Shares in General Motors have fallen to the lowest level for over half a century, a sure sign of the deepening global recession. Just as stark in the world of fantasy finance is the one-third decline in the value attributed to Countrywide, the country’s largest mortgage lender, since it was merged with the Bank of America in January.
The indications for the UK economy are just as dire. Mortgage approvals are 56% down on a year ago, and repayment costs are spiralling. Michael Hume, an economist at Lehman Brothers investment bank, says the statistics paint a "very worrying picture of how the credit crunch is unfolding", adding that a US-style housing slump looks "increasingly likely". American banks in May repossessed twice as many homes as they did a year and prices have plummeted.
HBOS, the parent of Bank of Scotland and Halifax, Britain's largest mortgage lenders, keeps revising its estimates. It now expects British house prices to fall 9% in 2008. But Jeremy Leach, of the British Property Opportunities Fund, expects it to be more like 20%. Meanwhile the gamblers in the world of derivatives are betting that Britain's housing downturn won’t bottom out until 2011 by which time average prices will have fallen by around 30% from their peak last August.
Jeremy Leaf, of the Royal Institution of Chartered Surveyors warns: "The property industry will not be the only casualty in the fall-out from the credit crunch, with the high street and purveyors of a range of household goods, including furniture and white goods, also feeling the pinch. Construction workers such as plumbers and bricklayers will start to see employment opportunities dry up as the pace of housing transactions continues to abate."
And it’s no better in the commercial market, with warnings of falls in prime property rents in 2008/09 of 15 to 35% per cent. It’s no wonder that the world’s richest people have been selling their property investments and transferring their wealth to the emerging markets where opportunities for speculative investments can still be found. The World Wealth Report, compiled by Merrill Lynch and Capgemini, underscores how the world’s rich have managed to avoid the heavy losses that have hit the banking business and continue to reap disproportionate benefits from expansion in the global economy.
The report says that the wealth of the world’s high net worth individuals (HNWIs) increased 9.4% to $40.7 trillion (that’s 12 zeros) in 2007, adding: “The number of HNWIs in the world increased 6% in 2007 to 10.1 million, the number of ultra high net worth individuals increased by 8.8%, and for the first time in the history of the report, the average assets held by HNWIs exceeded US$4 million.”
While the obscenely rich cash in, the rest of us have nowhere else to go in this crisis of capitalism’s making. We need different solutions which point towards a society based on equality and not exploitation. Markets in land and property should be ended, joining the credit markets which have been effectively closed for almost a year. For-profit, shareholder-owned banks should be turned into mutual funds. The land should be taken over by community land trusts. Community-based not-for-profit control and participation will be needed to decide how best to use scarce resources to meet the needs of the majority.