In my region of Northern New York, two paper factories that had been in operation in some form or another for more than a century both shuttered forever yesterday. Metro Paper in Carthage, New York which had employed somewhere in the neighborhood of 100 people, before a recent downsizing that left about 20 people employed there recently ceased production. As I understand it, the last of the workers cleaning up the facility and closing down the factory, including one of my relatives was let go yesterday. Before it became Metro Paper, the factory had been a Fort James facility, and before the merger which renamed the company it had been a James River facility, and before that it had been Crown Zellerback. Metro had reopened to produce paper towels a year or two after Fort James closed and sold off the facility in the late 1990s. When it had been Fort James and the predecessor organizations, nearly a thousand people had been employed by the factory. It was one of a handful of factories that had been the economic lifeblood of Carthage, New York and much of Jefferson County.

Yesterday as the last workers at Metro Paper were leaving their jobs for the last time, a meeting was called by the management of Climax Manufacturing Company in Lowville, NY, just thirteen miles down the road from the Metro Paper facility. Climax had produced gift boxes and other box packaging in the Lowville facility in Lewis County since the late 1800s. It’s companion mill in Carthage, NY is literally the only paper mill in the world to make the paper from which beer coasters are made. A few years ago both Climax facilities were sold and split into two separate companies. The paperboard manufacturer in Carthage remains intact, but on Friday, the management of the Lowville facility told the 157 employees of the converting plant that they were terminated, effective immediately. This happened in violation of the WARN Act, but the company is seeking an exemption because they are bankrupt, and until a week ago, they believed that a sale of the facility was going to happen which would have allowed new investors to take over the facility.

The financing for that purchase take over did not materialize and that is where the story of two small private manufacturers in my region going bankrupt may involve Wall Street. It may in no way involve Wall Street too. I will admit that I don’t know if any Wall Street hedge funds or investment banks took an interest in the two manufacturers in my hometown, but I know that a few years ago the Wall Street Journal was reporting about new areas of interest for hedge funds involved in the Credit Default Swap market. That area of interest was the debt of small to medium sized businesses which had traditionally been ignored. You can check out the Wall Street Journal article below.

www.wsj.com/…

Because the Credit Default Swap market is a dark unregulated one, there is no transparency. There is almost no way of knowing who has taken out an insurance contract on what debt, and there are no requirements that they are insuring their own risk of loss on the debt, but what is certain, is that a lot of large players in the financial industry now have a vested interest in the failure of small to mid-sized competitors to large incumbents. That creates an additional perverse incentive for these large investment firms to help bankrupt small to mid-sized going concerns in favor of those large incumbents. These Swaps create an incentive for rich investors to implode profitable businesses. These Swaps create an incentive for investment banks to make it harder for small to mid-sized businesses to refinance debt or write new purchase loans for the sale of small to mid-sized businesses. These Swaps create a new financial reward for Wall Street to put ordinary working class Americans out of work, and that is why Bernie Sanders and his fight against Wall Street matter.

Hillary Clinton says that Dodd-Frank is the toughest Wall Street regulation ever, but Swaps are still legal under those rules. The current rules on Swaps are the same rules that Byron Dorgan warned at the time they were enacted would cause a collapse of the world economy within a decade. Dorgan was right, and those laws are still the same laws. This is all still perfectly legal, and it creates an additional incentive for monopolists. It also creates exactly the kind of crazy gambling environment that lead to the Crash of 2008.

Oil below $40 a barrel and the credit default swaps on the debt of oil companies that invested heavily in wells that need $40 a barrel to remain profitable may have created a similar financial contagion to the 2008 housing market bubble, but that isn’t the worst problem with Swaps. The worst problem is that it creates an environment where failure makes a handful of winners rich, while the working class lose the handful of good jobs remaining.

Wake up America! It is now more profitable for the investor class in America to destroy businesses than to build them.