Barclays shows how they are all in it together

Yes, they are all in it together: Barclays, the Bank of England, the Financial Services Authority, Tories and especially the previous Labour governments.

All share responsibility for creating an environment where, in spite of numerous and repeated claims of about the virtues of a “free market”, the financial system was in reality rotten at its very core - and far from free.

Barclays manipulated the Libor inter-bank lending rate lower in 2007-08 in part to try and show that it could borrow money cheaply while others were struggling. Barclays was desperate to avoid a state bail-out/nationalisation that befell Northern Rock, RBS et al.

This may account for the apparent collusion of the Bank of England in turning a blind eye to the Libor scandal.  Late in 2008, Bank governor Sir Mervyn King made a quip in public that Libor was “the rate at which banks do not lend to each other”. Will the now ex-CEO Bob Diamond name names when he appears before a Commons committee tomorrow? 

In one of the first acts of the New Labour government in 1997, chancellor Gordon Brown stripped the Bank of England of its regulatory powers and passed them to the most toothless body you could image – the Financial Services Authority.

This was the age of deregulation driven by the globalisation of capitalism. And New Labour fell over itself to show major corporations and the City alike that Britain was the most unregulated economy of them all.

Ed Balls, now the shadow chancellor, was a cheerleader for Brown. In 2006, just a year before the unravelling began, Balls made a series of speeches extolling the City.

Balls told a joint meeting of the Hong Kong General Chamber of Commerce and the British Chamber of Commerce in June: “The UK’s financial tradition as a free, fair and open global market has resulted in tremendous growth in London’s international financial markets in the past decade – over-the-counter derivatives turnover up by 770%, foreign equities turnover up by 260%, cross-border bank lending up by 160% and foreign exchange turnover up by over 60%.”

After praising the growth of fantasy finance, Balls declared that central to London’s “success story” was “light-touch principle-based regulation” which New Labour was entirely responsible for.

Admiring the Big Bang of 1986, when the Thatcher government opened up the City to global competition as “decisive”, Balls went on to laud the FSA which had “confounded those who feared the FSA might become a heavy-handed and inflexible regulator.” In fact, Britain’s “regulatory regime continues to be the best in the world”.

In September, he said the government would block “any imposition of any rules that might endanger the light-touch, risk-based regulatory regime that underpins London’s success”. The Tories went along with all this because their City chums told them to.

All concerned are trying to sing a different tune now but it’s too late for a host of reasons. Deregulation was more than just a theory – it was a necessity. The collapse of the post-war, regulated monetary and trading system in the early 1970s showed that capitalism had reached a certain limit of expansion.

The next phase beginning in the early 1980s, was to set capital free to roam the planet. Transnational corporations demanded transnational finance – and cheap credit for consumers to buy the commodities that were turned out in increasing amounts. Deregulation was driven by this process and was not simply an ideological choice.

The genie cannot be put back into the bottle. There is a global recession that threatens imminently to become a full-blown depression. The Bank of England is resuming the printing of money this week in a desperate bid to keep the economy afloat. This will go straight into the hands of the banks and stay there.

We don’t need inquiries, parliamentary or judicial, into the banks because they will avoid the main issue. The capitalist system is broken whichever you look – politically, economically and financially. There is no “golden age” to turn the clock of history back to, even if this were possible. Moving beyond capitalism to a democratic, sustainable, people-centred, not-for-profit economy is an immediate challenge.

Paul Feldman

Communications editor

Rigging markets par for the course

The way Barclays and several other banks colluded to fix inter-bank interest rates is a blatant example of what is actually par for the course in big business. Price fixing, secret agreements to divide markets, cartels and other nefarious goings on are as old as capitalism itself.

How could it be otherwise within a system where the benchmark is the maximisation of profit by any means, fair or foul? Dividend payments to shareholders are based on total profits, which, if they don’t rise year on year, indicate failure. Share prices tend to fall as a result.

So if so-called retail banking doesn’t create enough profits, then use depositors’ money to speculate in a rigged market. Irresistible for Barclays, RBS and the other banks caught in the spotlight.

This kind of underhand activity is not the exception but the rule. Only today, the UK Office of Fair Trading alleged that Mercedes-Benz and five UK dealers of its trucks and vans were involved in price fixing and the sharing of commercially sensitive information between 2007 and 2010.

In April, British Airways agreed to pay a reduced £58.5m fine for colluding with rival Virgin Atlantic on fuel surcharges. BA admitted in 2007 that it had colluded with Virgin over price fixing on long-haul flights between August 2004 and January 2006. OFT’s criminal case

against a number of former BA executives collapsed. Virgin, which blew the whistle on its agreement with BA, was not fined.

Last month, the Department of Justice in the United States accused Apple of e-book price fixing. Also in the frame are publishers Penguin and Macmillan. Naturally, the three corporations deny the allegations. Three other publishers immediately settled the action, while admitting no wrongdoing. Observers suspect that fear of Amazon’s ruthless pricing strategy drove rivals to collude to keep prices up.

In late 2007, British consumers discovered that supermarkets and milk suppliers had been illegally rigging the prices of dairy products since 2002. They had colluded to raise the prices of dairy products, and their milk distributors, namely Dairy Crest and Robert Wiseman Dairies, had been the go-betweens for the ostensibly secret pricing decisions. Total cost to consumers was estimated at £270 million. Those involved were fined a total of £116.

In 2007, the European Commission undermined a price-fixing scheme among the makers of flat glass, the variety that is used to make windows, doors and mirrors. In 2004 and 2005, four major makers of flat glass — Asahi, Guardian, Pilkington, and Saint-Gobain — secretly met to discuss artificially raising their prices. The industry’s profits soared as a result and the €487 million fine was undoubtedly worth it for the companies which colluded.

Other examples you may have missed include £185 million in fines imposed on Dutch brewers, including Heineken and Grolsch, for price fixing. EU competition commissioner Neelie Kroes commented: “It is unacceptable that the major beer suppliers colluded to hike up prices and carve up the market between themselves. The highest management of these companies knew very well that their behaviour was illegal, but they went ahead anyway and tried to cover their tracks”.

Previous examples of price fixing include Manchester United and several leading sportswear firms who were found guilty of price fixing on replica football shirts in 2005 and Samsung Electronics who agreed to pay $90m to settle legal action over microchip price-fixing allegations in the US. Three executives went to prison.

So when Labour leader Ed Miliband and others tell us that there can be such a thing as an ethical, “responsible” capitalism they are having a laugh at our expense because it’s an impossible quest. It's a myth, just like the notion of a "free market". The system is endemically corrupt. It would actually be easier to replace capitalism with a not-for-profit alternative than clean it up.

Paul Feldman

Communications editor

Banks get quids but there's no quo

It is not long since Prime Minister Brown announced a £400 billion bail-out package including a £37 billion gift to the banks, but the big lie has already been exposed. The story a month ago was that the government and the Bank of England were going to do whatever it takes “to maintain the stability of our system and to make sure that there is stability for families and for businesses right across our country”.

In reality, capitalist governments in the UK and in the rest of the world are unable to anything effective to stop or even offset the impact of the global slump. Sales by leading retailer John Lewis dropped 9.8% on the year. Shares in Asia and Europe fell on Friday, heading for their worst month ever, anticipating a deep and long lasting downturn. In a renewed desperate attempt to stave off the worst effects, Japan cut interest rates for the first time in seven years on Friday, expecting severe stress in the global economy to persist, while banking giant Barclays said it was raising £7.3 billion in capital.

The failure of the package of taxpayer-funded public sector debt to deliver the credit needed by small companies and individuals reveals the governments’ total subservience to the privately-owned finance sector. In keeping with their requirement to make profits, as economic conditions deteriorate lenders are tightening terms, making borrowing less available and more expensive.

Despite the shouts of glee from the supporters of state intervention and delight from some over what they dubbed “nationalisation” of the failing banks, including Northern Rock, Royal Bank of Scotland, Lloyds TSB and HBOS, there were no constraints or requirements of any kind placed on how the money should be spent.

Even Vince Cable, the Liberal Democrat Treasury spokesman, has been able to denounce the government’s “utterly pathetic” position, saying: “The whole point about this deal with the lenders was that there was supposed to be a tough quid pro quo. It’s perfectly obvious now that the banks got the quids and there’s no quo.”

As events unfold, Brown and Chancellor Darling are reduced to begging at the rich men’s table. On Thursday, Darling admitted that the government’s requirement that the banks make lending available at 2007 levels simply means “the pool of money is there”. Decisions on whether to lend that money, and at what cost, remained with the banks. “In any banking operation, whether it is lending to individuals or to businesses, there must be discretion,” he said. And Brown added “I urge banks not to change the terms and charges for existing lending to small and medium-sized enterprises.”

In operating the real, brutal laws of the busted capitalist market, the bankers have a far better grasp of what is required than Brown or Darling. “We don’t sense any purpose in providing small businesses with loans that they cannot afford to repay,” said Eric Leenders, executive director retail, at the British Bankers’ Association.

What better reason than this could there be to end the operation of a system of fantasy finance that exists solely to extract value produced by workers in the real, productive economy in order to distribute it as profits to shareholders and dreamland bonuses to City traders? The profit-serving banks should be turned into mutually-owned, democratically controlled not-for-profit institutions. Then decisions can be taken and implemented on how to best provide the essential financial services needed to build an equitable and environmentally sustainable economy.

Gerry Gold
Economics editor