Current and former leaders of global agencies are leap-frogging each other with increasingly dramatic attempts to give expression to the scale and rapidity of the disintegration and collapse of the world’s financial and economic systems. Their warnings contrast sharply with the feeble efforts of national government agencies like the UK’s Financial Services Authority (FSA).
Michel Camdessus, former managing director of the International Monetary Fund (IMF) went large last week, declaring: “This crisis is the first truly universal one in the history of humanity. No country escapes from it. It has not yet bottomed out.” He was foreshadowing yet another of the IMF’s series of ever-more pessimistic forecasts published yesterday that calmly predicts that the global economy will contract this year for the first time since World War II.
Moreover, the impact in the UK will be more severe than in any other developed capitalist economy, the IMF warns. Figures on public finances confirm a rapid spiralling of state debt in the wake of the financial crisis, mounting unemployment and collapsing tax revenues. Next year, the IMF estimates that the Treasury will have to borrow a record 11% of gross domestic product – far more than has ever been borrowed before in British history and higher as a proportion of national wealth than in the United States.
Camdessus’s observation makes the otherwise stunning admission in the opening sentences of the report on the global banking crisis from Lord Turner, head of the FSA look pretty tame in comparison. “Over the last 18 months, and with increasing intensity over the last six, the world’s financial system has gone through its greatest crisis for at least half a century, indeed arguably the greatest crisis in the history of finance capitalism,” he writes.
After pointing the finger at New Labour for promoting “light touch regulation”, Turner admits that markets are irrational but then insists it’ll be OK, apparently, if we tighten regulations this time around. A phrase about shutting stable doors after the horse has bolted springs to mind.
In common with most observers and analysts, Turner mistakenly attributes the global production shutdown, with unemployment spiralling to new records in every country, to bad behaviour in the world of finance. The real source of the crisis actually lies in the system of capitalist production whose expansion is founded on debt of all kinds.
Following the 1929 crash, despite multiple failed attempts at government intervention, the crisis stretched throughout the 1930s becoming known in retrospect as the Great Depression. The Second World War reduced the no longer profitable pre-war surplus productive capacity to rubble and bloody corpses.
Then, and only then, credit expansion freed the insatiable self-movement of capital expansion in post-war spurts of growth. These produced the transnational corporations, built on cheap labour and the wreckage from a series of worsening crises, and spawned the global financial system which has now disintegrated.
Turner wants to get the carnival back on the road, replaying the same show, saying that the global economy needs “the existence of large complex banking institutions providing financial risk management products” which “inevitably involve at least some position taking”.
This is wishful thinking. The crisis is incomparably deeper than any other time in history partly because no-one knows the size of the balloons of credit which have yet to burst and the real state of bank finances. For example, no one in government can actually account for the vast sums allocated to bank bail-outs in America and the UK. They have disappeared into a financial black hole.
There’s an opportunity to discuss non-capitalist solutions and policies for this dangerous crisis at LEAP’s Capitalism isn’t Working conference next month.
.
Gerry Gold
Economics editor
For revolutionary solutions to create a sustainable, not-for-profit economy in place of global capital alongside a real democracy based on People’s Assemblies. Visit our web site at www.aworldtowin.net
Showing posts with label Banking crisis. Show all posts
Showing posts with label Banking crisis. Show all posts
Friday, March 20, 2009
Monday, October 06, 2008
Political crisis takes centre stage
The scale and spread of the historically unprecedented disintegration of the world’s financial system, and its impact on global markets is beyond the control of any one government. And now it is equally clear that no co-ordinated action is possible either.
Events of the last few days reveal how the financial and economic emergency is immediately being reflected in political turbulence. Iceland is set to become the first of many failed states to be added to the lengthening list of failed banks while the European Union’s “joint response” agreed on Saturday lasted less than 24 hours as Germany took unilateral action to guarantee 100% of all deposits.
This was chancellor Merkel’s panic reaction to the collapse of Hypo Real Estate, one of the country’s biggest mortgage and public sector lender. Germany and Austria joined Ireland and Greece in their attempts to prevent a proliferation of the queues that formed last year outside Northern Rock as people withdrew their savings.
In Britain, an embryo national government is taking shape, with all the major parties close to agreeing to hand over taxpayers’ money directly to bankers in return for not very much at all.
As the value of its currency melted away, Geir Haarde, Iceland’s prime minister, was trying to put together at least a partial rescue package for his country’s shattered banking sector. He asked the trade unions to bring back their pensions investments from overseas and to accept a wage freeze. Meanwhile, the Belgian government confirmed on Sunday it would sell the parts of Fortis which were not nationalised last week by the Dutch government to BNP Paribas, the French bank. Also on Sunday, the Italian bank UniCredit approved the raising of €6bn in new capital as it moved to shore up its defences against a sliding share price.
On Friday, the US administration scraped a yes vote for its wholly inadequate $700 billion bail-out plan for the banks only by privately threatening martial law as the likely alternative as the popular revolt grew. Stock markets continued to fall, because the traders know that there’s no way out of a deep recession. The richest state of all, California, is warning that it will run out of funds by the end of the month, unless the federal government comes up with some cash.
In Britain, Gordon Brown has handed responsibility for the economy to an emergency National Economic Council – which includes unelected executives of leading corporations. Among them is Sir John Bond, the former HSBC boss, who led the bank into billions of pounds of debt in America's sub-prime housing meltdown. Just the man you need. Also present will be Paul Myners, the new minister for the City. He is on the board of GLG Partners, which made huge profits by "short selling" shares in Bradford & Bingley, which collapsed last week.
The council meets today for the first time under the direction of the equally unaccountable and ennobled Peter Mandelson. Mandelson’s return to government is part of New Labour’s attempt to show that it is committed to saving capitalism at all costs. As fellow cabinet minister Ed Miliband put it on hearing the news: “I think British business will be thinking, actually, Peter Mandelson's a good person to be in charge of our interests in government."
Hundreds of millions of people are suddenly discovering that their lives are being turned upside down by the crisis. Anger is rising as they see governments trying to rescue the bankers, financiers, speculators and gamblers, doing “whatever it takes” to stabilise a failing system while jobs are lost, homes repossessed and standards of living plummet.
Rather than allowing New Labour to hand the economy to the capitalist corporations, the challenge is to create a new democratic politics, a movement that can replace the anarchic crisis-prone profit system with one based on planned production for need. AWTW’s Stand Up for Your Rights festival on October 18 is an important step in that direction.
Gerry Gold
Economics editor
Events of the last few days reveal how the financial and economic emergency is immediately being reflected in political turbulence. Iceland is set to become the first of many failed states to be added to the lengthening list of failed banks while the European Union’s “joint response” agreed on Saturday lasted less than 24 hours as Germany took unilateral action to guarantee 100% of all deposits.
This was chancellor Merkel’s panic reaction to the collapse of Hypo Real Estate, one of the country’s biggest mortgage and public sector lender. Germany and Austria joined Ireland and Greece in their attempts to prevent a proliferation of the queues that formed last year outside Northern Rock as people withdrew their savings.
In Britain, an embryo national government is taking shape, with all the major parties close to agreeing to hand over taxpayers’ money directly to bankers in return for not very much at all.
As the value of its currency melted away, Geir Haarde, Iceland’s prime minister, was trying to put together at least a partial rescue package for his country’s shattered banking sector. He asked the trade unions to bring back their pensions investments from overseas and to accept a wage freeze. Meanwhile, the Belgian government confirmed on Sunday it would sell the parts of Fortis which were not nationalised last week by the Dutch government to BNP Paribas, the French bank. Also on Sunday, the Italian bank UniCredit approved the raising of €6bn in new capital as it moved to shore up its defences against a sliding share price.
On Friday, the US administration scraped a yes vote for its wholly inadequate $700 billion bail-out plan for the banks only by privately threatening martial law as the likely alternative as the popular revolt grew. Stock markets continued to fall, because the traders know that there’s no way out of a deep recession. The richest state of all, California, is warning that it will run out of funds by the end of the month, unless the federal government comes up with some cash.
In Britain, Gordon Brown has handed responsibility for the economy to an emergency National Economic Council – which includes unelected executives of leading corporations. Among them is Sir John Bond, the former HSBC boss, who led the bank into billions of pounds of debt in America's sub-prime housing meltdown. Just the man you need. Also present will be Paul Myners, the new minister for the City. He is on the board of GLG Partners, which made huge profits by "short selling" shares in Bradford & Bingley, which collapsed last week.
The council meets today for the first time under the direction of the equally unaccountable and ennobled Peter Mandelson. Mandelson’s return to government is part of New Labour’s attempt to show that it is committed to saving capitalism at all costs. As fellow cabinet minister Ed Miliband put it on hearing the news: “I think British business will be thinking, actually, Peter Mandelson's a good person to be in charge of our interests in government."
Hundreds of millions of people are suddenly discovering that their lives are being turned upside down by the crisis. Anger is rising as they see governments trying to rescue the bankers, financiers, speculators and gamblers, doing “whatever it takes” to stabilise a failing system while jobs are lost, homes repossessed and standards of living plummet.
Rather than allowing New Labour to hand the economy to the capitalist corporations, the challenge is to create a new democratic politics, a movement that can replace the anarchic crisis-prone profit system with one based on planned production for need. AWTW’s Stand Up for Your Rights festival on October 18 is an important step in that direction.
Gerry Gold
Economics editor
Friday, October 03, 2008
Celtic Tiger defanged
With unemployment rising by over a third in the last year as recession bites in and with a national debt of €45 billion, the Irish government is guaranteeing the bank and building society deposits to the tune of a staggering €400 billion. That’s equivalent to €100,000 for each man, woman and child!
Just don’t call it nationalisation for heaven’s sake. it is merely a temporary measure to “restore balance to the economy” amid assertions that the banking system is still fundamentally sound. This aid guarantees the banks for just two years after which time they will have to pay it back and taxpayers will be remunerated, or so they say.
This emergency action by finance minster Brian Lenihan on behalf of the government is not original, it is not sensible and will probably be disastrous in the longer term. But such considerations have never stopped neo-liberal administrations from protecting the interests of profit-generating capitalist concerns in the past and they’re not stopping them now.
The €400 billion seems a vastly disproportionate amount of money, to put it mildly, for a country with a population of just over 4 million that, geographically speaking, would leave barely a ripple if it were to be dropped into Lake Michigan. But after a decade of burgeoning growth with property prices in particular being wildly over-valued, driven largely by lending institutions dishing out mortgages at several time the incomes of putative buyers, and with property developers and speculators given free rein to overheat the whole economic pot to such a degree that when the inevitable boiling point arrived, emergency temperature regulation seemed the only solution.
The Celtic Tiger is being defanged and it hurts. It all began when our old friend “sub prime” crashed the party last year and began to bring the festive house of cards tumbling down. But there’s worse to come because American investment in both the South and the North of Ireland is immense. So large scale withdrawal by U.S. corporations which is now more than likely, will help to send the place reeling back to the bad old days of recession and high unemployment.
Memories of the “bad old days” in Ireland are still fresh despite all the recent glitter, and behind the optimism there was always the niggling anxiety that all the fevered consumption and all the short-termism would somehow, some day have to be paid for. The days of reckoning appear to have arrived. Or maybe not, because after all money is flooding into Irish banks already. Investors large and small in Britain are moving their assets to the six large Irish financial houses now in the process of being shored up. But now Greece, not exactly an economic powerhouse, has joined the bail-out stampede and is also “guaranteeing” deposits!
Back in Ireland meanwhile, as unemployment continues to rise and living standards fall there is nowhere else to go, for that old spectre and saviour, emigration, is now no longer feasible. The ocean of bad debt, economic downturn and subsequent recession washing over the U.K and the U.S. has seen to that.
The mood has been stoical on the whole, but people are getting angry and finally waking up to the possibility that there must be other ways out of the debacle. Minds are being concentrated, so now is a time like no other for the left to rise to the challenge and point out clearly all the ways capitalism has served the many so badly for the benefit of the few, and to demonstrate the numerous alternative and lasting solutions that have been developed.
Fiona Harrington
Just don’t call it nationalisation for heaven’s sake. it is merely a temporary measure to “restore balance to the economy” amid assertions that the banking system is still fundamentally sound. This aid guarantees the banks for just two years after which time they will have to pay it back and taxpayers will be remunerated, or so they say.
This emergency action by finance minster Brian Lenihan on behalf of the government is not original, it is not sensible and will probably be disastrous in the longer term. But such considerations have never stopped neo-liberal administrations from protecting the interests of profit-generating capitalist concerns in the past and they’re not stopping them now.
The €400 billion seems a vastly disproportionate amount of money, to put it mildly, for a country with a population of just over 4 million that, geographically speaking, would leave barely a ripple if it were to be dropped into Lake Michigan. But after a decade of burgeoning growth with property prices in particular being wildly over-valued, driven largely by lending institutions dishing out mortgages at several time the incomes of putative buyers, and with property developers and speculators given free rein to overheat the whole economic pot to such a degree that when the inevitable boiling point arrived, emergency temperature regulation seemed the only solution.
The Celtic Tiger is being defanged and it hurts. It all began when our old friend “sub prime” crashed the party last year and began to bring the festive house of cards tumbling down. But there’s worse to come because American investment in both the South and the North of Ireland is immense. So large scale withdrawal by U.S. corporations which is now more than likely, will help to send the place reeling back to the bad old days of recession and high unemployment.
Memories of the “bad old days” in Ireland are still fresh despite all the recent glitter, and behind the optimism there was always the niggling anxiety that all the fevered consumption and all the short-termism would somehow, some day have to be paid for. The days of reckoning appear to have arrived. Or maybe not, because after all money is flooding into Irish banks already. Investors large and small in Britain are moving their assets to the six large Irish financial houses now in the process of being shored up. But now Greece, not exactly an economic powerhouse, has joined the bail-out stampede and is also “guaranteeing” deposits!
Back in Ireland meanwhile, as unemployment continues to rise and living standards fall there is nowhere else to go, for that old spectre and saviour, emigration, is now no longer feasible. The ocean of bad debt, economic downturn and subsequent recession washing over the U.K and the U.S. has seen to that.
The mood has been stoical on the whole, but people are getting angry and finally waking up to the possibility that there must be other ways out of the debacle. Minds are being concentrated, so now is a time like no other for the left to rise to the challenge and point out clearly all the ways capitalism has served the many so badly for the benefit of the few, and to demonstrate the numerous alternative and lasting solutions that have been developed.
Fiona Harrington
Friday, August 01, 2008
Can’t pay, won’t pay
What a week. Everywhere you look, evidence of a global systemic crisis slaps you in the face. Banks on both sides of the Atlantic reported major losses and capital wipe-outs, world trade talks collapsed, energy prices rocketed and politicians appeared more paralysed and powerless than ever.
House prices are falling at record rates, especially in the US where tens of thousands are handing in the keys to their homes and leaving the banks with daily depreciating “assets”. House building in Britain has fallen 40% and 250,000 jobs connected with the industry are disappearing almost overnight.
Meanwhile, the civil war within New Labour between the supporters of prime minister Gordon Brown and David Miliband is surely the clearest sign that the game is up for a government that hitched its star to the alleged virtues of the global market economy.
Almost before they were made, the giant global energy companies were thumbing their noses at proposals from within New Labour for a windfall tax on record profits, threatening to retaliate with a cocktail of threats including rising prices, reducing investment, and moving their operational bases abroad to evade taxes.
Centrica, having acquired the Belgian power company SPE, announced a 35% increase in the price charged by its British Gas division to 16 million UK households. This was aimed at satisfying its worried shareholders just before it released half-year profits figures showing a sharp decline on 2007. The company said soaring wholesale prices driven by “the market” were to blame.
But the wholesale price is charged to British Gas by its other division - Centrica Energy, which operates its own gas fields and produces electricity from its power stations. It’s the same tax-avoiding not-our-fault game played by the globe-straddling oil companies who claim not to make any money from their forecourt garage petrol and diesel sales. Give us a break!
Despite Peter Mandelson’s warning the previous week that international agreements on climate change, food security and energy use could drift beyond reach if seven years of talks on trade failed, the World Trade Organisation (WTO) was forced to admit the game was up. The Doha round came to a grinding halt because the US wouldn’t budge on its programme of agricultural subsidies to now rich large-scale farmers.
Free-trade enthusiasts, including Republican presidential candidate John McCain, have openly opposed continuation of the subsidies. The programme has ballooned since it was launched to rescue farmers suffering from the combined effects of the 1930s Great Depression and the dustbowls of exhausted soil which arose from industrialisation of food production.
But the subsidies keep US exports cheap and help boost the profits of the handful of corporations like Cargill which control 80% of the world’s grain and are destroying poor farmers elsewhere in the world. And if all the world’s governments operating within the WTO are unable to come to an agreement which would affect the likes of Cargill, what chance has New Labour got of controlling the energy suppliers? None.
On all fronts, the shareholders’ interests are first in line. Never mind the pensioners who’ll die from cold this winter or the millions whose food, energy and mortgage bills may well send them over the financial edge. This is market failure on a gigantic scale and the first step towards ending this catastrophe should be: Can’t pay, won’t pay.
Communities should organise a mass refusal to pay rising energy bills and mortgages and to make sure no one loses their home as a result. Defiance of the banks and energy suppliers would create the conditions for taking them into common ownership and running them in a needs-based, not-for-profit way.
Gerry Gold
Economics editor
House prices are falling at record rates, especially in the US where tens of thousands are handing in the keys to their homes and leaving the banks with daily depreciating “assets”. House building in Britain has fallen 40% and 250,000 jobs connected with the industry are disappearing almost overnight.
Meanwhile, the civil war within New Labour between the supporters of prime minister Gordon Brown and David Miliband is surely the clearest sign that the game is up for a government that hitched its star to the alleged virtues of the global market economy.
Almost before they were made, the giant global energy companies were thumbing their noses at proposals from within New Labour for a windfall tax on record profits, threatening to retaliate with a cocktail of threats including rising prices, reducing investment, and moving their operational bases abroad to evade taxes.
Centrica, having acquired the Belgian power company SPE, announced a 35% increase in the price charged by its British Gas division to 16 million UK households. This was aimed at satisfying its worried shareholders just before it released half-year profits figures showing a sharp decline on 2007. The company said soaring wholesale prices driven by “the market” were to blame.
But the wholesale price is charged to British Gas by its other division - Centrica Energy, which operates its own gas fields and produces electricity from its power stations. It’s the same tax-avoiding not-our-fault game played by the globe-straddling oil companies who claim not to make any money from their forecourt garage petrol and diesel sales. Give us a break!
Despite Peter Mandelson’s warning the previous week that international agreements on climate change, food security and energy use could drift beyond reach if seven years of talks on trade failed, the World Trade Organisation (WTO) was forced to admit the game was up. The Doha round came to a grinding halt because the US wouldn’t budge on its programme of agricultural subsidies to now rich large-scale farmers.
Free-trade enthusiasts, including Republican presidential candidate John McCain, have openly opposed continuation of the subsidies. The programme has ballooned since it was launched to rescue farmers suffering from the combined effects of the 1930s Great Depression and the dustbowls of exhausted soil which arose from industrialisation of food production.
But the subsidies keep US exports cheap and help boost the profits of the handful of corporations like Cargill which control 80% of the world’s grain and are destroying poor farmers elsewhere in the world. And if all the world’s governments operating within the WTO are unable to come to an agreement which would affect the likes of Cargill, what chance has New Labour got of controlling the energy suppliers? None.
On all fronts, the shareholders’ interests are first in line. Never mind the pensioners who’ll die from cold this winter or the millions whose food, energy and mortgage bills may well send them over the financial edge. This is market failure on a gigantic scale and the first step towards ending this catastrophe should be: Can’t pay, won’t pay.
Communities should organise a mass refusal to pay rising energy bills and mortgages and to make sure no one loses their home as a result. Defiance of the banks and energy suppliers would create the conditions for taking them into common ownership and running them in a needs-based, not-for-profit way.
Gerry Gold
Economics editor
Friday, July 11, 2008
Policies for the crisis – housing
The worsening recession is taking an increasing toll on jobs, mortgages and home ownership, and threatens to bring down the entire banking system at the same time. Housebuilders are laying off workers, mortgages are virtually unobtainable while many owner-occupiers cannot afford to maintain payments and face the prospect of repossession.
Mark Clare, chief executive of Barratt Developments, one of Britain’s biggest housebuliders, says the company will lay off 1,200people out of its 6,700 employees. Yesterday, he warned that job cuts across the industry could reach 60,000 out of 300,000 people employed in the sector. The 20% fall in building jobs is only part of the story as it does not take into account the secondary effect on the supply chain, comprising manufacturers and suppliers of kitchens, solicitors, mortgage advisers, and estate agents.
Add in a free-fall in house prices – they are predicted to slump by up to a third – and you can see why the disintegration of the entire British banking system is gathering speed. The banks are loaded with bad debt, the result of playing fast and loose with the global financial system and giving mortgages to anyone who asked, irrespective of whether they could make the payments. Now the banks are finding it virtually impossible to raise new capital to shore up their balance sheets and are staring at the abyss. In the US, shares in major mortgage holders Freddie Mac and Fannie Mae have slumped to their lowest level since 1991. They hold a half of all American mortgages.
Mark Clare, chief executive of Barratt Developments, one of Britain’s biggest housebuliders, says the company will lay off 1,200people out of its 6,700 employees. Yesterday, he warned that job cuts across the industry could reach 60,000 out of 300,000 people employed in the sector. The 20% fall in building jobs is only part of the story as it does not take into account the secondary effect on the supply chain, comprising manufacturers and suppliers of kitchens, solicitors, mortgage advisers, and estate agents.
Add in a free-fall in house prices – they are predicted to slump by up to a third – and you can see why the disintegration of the entire British banking system is gathering speed. The banks are loaded with bad debt, the result of playing fast and loose with the global financial system and giving mortgages to anyone who asked, irrespective of whether they could make the payments. Now the banks are finding it virtually impossible to raise new capital to shore up their balance sheets and are staring at the abyss. In the US, shares in major mortgage holders Freddie Mac and Fannie Mae have slumped to their lowest level since 1991. They hold a half of all American mortgages.
As the onset of recession turns to slump on a scale unprecedented in history, some are invoking the ghost of Lord John Maynard Keynes, who among other things advocated the printing of money by governments to stimulate growth. They despondently call for a unified approach by the world’s governments and central banks to reflate the economy by reducing interest rates, reintroduce controls on capital movements and "rebalance" the relation between capital and labour.
This is simply not going to happen under conditions of a fully globalised economy and financial system, which operates to a great extent outside of the control of central banks and governments. Just witness the paralysis at this week’s G8 in Japan for verification. The Bank of England’s Monetary Policy Committee yesterday ignored the frustrated Keynesians, and sat on its hands, unable to raise interest rates for fear of worsening the recession, or lower them for fear of accelerating the prices spiral. No solution can be found that won’t worsen the already desperate state of the economy.
Fortunately, the citizens of the United Kingdom include many millions who have lived their lives following different objectives. Those who have worked in the NHS, in education, in the social services, even the BBC, and, before they were privatised, the railways, buses, electricity, gas, post and telecommunications - and the rest of us who have used their services are aware that things can be organised differently to meet needs rather than make profits for shareholders.
It is to those millions to whom these policies are addressed, both individually, through their communities and the many campaigning organisations including unions, to which they belong.
* No-one should lose their home through mortgage payment default.
* Housing should be built and used to satisfy need rather than as a source of income or profit for developers, speculative builders, investors and landowners.
* Development land including crown and church holdings should come under the control of Community Land Trusts.
* The funds of all mortgage lenders should be transferred to existing or new mutual organisations under the democratic control of committees elected by and accountable to savers and borrowers.
* The titles to all mortgaged properties should be transferred to local authorities or housing assocations and placed under the control of committees including occupants’ elected representatives.
* All mortgage debt should be cancelled and renegotiated as either affordable rents or repayments determined by the cost of new building and the ability to pay.
In the meantime, we should campaign for a collective refusal to pay what amounts to mortgage debt blackmail. It’s time to turn the tables on those responsible for the credit crunch by crunching back.
Gerry Gold
Economics editor
Monday, April 21, 2008
Another 'fix' for debt junkies
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.
Paul Feldman
AWTW communications editor
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.
Paul Feldman
AWTW communications editor
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