Written by: Dustin Olson

It is difficult to put into words the tragic situation currently befalling the U.S.. The COVID-19 pandemic has unleashed the proverbial perfect storm on a socio-economic system already in decay.

The biological crisis will lead to a healthcare crisis if not properly managed. Mitigating the potential health care crisis requires that people physically isolate, which will lead to an economic crisis, if not properly managed. Without proper economic management, a depression-level financial crisis seems inevitable.

As the biological crisis is presently beyond our control, one would expect that mitigating the healthcare crisis would be priority number one. Such mitigation implies that certain economic steps are necessary to prevent financial collapse. Numerous economists and financial-system experts, who might differ in the details, propose this general model offered by economists Yvea Nersisyan and L. Randall Wray:

(1) full coverage of medical costs associated with testing and treatment of COVID-19;

(2) mandated paid sick leave and full coverage of associated costs;

(3) debt relief for families;

(4) swift deployment of testing and treatment facilities to underserved communities.

Almost uniformly, the experts agree that although this first step is essential in the immediate, it is probably insufficient. Even the IMS is advocating against austerity, suggesting that more economic stimulus at the individual level is necessary to avoid financial collapse. Nevertheless, the first wave of crises would be addressed by meeting the health-crisis head on with these four steps. Functional societies already cover (1) and (2) and are taking steps to institute (3) and (4). Of course, we’re not discussing a functional society.

Initially, the U.S. government seemed ready to rise to the occasion. As a first response, they dedicated $8.3 billion to research and vaccine development. The second phase was to provide $104 billion for sick time and state unemployment insurance.

Phase three scaled things up significantly, creating the $2 trillion Coronavirus Aid, Relief, and Economic Security Act, frequently referred to with the euphemistic but ultimately ironic acronym CARES Act. On the surface, this bill is promising. It’s purpose, at least nominally, is to assist individuals, small businesses, and corporations distressed by the pandemic. In reality, it’s the equivalent to a financial band-aid for those needing reconstructive surgery, and a fully staffed hospital wing for those who’ve been inconvenienced by a hangnail.

The CARES Act offers individuals a one-time cash payment of $1,200, with an extra $500 per child. The number of checks individuals will receive depends on 2018 or 2019 tax returns — already eliminating millions from eligibility. Estimates suggest that these checks will total from $300 - $560 billion, roughly one quarter of the relief. The stimulus also includes relief to state and local government ($340 billion), public health ($154 billion), small businesses ($377 billion), and education ($44 billion), while also maintaining a safety net ($26 billion). These figures make up roughly three quarters of the bill.

The remainder, $500 billion, has been allotted for massive corporate handouts. Included recipients in these offerings are such essential services as cruise-lines, airlines, and hotels—all industries that squandered their previous billions in taxpayer bailouts, through stock buybacks used to increase shareholder dividends and boardroom bonuses. Notice that the worker is nowhere mentioned here. That the CARES Act provides individual families and small businesses with aid may suggest that these bailouts are nevertheless necessary. They’re not. And even if they were, they would be an evil necessity.

As William J. Barber and Liz Theoharis note, “Americans who are desperate for aid from their government could not get it without paying a 25 per cent surcharge to the rich and powerful. In a word, this is evil.” Alone, this abuse is bad. A ‘mere’ $500 billion is not the entire story, however. It gets much worse.

Already in a six-month crisis, the financial system is once again on the cusp of collapse. Without the banking system, no one would be able to receive credit or loans. Without credit, no one gets paid. Why? Without the banks, there would be no transactions; without transactions, there would be no paycheques, and without paycheques there would be no economy. Every one of the major economic drivers relies on the financial sector and the credit it offers. It is for this reason that staving off financial crises is imperative. Banks without money aren’t banks.

Defaults in the housing sector kickstarted the 2007–2008 recession. Wall Street investment banks, doubling as insurance brokers and credit lenders, torpedoed the global economy. This sabotage was due in large part to a housing bubble resulting from fraudulent sub-prime mortgages and a vast collection of volatile toxic derivatives. Rather than being held criminally accountable, as one might expect, these hucksters were offered a gift courtesy of the taxpayers.

The Obama administration “saved” the economy by offering a nearly zero percent interest buyback loan by purchasing these toxic, nearly worthless, derivatives. Those in the middle class were not offered such assurances.

The fallout of the Great Recession is still being felt. There were 7.8 million home foreclosures resulting in $16 trillion in personal losses in the decade following the crash, with many families currently still at risk of foreclosure. Unemployment doubled between 2008 and 2009. Once thriving suburbs now house one-third of those falling under the poverty line. As the average workers lost their credit ratings, life savings, pensions, and homes, Wall Street mafiosos were given 100 cents on the dollar for the derivatives that initially tanked the economy.

Substantial wealth inequality was, of course, exacerbated. You can buy a lot of real estate when it’s 33% off, with no interest, zero risk, and you’re the only one handing out loans.

The biggest tragedy following the 2008 crisis is what didn’t happen, however. An unregulated financial system, held hostage by the five major banks that produced the recession, was permitted to run business as usual. Glass-Steagall remains repealed, allowing for these banks to serve as lenders, insurers, and investors. There is zero oversight of the fraudulent activities that manifested the recession in the first place. The same over-the-counter derivatives that produced the financial collapse now hold astronomical value, worth $290 trillion, 85 per cent of which are owned by four commercial banks.

Making matters worse, the restructuring to the financial system that did occur removed any additional checks-and-balances between Wall Street and the Federal Reserve. Where once Congressional approval was required for federally backed loan guarantees, there is now a tap connecting the Federal Reserve to Wall Street via the NY Reserve, allowing for continual extraction from the US treasury to bank executive and shareholder pockets. In fact, between September 2019 and February 2020, US taxpayers have gifted Wall Street with $9 trillion. Unsurprisingly, it’s to avoid another financial crisis.

The current biological crisis requires physical isolation. Isolation is not good for business, unless you have really deep pockets. With insufficient financial assistance to individual families and small businesses and no moratorium or proper safety-net oversight on individual costs such as rent, mortgages, or loans, defaults are inevitable.

Already flirting with a financial crisis, the current economic downturn is projected to make the mid-2000s housing crash appear minor by comparison. For perspective, the total economic contraction following the Great Recession was 0.1 per cent. The IMF is predicting that our current global lockdown will result in at least a 3 per cent contraction, with worst-case scenarios reaching as much as 11 per cent. This is not a recession, it’s a depression.

At the behest of gluttonous oligarchs who have yet to discover a crisis they cannot exploit, policy makers have provided another $4 trillion assurance to the financial sector.

The grand total of the CARES Act, beyond the headline grabbing initial $2 trillion stimulus, will be much closer to $10 trillion when the smoke clears—$4 trillion insurance, $4 trillion to The Fed, and the $2 trillion government stimulus. With everyone stuck at home, small businesses hamstrung by the biological crisis, and lenders enhancing lending restrictions, it will be an inestimable feeding frenzy for those very few with the capital to exploit the inevitable bankruptcies.

In tangible terms, the outcome of this rigged system will be an even further consolidation of wealth into a few thousand pockets. Such theft prompted financial commentator Dylan Ratigan to refer to the CARES Act, which passed the house with a vote of 96 to zero, as “An abomination beyond comprehension.” It is common to see reference to this type of system as ‘socialism for the rich and free-market capitalism for the poor’. But we already have a label for systems that place economic, cultural, and political power into the hands of a small few at the expense of the many, without their consent or their knowledge. We call these tyrannies.