The true nature of New Labour doesn’t come clearer than this. If you are a low earner, New Labour says you should pay more tax. But if you are a banker, government hand-outs are the order of the day. So prime minister Brown is “standing firm” over the abolition of the 10% tax band, which reduces the incomes of five million people, while his chancellor is today helping out the major banks to the tune of £50 billion.
New Labour, which came to power a decade ago as champions of global markets and corporate-driven globalisation, is now struggling day and night to keep the faltering fantasy finance show from closing its doors to the public. With the market system holed below the water line, Brown’s government is launching one bail-out operation after another in an increasingly desperate bid to save it from floundering altogether.
The latest move is for the banks to trade in bundles of mortgages that until recently they bought and sold speculatively in financial markets. They used this trade to support mortgage and other loans to the general public. Since the credit crunch got underway, these kind of deals have taken on the air of musical chairs, where the last banker standing ends up holding bundles of increasingly worthless “assets”. The game is no longer played and, as a result, mortgage deals and loans to businesses are hard to come by. Interest rate cuts have not been passed on and instead are being used to bolster profits.
This outrageous behaviour by financial capitalists, whose reckless profiteering threatens to bring misery to millions in every country, ought to be condemned. The way they have gambled with other people’s money provides ample ammunition for them to be taken over without compensation to their major shareholders. Here is the case for reorganising the financial system on a mutual, not-for-profit basis. This is the furthest thought from the minds of the executive management of Britain PLC – aka the Brown government.
It is left to Vince Cable, the Liberal Democrat Treasury spokesman, to say: "We cannot have a situation where the banks are able to privatise their profits and nationalise their losses. Since the mortgages from the banks are of inferior quality and higher risk than the government bonds they replace, the implication must be that taxpayers are shouldering the risks and losses of the banks. This cannot be right."
But it is right as far as the government is concerned. You give us the relatively useless mortgage bundles and we’ll give you loads of cast-iron government bonds, which you can trade on international money markets. What’s more the “independent” Bank of England – which has resisted bail-outs for feckless bankers – has been ordered to arrange this swap shop at the expense of the taxpayers.
Whether all this will work is highly questionable. The credit crunch is a global phenomenon and the financial markets are wholly inter-connected. Germany’s banks, for example, are now in major difficulties, while Britain’s second largest bank RBS is having to raise £10 billion to bolster its balance sheet and may have to sell off parts of the group.
The value of assets like housing are continuing to fall in Britain and the United States, as well as in countries like Spain. Economic activity is already slowing to the point of recession in the US. Similar pump-priming action by the Federal Reserve in the United States has made little discernible difference. US interest rates are now just 2.25%, below the rate of inflation. Yet the more Fed does, the more the markets seem to need. They have simply become debt junkies, needing one fix after another.
AWTW communications editor