RedCeltic
11th July 2002, 13:02
Wall Street reels as WorldCom collapses
By Milt Neidenberg
The fallout from the financial crisis at WorldCom, the second-largest long-distance telephone service provider in the country, is incalculable. The corporation, which is on the edge of a Chapter 11 bankruptcy, controls over 70 percent of Internet traffic at some point, about 30 percent of consumer long-distance phone calls, and 50 percent of all corporate communications in the U.S.
Chief Executive Officer John Sidgemore announced that another 17,000 workers would be laid off immediately. Of a predominately non-union workforce that once totaled 80,000, some 6,000 have already been axed. Sidgemore assured the government, which relies heavily on WorldCom circuits, that there would be no disruptions of vital communications, meaning the workloads of the remaining workers will increase dramatically.
Sidgemore, who dumped most of his shares in the company while management was cooking the books, has stashed away close to $90 million. But his take is much higher when additional benefits are included. Other insiders, including former and current officers and board members, walked away with hundreds of millions of dollars.
One long-time WorldCom employee in New Jersey told Workers World how the layoffs were carried out: "You could hear a pin drop. Those of us who didn't receive a pink slip watched as cardboard boxes piled up outside the buildings were handed out to our sisters and brothers. Management told them to fill up the boxes with the personal belongings they had accumulated during years of service. Most controlled their emotions. They were followed by guards to make sure the company property was secure."
Capitalists' old lament: too much capacity
WorldCom's demise, following the boom and bust period currently affecting the strategic telecommunications industry, has triggered a monumental crisis. There is just too much capacity and competition within the industry--too many sellers and not enough buyers. It has drawn the attention of the Bush administration, the Securities and Exchange Commission (SEC), the Federal Communications Commission and congressional oversight committees.
All are frantically grasping for Band-Aids to dampen the growing anger over this criminal activity--and, most importantly, to allay the fears that the fallout will not be isolated but will affect the economy as a whole.
The collapse of any individual industrial or financial institution, even one as large as WorldCom, might have only limited significance for the overall economy. On occasion, the financial markets even shrug off these developments and play up what is positive to calm the jittery nerves of investors. Capitalist propaganda, through the powerful and tightly controlled media, can often do this. But this time it may prove more difficult, given the crisis.
A Wall Street Journal front-page article on June 27, titled "Stock Market Complicates Central Bank's Challenge to Revive U.S. Economy," showed concern about accumulating scandals--Xerox has joined the growing list--and wonders whether the gloom and doom on the market will affect economic growth.
"There is a risk that at some point the cumulative impact on business, investor and consumer confidence of declining stock prices and the drumbeat of news of corporate malfeasance takes a toll on growth," warns the Journal article.
Federal Reserve Board Chair Alan Greenspan has challenged the analysts' concern. He would like the public to believe that the economy is improving, and that what goes on in the stock market does not affect economic growth.
Tell that to the millions of unemployed. The stock market is the heart and nerve center of the capitalist system. Its health determines the entire economic and class underpinning on which the market rests.
Sam Marcy, the founder of Workers World Party, wrote in "Wall Street Crash, What Does It Mean?" in 1988: "The stock market should not be understood in the narrow sense. It broadly encompasses the heads of the biggest banks (such as the Federal Reserve Board), the heads of other exchanges and government agencies like the SEC. It is the most prominent representative of capitalist production itself."
The hope for a vigorous recovery from the 2001 recession is fading, notwithstanding the efforts of Greenspan to spin a web of damage control. Evidence is piling up that the demise of WorldCom is just the tip of the iceberg.
The rot behind the stink
A wave of bankruptcies and accounting scandals has laid bare what is going on in the giant financial and corporate institutions. Corporate/banking heads and many of their boards of directors have stacked the books with phony profits to rip off billions of dollars in bloated salaries, stock trading, stock options and bonuses. Huge losses that were covered up have now come to light.
WorldCom was just one of many corporations that gave its top executives exorbitant freebies while covering up $3.8 billion in losses.
Corporate malfeasance is compounded by an increasingly weak economy, a falling dollar--now at its lowest level against the euro in 28 months--huge government and corporate debt, and the flight of international capital, which had been a key factor in U.S. economic expansion. Most significant, consumer confidence dropped to a four-month low, the second biggest drop since Sept. 11.
Are the wizards of Wall Street worried that another 1929 stock market crash is on the horizon? Whether their fears and anxieties will be realized remains to be seen, but the danger lights are flashing. The capitalist economy is on a slippery slope, sliding in that direction.
The stock market overall has been in decline since well before 2002. The NASDAQ market has plunged 72 percent, the biggest drop in any major market since the 1929 crash. This is where the high-tech dotcoms have been traded.
The prestigious Standard & Poor's 500 is down nearly one third. The Dow Jones industrial average has dropped 2,000 points, from 11,000 to around 9,000 in two years.
The bursting bubble of the vast telecommunications industry threatens to affect many other Fortune 500 financial/corporate titans.
A statistic in the New York Times June 27 --one day following the WorldCom collapse--put it in sharp perspective. Merrill Lynch, the country's largest brokerage corporation, has tracked the top 20 stocks, measured by the number of accounts that each major investor held at the beginning of the year. These investors have suffered a significant loss of 36.1 percent in that period.
Those wiped out over the last two years are not just the average Main Street investors. These are the big boys, who invest big-time in blue-chip corporate/banking behemoths such as General Electric, IBM, Citigroup, Microsoft, AOL Time-Warner and other illustrious giants that make up the 20 most widely held stocks.
Most significant, the roll call of the 20 behemoths reveals that they, too, are not immune from a growing economic crisis. It confirms that they are subject to the declining rate of profit. Overproduction inhibits them from expanding and investing in new technology. It drives them to reduce their workforce, increase productivity and aggravate the economic crisis further. All this can only speed up the class struggle.
The WorldCom executives, whose scandalous conduct has come to light because of overproduction, are linked to the most powerful banks in the world. The lenders to WorldCom include Bank of America, lead agent for all three WorldCom credit lines; J.P. Morgan Chase, Citigroup, Fleet Boston Financial, Mellon Financial, Bank One and Wells Fargo.
Trillions appear to vanish
Also in difficulty are the holders of $28 billion in WorldCom bonds, whose value is now down to 13 cents on the dollar, as well as the shareholders, whose stock is currently floating at around 6 cents. Clearly, if WorldCom petitions for bankruptcy, much of this equity will become worthless.
It is estimated that over $2 trillion has been lost in the financial markets since the Enron debacle.
More and more what emerges is the outline of a general economic crisis. The stock market is an integrated element of the entire financial services industry--the multitude of banks, credit unions, insurance companies, mortgage associations and, most important, pension funds that are the lifeline of senior workers who have labored long years for economic security.
The stock market is not just a barometer but an economic summary. It is intimately bound up with the world economy--an economy dominated by U.S. imperialism. It is wedded to the boom and bust cycle and to the crisis of overproduction that results in mass layoffs and poverty.
The workers will bear the brunt of this collapse. Since the recession began in March 2001, 1.2 million U.S. workers have been laid off, nearly 170,000 of them from the telecommunications industry. More will be laid off now that the bubble has burst. Few will ever be hired back. Add this to the previous victims of unemployment and poverty and a major economic catastrophe is in the making.
The economic crisis has mushroomed into a political crisis, even though the Bush government and the Democratic Party have only minor quarrels. Both are marching in lockstep with their allies on Wall Street.
Since Bush initiated his "war on terrorism," framed in a frenzy of patriotism, the attacks on the workforce, their jobs, civil rights and labor rights have dramatically increased. Immigrant-bashing, racism and sexism are on the rise.
If the labor movement is to win back a measure of economic and political justice, then as a first step, working class solidarity and unity must take precedence over the patriotic war cries of the Bush administration. There is no other way.
Reprinted from the July 11, 2002, issue of Workers World newspaper
(Copyright Workers World Service: Everyone is permitted to copy and distribute verbatim copies of this document, but changing it is not allowed. For more information contact Workers World, 55 W. 17 St., NY, NY 10011; via e-mail: [email protected] Subscribe [email protected] Unsubscribe [email protected] Support independent news http://www.workers.org/orders/donate.php)
By Milt Neidenberg
The fallout from the financial crisis at WorldCom, the second-largest long-distance telephone service provider in the country, is incalculable. The corporation, which is on the edge of a Chapter 11 bankruptcy, controls over 70 percent of Internet traffic at some point, about 30 percent of consumer long-distance phone calls, and 50 percent of all corporate communications in the U.S.
Chief Executive Officer John Sidgemore announced that another 17,000 workers would be laid off immediately. Of a predominately non-union workforce that once totaled 80,000, some 6,000 have already been axed. Sidgemore assured the government, which relies heavily on WorldCom circuits, that there would be no disruptions of vital communications, meaning the workloads of the remaining workers will increase dramatically.
Sidgemore, who dumped most of his shares in the company while management was cooking the books, has stashed away close to $90 million. But his take is much higher when additional benefits are included. Other insiders, including former and current officers and board members, walked away with hundreds of millions of dollars.
One long-time WorldCom employee in New Jersey told Workers World how the layoffs were carried out: "You could hear a pin drop. Those of us who didn't receive a pink slip watched as cardboard boxes piled up outside the buildings were handed out to our sisters and brothers. Management told them to fill up the boxes with the personal belongings they had accumulated during years of service. Most controlled their emotions. They were followed by guards to make sure the company property was secure."
Capitalists' old lament: too much capacity
WorldCom's demise, following the boom and bust period currently affecting the strategic telecommunications industry, has triggered a monumental crisis. There is just too much capacity and competition within the industry--too many sellers and not enough buyers. It has drawn the attention of the Bush administration, the Securities and Exchange Commission (SEC), the Federal Communications Commission and congressional oversight committees.
All are frantically grasping for Band-Aids to dampen the growing anger over this criminal activity--and, most importantly, to allay the fears that the fallout will not be isolated but will affect the economy as a whole.
The collapse of any individual industrial or financial institution, even one as large as WorldCom, might have only limited significance for the overall economy. On occasion, the financial markets even shrug off these developments and play up what is positive to calm the jittery nerves of investors. Capitalist propaganda, through the powerful and tightly controlled media, can often do this. But this time it may prove more difficult, given the crisis.
A Wall Street Journal front-page article on June 27, titled "Stock Market Complicates Central Bank's Challenge to Revive U.S. Economy," showed concern about accumulating scandals--Xerox has joined the growing list--and wonders whether the gloom and doom on the market will affect economic growth.
"There is a risk that at some point the cumulative impact on business, investor and consumer confidence of declining stock prices and the drumbeat of news of corporate malfeasance takes a toll on growth," warns the Journal article.
Federal Reserve Board Chair Alan Greenspan has challenged the analysts' concern. He would like the public to believe that the economy is improving, and that what goes on in the stock market does not affect economic growth.
Tell that to the millions of unemployed. The stock market is the heart and nerve center of the capitalist system. Its health determines the entire economic and class underpinning on which the market rests.
Sam Marcy, the founder of Workers World Party, wrote in "Wall Street Crash, What Does It Mean?" in 1988: "The stock market should not be understood in the narrow sense. It broadly encompasses the heads of the biggest banks (such as the Federal Reserve Board), the heads of other exchanges and government agencies like the SEC. It is the most prominent representative of capitalist production itself."
The hope for a vigorous recovery from the 2001 recession is fading, notwithstanding the efforts of Greenspan to spin a web of damage control. Evidence is piling up that the demise of WorldCom is just the tip of the iceberg.
The rot behind the stink
A wave of bankruptcies and accounting scandals has laid bare what is going on in the giant financial and corporate institutions. Corporate/banking heads and many of their boards of directors have stacked the books with phony profits to rip off billions of dollars in bloated salaries, stock trading, stock options and bonuses. Huge losses that were covered up have now come to light.
WorldCom was just one of many corporations that gave its top executives exorbitant freebies while covering up $3.8 billion in losses.
Corporate malfeasance is compounded by an increasingly weak economy, a falling dollar--now at its lowest level against the euro in 28 months--huge government and corporate debt, and the flight of international capital, which had been a key factor in U.S. economic expansion. Most significant, consumer confidence dropped to a four-month low, the second biggest drop since Sept. 11.
Are the wizards of Wall Street worried that another 1929 stock market crash is on the horizon? Whether their fears and anxieties will be realized remains to be seen, but the danger lights are flashing. The capitalist economy is on a slippery slope, sliding in that direction.
The stock market overall has been in decline since well before 2002. The NASDAQ market has plunged 72 percent, the biggest drop in any major market since the 1929 crash. This is where the high-tech dotcoms have been traded.
The prestigious Standard & Poor's 500 is down nearly one third. The Dow Jones industrial average has dropped 2,000 points, from 11,000 to around 9,000 in two years.
The bursting bubble of the vast telecommunications industry threatens to affect many other Fortune 500 financial/corporate titans.
A statistic in the New York Times June 27 --one day following the WorldCom collapse--put it in sharp perspective. Merrill Lynch, the country's largest brokerage corporation, has tracked the top 20 stocks, measured by the number of accounts that each major investor held at the beginning of the year. These investors have suffered a significant loss of 36.1 percent in that period.
Those wiped out over the last two years are not just the average Main Street investors. These are the big boys, who invest big-time in blue-chip corporate/banking behemoths such as General Electric, IBM, Citigroup, Microsoft, AOL Time-Warner and other illustrious giants that make up the 20 most widely held stocks.
Most significant, the roll call of the 20 behemoths reveals that they, too, are not immune from a growing economic crisis. It confirms that they are subject to the declining rate of profit. Overproduction inhibits them from expanding and investing in new technology. It drives them to reduce their workforce, increase productivity and aggravate the economic crisis further. All this can only speed up the class struggle.
The WorldCom executives, whose scandalous conduct has come to light because of overproduction, are linked to the most powerful banks in the world. The lenders to WorldCom include Bank of America, lead agent for all three WorldCom credit lines; J.P. Morgan Chase, Citigroup, Fleet Boston Financial, Mellon Financial, Bank One and Wells Fargo.
Trillions appear to vanish
Also in difficulty are the holders of $28 billion in WorldCom bonds, whose value is now down to 13 cents on the dollar, as well as the shareholders, whose stock is currently floating at around 6 cents. Clearly, if WorldCom petitions for bankruptcy, much of this equity will become worthless.
It is estimated that over $2 trillion has been lost in the financial markets since the Enron debacle.
More and more what emerges is the outline of a general economic crisis. The stock market is an integrated element of the entire financial services industry--the multitude of banks, credit unions, insurance companies, mortgage associations and, most important, pension funds that are the lifeline of senior workers who have labored long years for economic security.
The stock market is not just a barometer but an economic summary. It is intimately bound up with the world economy--an economy dominated by U.S. imperialism. It is wedded to the boom and bust cycle and to the crisis of overproduction that results in mass layoffs and poverty.
The workers will bear the brunt of this collapse. Since the recession began in March 2001, 1.2 million U.S. workers have been laid off, nearly 170,000 of them from the telecommunications industry. More will be laid off now that the bubble has burst. Few will ever be hired back. Add this to the previous victims of unemployment and poverty and a major economic catastrophe is in the making.
The economic crisis has mushroomed into a political crisis, even though the Bush government and the Democratic Party have only minor quarrels. Both are marching in lockstep with their allies on Wall Street.
Since Bush initiated his "war on terrorism," framed in a frenzy of patriotism, the attacks on the workforce, their jobs, civil rights and labor rights have dramatically increased. Immigrant-bashing, racism and sexism are on the rise.
If the labor movement is to win back a measure of economic and political justice, then as a first step, working class solidarity and unity must take precedence over the patriotic war cries of the Bush administration. There is no other way.
Reprinted from the July 11, 2002, issue of Workers World newspaper
(Copyright Workers World Service: Everyone is permitted to copy and distribute verbatim copies of this document, but changing it is not allowed. For more information contact Workers World, 55 W. 17 St., NY, NY 10011; via e-mail: [email protected] Subscribe [email protected] Unsubscribe [email protected] Support independent news http://www.workers.org/orders/donate.php)