Paul Zarembka
Professor of Economics, State University of New York at Buffalo

“What Underlies Our Current Economic Crisis?”

Paul Zarembka

Dinner Keynote Speaker
Erie Community College, Buffalo, New York

SUMMARY: The address suggests a pattern of economic/political conflict in the United States since the 'New Deal'. The 1930s Great Depression and worker struggles led to certain significant restrictions on full employer freedom on hiring workers, for example, the 1935 National Labor Relation Act (preceded by Section 7A of the 1933 National Industrial Recovery Act) and the 1938 Fair Labor Standards Act. The acts themselves were often un-sustained in practice by the Roosevelt administration, but did offer reference points for worker demands. Still, there were forces that actively considered a coup d'état against Roosevelt and reminds us that such forces are ever-present.
Noting Eisenhower's military-industrial complex warning, this presentation sustains an argument that extremist forces have been progressively embolden, first when they successfully engineered JFK's assassination after his administration's defiance of major military and industrial interests, through 2000 election fraud, 9-11, and then the 2008-09 financial crisis conditioning present claims of budgetary crises throughout the country. The principal mechanism has been well-labeled "Shock Capitalism", referring to extremist strategy of conquest of a population. Understanding what is happening becomes an antidote to its effectiveness.

Prelude – An Attempted Shock: I must start somewhere and choose to begin with the 1930s reforms, which are just that, reforms.  Section 7(a) of the National Industrial Recovery Act (NIRA) of 1933 states that workers in the private sector have the right to union representation.  There were major consequences such as the wide-spread Southern textile strikes of 1934 – which some have described as the closest we have come to a revolution – and the near general strike in San Francisco later in the same year.  In neither case, did the FDR administration support the side of workers.  The year of 1933 also saw the passage of the Glass-Steagall Act which insulated commercial banking from investment banking and established the Federal Deposit Insurance Corportion (FDIC).
In December 1934, retired Marine General Smedley Butler exposed a plot to seize the White House in secret testimony to the McCormack-Dickstein Committee (the Special Committee on Un-American Activities to investigate Nazi Propaganda, the precursor to the infamous House Committee on Un-American Activities).  The general averred that “big business moguls and Wall Street brokers” (cited in [Thomson 2007]) had approached him in 1933 to lead a military overthrow of the government that would mobilize the 500,000 member Bonus Army of disillusioned World War I veterans who revered the former Marine general.  The Committee’s February 1935 report on the fascist plot to topple President Franklin Delano Roosevelt was front page news.  However, as General Butler revealed at the time, much of the McCormack-Dickstein report that accumulated 4300 pages of testimony (National Archives 2009) was suppressed.  Indeed, investigative reporter Mike Thomson discovered in 2007 that the version of the report in the National Archives had been severely censored.  The expurgated version of the McCormack-Dickstein, including only a small fraction of the original Committee report, is available on Wikipedia (, and a more complete version is available at
Wealthy backers of the planned coup, including the Prescott Bush, father and grandfather for subsequent Presidents, escaped being exposed, apparently as part of a deal with Roosevelt to support the New Deal. According to Thomson, the conspiracy to eliminate Roosevelt involved “some of the most famous names in America”, including owners of Heinz, Birds Eye, Goodyear, Maxwell House and General Motors, who “believed that their country should adopt the policies of Hitler and Mussolini to beat the great depression”.  Their plan was to use the Bonus Army under Butler to forcibly overthrow the U.S. administration.  General Butler’s huge popularity with the Bonus Army likely encouraged coup plotters to want to use him as a cat’s paw for the planned overthrow.
In 1935, after NIRA was declared unconstitutional by the Supreme Court, the National Labor Relations Act (NLRA) was quickly passed, also giving workers a right to claim union representation under procedures established in the legislation.  In 1938, the Fair Labor Standards Act was added to the restrictions on unlimited employer rights regarding workers they hire.

Post World War II – The Military-Industrial Complex: The entire period after World War II has corresponded to continuous large-scale militarization of the United States, with strong industrial interests associated thereto. Before late 1963, there were bumps in this highway.  The rhythm of history led General Eisenhower to become President in 1953, and, aside from whatever else we might want to say about him, he had had experience of war and wasn’t too fond of it.  His 1961 Farewell address, arguably the most famous of any President, was no last minute idea with its warning about the military-industrial complex; rather, it developed over the last year or two of his Presidency.  It came from a man who had lived in a different America before World War II, who had a stature of command that greased his willingness to say something profound, and who spoke it at the last minute without having to actually do something reflective of his own warning (in fact, at the same time, he was approving the Bay of Pigs operation and advising Kennedy for military intervention in Laos).
JFK Assassination Shock: John Kennedy, I think, can partly be described as an accident of history.  Much of my comments follow upon the guidelines suggested in James W. Douglass’ seminal book JFK and the Unspeakable: Why He Died and Why It Matters.  

First, I believe that there were two factors behind Kennedy which caused that same military-industrial establishment to which Eisenhower referred to fail to understand ahead of time whom they were getting for President.  First, his brother Robert had worked closely with Joseph McCarthy and liked him, and Jack Kennedy had a cordial relationship to McCarthy.  Thus, Jack Kennedy was a never a leading Senator against McCarthy from the Senate, let alone a Senator making a call for McCarthy’s explusion, so, Kennedy’s anti-communism seemed secure.  Second, Kennedy had been ill much of his life, often facing death, and was a genuine war hero who almost died saving those on his PT boat.  Kennedy had learned to live with death and wasn’t afraid of it; his compass was elsewhere.  Of course, coming out of a family of deep privilege helped also, but that factor does not make him distinctive as an incoming President.

With this background, we turn to his Presidency and the enemies he made.  Let me enumerate:

Bay of Pigs, April 15-19, 1961: The C.I.A. tried to leverage the President to authorize a U.S. invasion, even though Kennedy had said beforehand he would not.  Instead of an invasion, Kennedy instead accepted defeat.  Sizing up the reasons for the fiasco, Kennedy afterwords wanted “to splinter the C.I.A. in a thousand pieces and scatter it to the winds” (Douglass, p. 15, citing the New York Times in 1966).  In the immediate, he fired C.I.A. Director Allen Dulles, two Deputy Directors, and reduced the C.I.A. budget.  (Yet, Allen Dulles would be appointed to the Warren Commission by President Johnson!)  And, contrary to a recommendation from Eisenhower, at a summit meeting June 3-4 Kennedy agrees with Khrushchev for a neutral and independent Laos, having taken a similar position back on March 23, 1961.

Steel price rollback, April 13, 1962: In order dampen inflation, Kennedy thought he had a April 6 deal with steel executives and its unions in which steel prices would remain unchanged.  But on April 10 the steel executives double-crossed Kennedy by announcing a steel price increase.  Kennedy was extremely angry and fought back with the power of the federal government, shifting governmental steel orders to smaller companies that had not raised prices and having Attorney General Robert Kennedy convene a grand jury investigation for price fixing.  The steel executives surrendered … but did not forget.  More ominously, big capitalists learned on April 23 from the New York Times that Kennedy had said on April 10, “My father always told me that all businessmen were sons-of-bitches, but I never believed it until now”.

Cuban missile crisis, October 16 – October 28, 1962: The U.S. military is outraged that Kennedy does not attack Cuba and compromises with Khrushchev. Much later, from the Russian press in November 1992, it is learned that the Soviets had 162 nuclear weapons in firing position in Cuba so that the dangers were very real, what with our own missiles also in Turkey, aimed at the Soviet Union.

American University commencement address, June 10, 1963: Kennedy proposes American self-examination in a path toward ending the Cold War and he unilaterally ends U.S. nuclear testing. Opposite this, senior military advisers had twice proposed plans to Kennedy for a pre-emptive nuclear strike against the Soviet Union – rejected both times by the President.  In the first case of June 20, 1961, the President walked out of the conference room and added a comment to his Secretary of State, “And we call ourselves the human race”.  On September 24, the Limited Test Ban Treaty passes the Senate, 80-19, after a remarkable campaign for its approval.

October 11, 1963, Kennedy ordered a reduction by the end of 1963 of one thousand of the 16,500 U.S. military personnel in Vietnam.  Further reductions were to occur later.  On November 12, Kennedy tells Senator Wayne Morse, “I’ve decided to get out” of Vietnam.  Kennedy also moves toward rapprochement with Castro, including expressions of understanding why the Cuban Revolution had occurred and prior U.S. responsibility toward Cuba.  He is intending to accept a Spring 1964 invitation to visit Indonesia under Sukarno.

MLK Assassination Shock: April 4, 1968, Martin Luther King, Jr. is assassinated. The King family eventually prosecutes and, on December 8, 1999, wins a jury trial involving charges of a U.S. government conspiracy in the assassination.  The judge reads the jury’s verdict: "Do you also find that others, including governmental agencies, were parties to this conspiracy as alleged by the defendant? Your answer to that one is also ‘Yes’." (

There was unquestionable manipulation and fraud in the 2000 Presidential election.  I will pass over the evidence.
9-11-2001 Shock: The 9-11 Commission Report fails to even attempt to prove its list of hijackers correct and alleged pilots were skilled for such attacks and that three WTC buildings collapsed on their footprints at close to free fall speed, one of which was not even hit by a plane.  The consideration of evidence regarding the Pentagon suggests that the official version of that attack is a lie.

“Financial Weapon of Mass Destruction” Shock: As noted above, in 1933 the Roosevelt administration established a separation between commercial banking and the riskier investment banking and protected commercial depositors through the FDIC.  Ronald Reagan was an Ayn Rand supporter, a spokesperson for GE from 1954 to 1962, Governor of California from 1967 to 1975, and became President from 1981 to 1989.  In the Presidency, he strongly supported deregulation across the board, including the financial market, but did not succeed.  In 1987, he appointed Alan Greenspan as Chair of the Federal Reserve Board, a man who was also an Ayn Rand supporter.  

When we get to the Clinton administration, the President worked with those vigorously arguing for financial deregulation, especially, the separation of commercial banking from investment banking mandated by Glass-Steagall.  The key players, besides Greenspan were the Treasurer Secretary Robert Rubin, his deputies Larry Summers (who moves into Rubin’s position when Rubin resigns to go to Citigroup) and Timothy Geithner (who later moves into the Treasurer position and remains there to this day), Senator Phil Gramm, and -- under Bush I and not to be forgotten -- Gramm’s wife Wendy as chair of the Commodity Futures Trading Commission until 1993.   

The process was not a smooth process of advocacy.  A key initial step was that Citicorp and Travelers Group merged in October 1998 (announced the prior April), while obtaining a two-year waiver (grace period) from the Glass-Steagall mandate.  In other words, they first accomplish a exception, and then leveraged it to legislate away the mandate itself.  The needed legislation was Financial Services Modernization Act which passed in November 1999.  Yet, even that legislating away of the mandate of Glass-Steagall was not so easy and ran into last-minute trouble particularly with the Black Caucus in the House.  To overcome that resistance, Citigroup CEO Stanford Weill called in a favor from Jesse Jackson and Jackson came out in support of the proposed legislation.  The deal was completed.

In the last days of the Clinton administration, the Commodity Futures Modernization Act was passed.  Basically, it eliminated regulation of derivatives.  The crisis derivatives was able to create if left free of serious regulation had been strongly and forcefully raised by Wendy Gramm’s successor at the Commodity Futures Trading Commission, namely, by Brooksley Born.  Born never caved in to the onslaught against her warnings, but was simply defeated in battle.  She was not alone, however, but Ralph Nader had not won the Presidency and William Safire was too lonely a media voice.  Collateralized debt obligations (CDOs) then boomed, there were now huge profits perceived to be made from subprime mortgages, and Scheer (2010, p. 36) mentions $640 trillion (sic!) as the notional value of all unregulated derivatives when the meltdown occurred.

Conclusion: The title of my talk has a question mark after it.  It is meant to be there.  The background to the question is a statement no one in the financial markets could ignore: Super-capitalist Warren Buffet said in 2002 that derivatives are “financial weapons of mass destruction”.  This has been proved correct (Buffett, by the way, was shunted aside by Obama once he was in the Presidency.)  

Given my reading of earlier U.S. history and its episodes of “shock therapy”, do we have evidence that the financial crisis coming to a head in 2008 was not merely structurally caused, but engineered with conscious fore-thought?  Who benefitted?  Was it a set-up?


Naomi Klein (2008), The Shock Doctrine: The Rise of Disaster Capitalism, Picador.
Robert Scheer (2010), The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street, Nation Books.
James W. Douglass (2009), JFK and the Unspeakable: Why He Died and Why It Matters, Orbis.
Thomson, Mike (2007). The White House Coup. Document. BBC 4. 23 July at ,  accessed February 10, 2009.