The government certainly has got its priorities right at this time of giving. Forget those on disability benefits or older people struggling to pay for their care. Don’t bother about hard-pressed commuters facing sharp fare rises in January or people who can’t pay their mortgages. Don’t even worry about soldiers doing your dirty work in Afghanistan with second-rate equipment. But do show a great deal of concern, backed by large sums of money, about bankers.
Yesterday New Labour gave another hand-out to Northern Rock in a desperate move to keep the failed mortgage bank going so that it can be sold on. Brown’s business government announced that guarantees to the beleaguered bank could rise to £57 billion - almost as much as the annual Whitehall education budget and twice as much as originally laid out. That means that each taxpayer has loaned – without being asked and without any guarantees of repayment - the equivalent of £1,800. Were it so easy for ordinary people to get such easy money from the state just when they need it!
The government clearly fears that the collapse of Northern Rock would be a calamity so is prepared to risk all to take on the bank’s liabilities without gaining any legal control through nationalisation. In fact, the government has handed out more money, this time to Goldman Sachs for advice on how it can avoid state ownership of Northern Rock! The problem for the government and the financial industry as a whole is that the sale of Northern Rock is being held up by the so-called credit crunch. Banks who are interested in acquiring Northern Rock will have to borrow money to carry through the purchase. But the money markets are somewhat paralysed at the moment.
Enter the Bank of England and its equally hard-pressed governor, Mervyn King. He is also offering cheap loans to bankers to encourage them to return to the good old days of lending freely to each other as well as the public. King was up before a Commons select committee to explain why the Bank of England had apparently not seen the credit crunch coming or had spotted that Northern Rock was in trouble before it was too late. The governor warned that if the banks continued to rein in lending, an economic recession was pretty much inevitable.
King said: "There is not a shortage of cash. The large banks are now awash with cash. The issue is not whether they have enough cash, it is whether they are inclined to lend." He added: "A painful adjustment faces the global banking sector over the next few months as losses are revealed and new capital is raised to repair bank balance sheets." They are concerned at the capital position of other banks and where debts related to the US housing market collapse would appear next, he explained. King is right to be concerned. Figures released yesterday show that permits to build new homes in America have fallen by almost a quarter in 12 months.
King tried to blame the credit squeeze on sheer greed, with financiers buying and selling debt packages in a bid to make greater and greater returns. This is a partial, one-sided account of the process. Corporate-driven globalisation of the last 30 years was founded on debt in a bid to overcome some basic contradictions built into the capitalist system. The credit crunch is only the surface of the unravelling of this arrangement at state, financial and personal levels. Instead of trying to prop up the bankers, society needs to think seriously about creating alternatives to the failing market economy, as we suggest in our new book, A House of Cards.