California’s corporate-friendly tax breaks are abundant and notorious. Less than 50% of the profitable corporations in the state pay any tax at all! Now, under the last budget deal, corporations get to pick whether they will pay taxes of property, income or their workforce! Somehow this juicy break does not extend to working people, who pay the vast share of the state’s taxes. Thereâs plenty of money to renew the California Dream by taxing corporations.
The Gobernator and his Wall Street buddies are happily looking forward to five more years of divesting public property from the state. Schwarzenegger has even called for eliminating all corporate taxes in the state as a response to the “crisis” (SF Chronicle, 9-30-2009). It’s pretty hard to think that Wall Street doesn’t have a game plan here.
The week before the fee hikes, Schwarzenegger engineered a multi-billion dollar give-away of public water to corporations. This is another attack on the public’s control of infrastructure, built, like the universities, with public money. The scenario is “eerily similar”· or maybe it’s not so eerie after all.
“But in reality, this drought hysteria is nothing more than political theatrics, a scare tactic backed by big agribusiness to strong-arm California voters into building a multi-billion dollar system of dams and canals that would not really help small farmers – of which there are very few anyway – but would deliver more water to corporations, subsidize their landholdings, fuel real estate development and enable large-scale water privatization.” (Yasha Levine. “How Limosine Liberals, Water Oligarchs and Even Sean Hannity are Hijacking Our Water Supply”. http://www.alternet.org/story/144020. Posted November 19, 2009).
The attacks on the public’s control of the university must be seen in this context. Public rights in all spheres are being sold down the river.
This is far more than an issue of cutbacks. The “budget crisis” is being used to dispossess the public of billions of dollars of assets that up to now, have been owned and controlled by the public. The goal is, as was so profoundly stated by capitalist cheerleader, Grover Norquist, to reduce the size of government until it is so small that it can be drowned in the bathtub. We are witnessing how the Neoliberal economics – as described in Naomi Klein’s The Shock Doctrine – are being applied to the United States.
Clearly if the federal government can bail out Wall Street, it can bail out California, and every state and local government. But by not doing so, the Federal government forces governments across the country to divest themselves of people-services through privatization.
Wall Street has all but merged with the federal government (the Bail Out stipulated that banks are now “agents of the government”!) and corporations are planning to stoke the next financial bubble with the billions they are looting from federal, state and local governments.
The madness of speculation drives Wall Street. Speculation works on corporate credit and is financed primarily by individual debt. Speculation requires investment opportunities. There are billions, perhaps even trillions of dollars in the public· if only it could be turned loose. Hence financial crises, hence dispossession of the public, hence privatization.
UC protestors lead with the slogan of defending public education. “No cuts, no fees, education must be free!” These are not general demands. They must be directed at government to force it to bail out every civil and human right, every civil and human need. If anything is “too big to fail”, it should be the Public – that’s all of us!
Government at every level should be put on the spot and forced to make public pledges to define what they do for the public, how they ensure the rights of the public, even beyond civil rights, and how they intend to expand the domain of the public. But Wall Streetâs clear intent is ruination, unless the people fight together to stop the insanity of putting corporate profits before people.