The palpable anger over the £963,000 bonus in shares awarded to state-owned Royal Bank of Scotland chief executive Stephen Hester has to turn into some direct political and industrial action if society is to see an end to this kind of obscenity.
Hester is effectively a public servant, as 81% of the shares are owned by the state following a bail-out of the bank by the previous New Labour government. Since he took over as CEO in November 2008, RBS has sacked 33,000 staff.
The aim, as always with a capitalist concern, was to shed staff in a bid to return the bank to profitability. This Hester has done with the blessing of both the ConDem coalition and the Brown government that preceded it.
The mistake some people have made is to think that because the state owns a bank or two they would be run along different lines, perhaps more ethically or fairly. But the state nationalised the banks to prevent a collapse of the entire financial system – not to set up an alternative banking network.
The banks were allowed, nay encouraged, to continue along their usual profit-driven path. Recently-sold Northern Rock, for example, went about repossessing people who were behind with their mortgages and calling in loans while state owned.
As one of hundreds of angry comments on the BBC news website noted: “This is interesting, we own 81% of RBS and still the government and board of this bank show nothing but contempt for the general public and small business. RBS are about to repossess my brothers house for approx the same amount and close his building company putting people out of work and on the dole. Can anyone explain this madness?”
What is “madness” to some is sanity to others who hold the reins of a state that to all intents and purposes is a plaything of economic and financial elites. They call the shots – and not the government. Or as another sharp comment put it: “It's another sign the politicians aren't running the country, or at least not for the people. Their bonus is the cushy job their friends in finance offer them when they quit parliament.”
Robert Peston, the BBC commentator who broke the Northern Rock debacle, says he was “reliably told” that had the government blocked Hester’s bonus, it would have triggered mass resignation from the RBS board and the CEO’s departure. This financial blackmail clearly worked. Only a junior LibDem minister has demanded that Hester rejects the bonus – elsewhere there is silence.
So there you have it – the state is an extended arm of business. That has been the case since the modern state was formed in the early 19th century to facilitate the development of capitalism in Britain. For a period, this role was disguised by consensus politics, a welfare state, full employment and trade union rights.
The globalisation process produced transnational corporations and global financial institutions that more openly wagged the tail of the state. One consequence is that large numbers of people believe that traditional politics is corrupt, unrepresentative, undemocratic and a waste of time.
They are right. The state needs deconstructing and rebuilding with people’s assemblies and the like to create a real, functioning democracy.
Trade union leaders have reacted with outrage at the bonus for Hester, whose basic salary is £1.2 million a year. David Fleming, the Unite national officer, said: "What planet does Stephen Hester and his banking chums live on? Taking almost £1m from taxpayers' pockets as a bonus is utterly disgusting and offensive to every working person across the country.” Paul Kenny, the general secretary of the GMB union, said: "A bonus of nearly a million pounds looks to ordinary people like he has won the lottery – with a ticket they paid for.”
Public sector workers, by contrast, are facing a pay cut as a result of the government’s 1% pay limit (backed by Labour). If the union leaders are to be taken seriously about their desire to remedy gross inequality, they ought to be organising indefinite strikes against the pay limit (and pension cuts) with the aim of bringing down the ConDems. Otherwise it’s all hot air.
Paul Feldman
Communications 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 Northern Rock. Show all posts
Showing posts with label Northern Rock. Show all posts
Friday, January 27, 2012
Wednesday, October 28, 2009
Good bank, bad bank? Peoples bank!
The European Union (EU) is expected today to approve plans for the Northern Rock bank to be split in two – so-called “good” and “bad” banks. The Rock has been state-owned since the spring of 2008.
This was an early part of New Labour’s attempts to prevent a complete meltdown after customers queued to withdraw their deposits in 2007 when the default rate on sub-prime mortgages in the United States triggered the global credit collapse.
The idea is that the “good” or profitable business will be sold back to the private sector, whilst the “bad” part containing the “toxic” non-performing loans, including the 125% mortgages pressed onto people desperate for housing at any cost, will be retained in the public sector, to be serviced from taxation.
Once EU approval is in place, the principle is likely to be extended to the Royal Bank of Scotland and Lloyds. Supporters of the plan – and there are many from all the main parties – are keen to see wider competition. They want to open the field up to new entrants such as Tesco, Virgin and a range of foreign banks like National Australia Bank – already owner of the Clydesdale and Yorkshire.
The scheme has its roots in the 1930s’ rescue in the United States of a cascade of failing banks. Today’s proponents point to its success in Sweden after the country went through a property market collapse in 1991 which threatened the financial system.
But they choose to ignore the scale of today’s crisis which has engulfed the world’s much more highly-interconnected financial system so critical to the worldwide production and trading activities that underpin the globalised corporations.
The intertwined crises of collapsing consumer demand, shrinking global trade, declining manufacturing and inactive credit markets spell the end of the post-war era of a spiralling growth of commodity production fuelled by cheap labour and mountains of debt.
Plans to restore the financial system to profitability are necessary but not sufficient to restore the capitalist economy to the growth it so badly depends upon for survival.
Throughout its three and a half centuries, the capitalist system has alternated between periods of competitive growth fuelled by the credit that relied on the impossible dreams of ever-increasing profit and the crashes that followed when the interest payments ceased. As the dust clears it reveals the massive overcapacity that must be eliminated before a renewed period of growth can begin. That is the stage of the crisis that we are in now.
The looming impact of the changing climate provides the measure of the damage inflicted on the planet by half a century of profit-motivated credit-fuelled growth. The system of production for profit must be stopped, terminated, replaced. Its replacement can be democratically-determined sustainable production by communities working co-operatively to satisfy their needs and provide opportunities to fulfil individual and collective potential.
This new era will need a system of accounting for exchange and a means of measuring and redistributing the value generated in production to fund development. It won’t need a vast edifice of speculation. Stock and foreign exchange markets can be closed, gambling in the derivatives casino ended.
With democratic control over the finance system, decisions can be made about which debts can be cancelled and which renegotiated. The “good” and “bad” capitalist banks choice is no choice at all. In their place we want genuine people’s banks that protect savings and extend social investment.
It’ll need a social revolution to make these changes, but what’s the alternative?
Gerry Gold
Economics editor
This was an early part of New Labour’s attempts to prevent a complete meltdown after customers queued to withdraw their deposits in 2007 when the default rate on sub-prime mortgages in the United States triggered the global credit collapse.
The idea is that the “good” or profitable business will be sold back to the private sector, whilst the “bad” part containing the “toxic” non-performing loans, including the 125% mortgages pressed onto people desperate for housing at any cost, will be retained in the public sector, to be serviced from taxation.
Once EU approval is in place, the principle is likely to be extended to the Royal Bank of Scotland and Lloyds. Supporters of the plan – and there are many from all the main parties – are keen to see wider competition. They want to open the field up to new entrants such as Tesco, Virgin and a range of foreign banks like National Australia Bank – already owner of the Clydesdale and Yorkshire.
The scheme has its roots in the 1930s’ rescue in the United States of a cascade of failing banks. Today’s proponents point to its success in Sweden after the country went through a property market collapse in 1991 which threatened the financial system.
But they choose to ignore the scale of today’s crisis which has engulfed the world’s much more highly-interconnected financial system so critical to the worldwide production and trading activities that underpin the globalised corporations.
The intertwined crises of collapsing consumer demand, shrinking global trade, declining manufacturing and inactive credit markets spell the end of the post-war era of a spiralling growth of commodity production fuelled by cheap labour and mountains of debt.
Plans to restore the financial system to profitability are necessary but not sufficient to restore the capitalist economy to the growth it so badly depends upon for survival.
Throughout its three and a half centuries, the capitalist system has alternated between periods of competitive growth fuelled by the credit that relied on the impossible dreams of ever-increasing profit and the crashes that followed when the interest payments ceased. As the dust clears it reveals the massive overcapacity that must be eliminated before a renewed period of growth can begin. That is the stage of the crisis that we are in now.
The looming impact of the changing climate provides the measure of the damage inflicted on the planet by half a century of profit-motivated credit-fuelled growth. The system of production for profit must be stopped, terminated, replaced. Its replacement can be democratically-determined sustainable production by communities working co-operatively to satisfy their needs and provide opportunities to fulfil individual and collective potential.
This new era will need a system of accounting for exchange and a means of measuring and redistributing the value generated in production to fund development. It won’t need a vast edifice of speculation. Stock and foreign exchange markets can be closed, gambling in the derivatives casino ended.
With democratic control over the finance system, decisions can be made about which debts can be cancelled and which renegotiated. The “good” and “bad” capitalist banks choice is no choice at all. In their place we want genuine people’s banks that protect savings and extend social investment.
It’ll need a social revolution to make these changes, but what’s the alternative?
Gerry Gold
Economics editor
Wednesday, August 12, 2009
Two years into the crisis and the human toll mounts
Two years ago this week, the global capitalist economy entered uncharted territory. It started with a crisis in the credit markets – the so-called “credit crunch” – and within a year it had led to a precipitate collapse in economic output in all sectors.
The collapse of inter-bank lending in August 2007 was bad enough to prompt senior, respected commentators to declare that “the system” – they only meant the unregulated system of institutions trading in credit-derived financial products – was broken beyond repair. These contagious sentiments expressed a mounting worldwide panic exemplified by the queues of customers outside Northern Rock in the middle of the following month.
Most of the attention then as now is focussed on the financial system. Attempts to prevent the financial crisis turning into a complete meltdown produced the second transformation in the role of the capitalist state since the 1970s.
The first transformation became known as globalisation. The irresistible need of capital for expansion resulted in transnational corporations dictating policy to national governments both directly and via global agencies like the International Monetary Fund and from 1995 the World Trade Organisation.
Lobbyists for corporate interests demanded that regulation and control on the movement of capital be eliminated for all practical purposes, accompanied by an assault on workers’ income and conditions. Civil war conditions were launched against British miners in 1984. The benchmark for wages was set by the transfer of much manufacturing to China where the rate was reduced to as little as a dollar a day. Profits soared.
A series of worsening crises from the mid-nineties onwards gave warning that the years of credit-led growth were reaching their limits and that overproduction was unsustainable. As we said in A House of Cards – from fantasy finance to global crash (free download) published in November 2007: “Then on 9 August 2007, the long period of corporate-driven globalisation of the world economy came to an abrupt end. That Thursday, major banks suddenly refused to lend to each other and a ‘credit crunch’ hardened the arteries of the global financial system.”
Losses from the financial crisis alone are colossal. Bank write-downs and losses currently total more than $1,500bn. The IMF has predicted losses across the financial services industry could eventually total $4,000bn, or nearly one-third the annual value of US production.
The effects on the real economy are more devastating. As the scale of the worsening crisis unfolds, millions more families are being driven from their repossessed homes, reclaimed by their owners, the banks and other mortgage lenders. Industry after industry is emulating the collapse of car-making worldwide because consumption has shrunk. Today will show that unemployment in the UK has soared to record levels, with young people making up more than a third of those without work.
This dramatic decline in the fortunes of capital changed the role of states once again, obliging them – those that aren’t yet bankrupt - and their central banks to launch a series of attempted rescue packages and the large-scale printing of money. The new bursts of credit designed to enable production to continue will have to repaid by as yet unborn generations of taxpayers, but the best that has been achieved is a temporary slowdown in the rate of deterioration.
The true cost of engineering a return to growth involves the elimination of not just failed banks, but huge swathes of no-longer, profitable credit-dependent factories, farms and software houses. Workers facing the consequences will find the cost too great to bear. The system – the capitalist system of production – is broken and the cost of fixing it would be counted not just in closed factories, but in the elimination of rights, of human lives and an inhospitable planet.
This is the moment to prepare the ground for a revolutionary transformation to a society where property is held in common and goods and services are produced to satisfy needs not profits, according to priorities determined through a new democratic process.
Gerry Gold
Economics editor
The collapse of inter-bank lending in August 2007 was bad enough to prompt senior, respected commentators to declare that “the system” – they only meant the unregulated system of institutions trading in credit-derived financial products – was broken beyond repair. These contagious sentiments expressed a mounting worldwide panic exemplified by the queues of customers outside Northern Rock in the middle of the following month.
Most of the attention then as now is focussed on the financial system. Attempts to prevent the financial crisis turning into a complete meltdown produced the second transformation in the role of the capitalist state since the 1970s.
The first transformation became known as globalisation. The irresistible need of capital for expansion resulted in transnational corporations dictating policy to national governments both directly and via global agencies like the International Monetary Fund and from 1995 the World Trade Organisation.
Lobbyists for corporate interests demanded that regulation and control on the movement of capital be eliminated for all practical purposes, accompanied by an assault on workers’ income and conditions. Civil war conditions were launched against British miners in 1984. The benchmark for wages was set by the transfer of much manufacturing to China where the rate was reduced to as little as a dollar a day. Profits soared.
A series of worsening crises from the mid-nineties onwards gave warning that the years of credit-led growth were reaching their limits and that overproduction was unsustainable. As we said in A House of Cards – from fantasy finance to global crash (free download) published in November 2007: “Then on 9 August 2007, the long period of corporate-driven globalisation of the world economy came to an abrupt end. That Thursday, major banks suddenly refused to lend to each other and a ‘credit crunch’ hardened the arteries of the global financial system.”
Losses from the financial crisis alone are colossal. Bank write-downs and losses currently total more than $1,500bn. The IMF has predicted losses across the financial services industry could eventually total $4,000bn, or nearly one-third the annual value of US production.
The effects on the real economy are more devastating. As the scale of the worsening crisis unfolds, millions more families are being driven from their repossessed homes, reclaimed by their owners, the banks and other mortgage lenders. Industry after industry is emulating the collapse of car-making worldwide because consumption has shrunk. Today will show that unemployment in the UK has soared to record levels, with young people making up more than a third of those without work.
This dramatic decline in the fortunes of capital changed the role of states once again, obliging them – those that aren’t yet bankrupt - and their central banks to launch a series of attempted rescue packages and the large-scale printing of money. The new bursts of credit designed to enable production to continue will have to repaid by as yet unborn generations of taxpayers, but the best that has been achieved is a temporary slowdown in the rate of deterioration.
The true cost of engineering a return to growth involves the elimination of not just failed banks, but huge swathes of no-longer, profitable credit-dependent factories, farms and software houses. Workers facing the consequences will find the cost too great to bear. The system – the capitalist system of production – is broken and the cost of fixing it would be counted not just in closed factories, but in the elimination of rights, of human lives and an inhospitable planet.
This is the moment to prepare the ground for a revolutionary transformation to a society where property is held in common and goods and services are produced to satisfy needs not profits, according to priorities determined through a new democratic process.
Gerry Gold
Economics editor
Wednesday, October 29, 2008
Keeping people in their homes
As repossessions soar – they are up 71% on last year – and millions of homeowners see the market value of their properties fall well below what they owe to the banks, the New Labour government washes its hands of the growing housing crisis.
In fact, the state-owned Northern Rock is leading the way in throwing people out of their homes, repossessing 50% more properties than the industry average. By the end of September, the state-owned lender had seized 4,201 homes, up from 2,215 at the end of last year.
Yesterday, Dai Davies, the independent MP for Blaenau Gwent, asked ministers to take possession of Northern Rock and Bradford & Bingley homes where borrowers have defaulted. The response was brutal and to the point. He was told: "Northern Rock and Bradford & Bingley are run at arm's length from the Government, on commercial principles."
The treatment meted out to former chef Karl Clark, who suffers from severe arthritis, tells you all you want to know about Northern Rock. Housebound and unable to work, he said: "I've done everything I could to keep up with my repayments, sometimes I did without medication so I could pay for my mortgage. I've tried everything to reason with them. I've been upfront from the start and told them I had money troubles because I could no longer work. I've sent copies of doctors' notes to prove I can't work."
He used his savings to pay the mortgage, but they soon ran out. Karl told his local paper: "My wife works part-time, but the money just isn't enough. I used to call Northern Rock and arrange payment deals, but then just a couple of weeks later they were seemingly forgotten about and I'd have to go through the same process again. I've got a wife and daughter and they shouldn't have to go through this. It seems that Northern Rock have been eager to kick me out of the house. Everything seems to have been fast-tracked. I got a letter from them saying they were going to take me to court. Usually this takes a few weeks, but in my case it was a few days."
As unemployment rises relentlessly in the recession, the number of people who won’t be able to pay their mortgages is sure to soar. Many have also borrowed against what was increased equity in their property. Now, as house prices fall, if they lose their homes, they will still almost certainly owe more than the current market price of the property (if it can be sold, that is). They will be homeless and in huge debt to the banks at the same time. This is simply unacceptable.
New Labour’s indifference is all the more brutal because the state has shown that it possesses enormous powers (if not the answers) when comes to the financial crash. Commitments totalling £500 billion have been made to the banks’ bail-out. Local authorities or housing associations could, for example, be given the powers and resources to buy up homes under repossession orders and rent them back to the occupants. Of course, the Brown government has no intention of doing this.
Instead, the government is pressing on with more state-funded home-ownership schemes, even though banks have stopped lending to anyone who doesn’t have a substantial deposit. Developers have stopped building and housing associations who work in partnership with private companies cannot possibly meet their targets; associations will also face increasing financial difficulties as a result of unsold properties and unused land.
Dai Davies asks: “What is the benefit to taxpayers of keeping these banks alive, if they cannot be directed to helping people in dire housing difficulty?” Quite so. The mortgage crisis is soluble. Existing mortgage debt could be cancelled and future payments determined by a formula based on the cost of new building and ability to pay, to be agreed through the democratic process. Empty homes could be requisitioned to house the homeless. Ridding ourselves of New Labour and the business state it presides over will enable us to carry these policies into practice.
Paul Feldman
AWTW communications editor
In fact, the state-owned Northern Rock is leading the way in throwing people out of their homes, repossessing 50% more properties than the industry average. By the end of September, the state-owned lender had seized 4,201 homes, up from 2,215 at the end of last year.
Yesterday, Dai Davies, the independent MP for Blaenau Gwent, asked ministers to take possession of Northern Rock and Bradford & Bingley homes where borrowers have defaulted. The response was brutal and to the point. He was told: "Northern Rock and Bradford & Bingley are run at arm's length from the Government, on commercial principles."
The treatment meted out to former chef Karl Clark, who suffers from severe arthritis, tells you all you want to know about Northern Rock. Housebound and unable to work, he said: "I've done everything I could to keep up with my repayments, sometimes I did without medication so I could pay for my mortgage. I've tried everything to reason with them. I've been upfront from the start and told them I had money troubles because I could no longer work. I've sent copies of doctors' notes to prove I can't work."
He used his savings to pay the mortgage, but they soon ran out. Karl told his local paper: "My wife works part-time, but the money just isn't enough. I used to call Northern Rock and arrange payment deals, but then just a couple of weeks later they were seemingly forgotten about and I'd have to go through the same process again. I've got a wife and daughter and they shouldn't have to go through this. It seems that Northern Rock have been eager to kick me out of the house. Everything seems to have been fast-tracked. I got a letter from them saying they were going to take me to court. Usually this takes a few weeks, but in my case it was a few days."
As unemployment rises relentlessly in the recession, the number of people who won’t be able to pay their mortgages is sure to soar. Many have also borrowed against what was increased equity in their property. Now, as house prices fall, if they lose their homes, they will still almost certainly owe more than the current market price of the property (if it can be sold, that is). They will be homeless and in huge debt to the banks at the same time. This is simply unacceptable.
New Labour’s indifference is all the more brutal because the state has shown that it possesses enormous powers (if not the answers) when comes to the financial crash. Commitments totalling £500 billion have been made to the banks’ bail-out. Local authorities or housing associations could, for example, be given the powers and resources to buy up homes under repossession orders and rent them back to the occupants. Of course, the Brown government has no intention of doing this.
Instead, the government is pressing on with more state-funded home-ownership schemes, even though banks have stopped lending to anyone who doesn’t have a substantial deposit. Developers have stopped building and housing associations who work in partnership with private companies cannot possibly meet their targets; associations will also face increasing financial difficulties as a result of unsold properties and unused land.
Dai Davies asks: “What is the benefit to taxpayers of keeping these banks alive, if they cannot be directed to helping people in dire housing difficulty?” Quite so. The mortgage crisis is soluble. Existing mortgage debt could be cancelled and future payments determined by a formula based on the cost of new building and ability to pay, to be agreed through the democratic process. Empty homes could be requisitioned to house the homeless. Ridding ourselves of New Labour and the business state it presides over will enable us to carry these policies into practice.
Paul Feldman
AWTW communications editor
Thursday, February 21, 2008
Debt tsunami builds
The emergency legislation to allow a temporary period of public ownership of what now seems are the most worthless parts of Northern Rock, is increasingly looking like a finger plugging a hole in the dyke (or levee for American readers) as the global financial system continues to haemorrhage on debt.
On Wednesday, credit markets were thrown into fresh turmoil as the cost of protecting the debt of US and European companies against default surged to all-time highs, and Alliance and Leicester, another former building society, revealed that it had joined the ranks of deeply troubled banks. Money flowed out of the credit markets and into oil, driving the closing price of a barrel of crude above $100 for the first time.
Earlier this week, shortly after Credit Suisse’s auditors gave it the thumbs up, and it issued its annual bonuses, the investment bank was suddenly forced to reveal a £2.85 billion hole in its accounts. The heads of some of its traders in “synthetic collateralised debt obligations” rolled. Credit Suisse is just one of the many fundamentally unsound financial institutions to be reporting its audited accounts at this time of year.
Market watchers were looking closely to discover the hiding places of the remaining estimated $280 billion of so far unreported losses spun off from oversold and toxic sub-prime mortgage debt. Each new revelation delivers another painful shock to global markets, building irresistibly into a debt tsunami.
But the sub-prime debt mountain is just the visible tip of an iceberg, rapidly melting in response to a changing global climate. The hugely profitable market in debt-based derivative products developed towards the end of the 20th century. Initially, it was a relatively small part of the ballooning of fictitious capital needed to finance the growth of immensely productive globalising corporations and the credit-based purchase of their commodities.
As the global rate of growth per capita continued to decline, the pressure for more sources of finance to offset declining profits increased. Prominent amongst the apparently secure bases for credit expansion was property – both housing and commercial. If economic growth could be funded it would guarantee a highly profitable income stream from speculative new building and office rental. If people, individuals and families, could be persuaded to take out mortgages, they would be tied into decades-long repayments – another lucrative income stream. New homes guaranteed a demand for new products to fill them and the financing infrastructure that would be needed to help people pay for them, many times over.
So it was that the need for housing and the accumulated savings of millions of ordinary people invested in mutually owned building societies since the 19th century were converted for use by City spivs, high-rolling global gamblers and market traders in red braces. Northern Rock demutualised in 1997 exactly five months after the election of the first New Labour government.
Now, the determining factor of its future is the rapidly declining value of its mortgage book - the 700,000 households who are increasingly unable to make their monthly payments. And decline it surely will. As Martin Wolf, the Financial Times’ leading analyst, is now acknowledging : “The connection between the bursting of the housing bubble and the fragility of the financial system has created huge dangers, for the US and the rest of the world.”
New Labour can never repeat the Northern Rock bail-out. Not only would it bankrupt the state, it would also make no difference as decades of debt-fuelled expansion unwind. There is an alternative to making the entire population having to pay for the mother of all capitalist financial and economic meltdowns. Not-for-profit solutions to housing and other needs are well-known and well understood. They involve co-ownership, mutuality, not-for-profit finance, and a building programme targeted at need rather than what the market will bear. There is no alternative.
Gerry Gold
Economics editor
On Wednesday, credit markets were thrown into fresh turmoil as the cost of protecting the debt of US and European companies against default surged to all-time highs, and Alliance and Leicester, another former building society, revealed that it had joined the ranks of deeply troubled banks. Money flowed out of the credit markets and into oil, driving the closing price of a barrel of crude above $100 for the first time.
Earlier this week, shortly after Credit Suisse’s auditors gave it the thumbs up, and it issued its annual bonuses, the investment bank was suddenly forced to reveal a £2.85 billion hole in its accounts. The heads of some of its traders in “synthetic collateralised debt obligations” rolled. Credit Suisse is just one of the many fundamentally unsound financial institutions to be reporting its audited accounts at this time of year.
Market watchers were looking closely to discover the hiding places of the remaining estimated $280 billion of so far unreported losses spun off from oversold and toxic sub-prime mortgage debt. Each new revelation delivers another painful shock to global markets, building irresistibly into a debt tsunami.
But the sub-prime debt mountain is just the visible tip of an iceberg, rapidly melting in response to a changing global climate. The hugely profitable market in debt-based derivative products developed towards the end of the 20th century. Initially, it was a relatively small part of the ballooning of fictitious capital needed to finance the growth of immensely productive globalising corporations and the credit-based purchase of their commodities.
As the global rate of growth per capita continued to decline, the pressure for more sources of finance to offset declining profits increased. Prominent amongst the apparently secure bases for credit expansion was property – both housing and commercial. If economic growth could be funded it would guarantee a highly profitable income stream from speculative new building and office rental. If people, individuals and families, could be persuaded to take out mortgages, they would be tied into decades-long repayments – another lucrative income stream. New homes guaranteed a demand for new products to fill them and the financing infrastructure that would be needed to help people pay for them, many times over.
So it was that the need for housing and the accumulated savings of millions of ordinary people invested in mutually owned building societies since the 19th century were converted for use by City spivs, high-rolling global gamblers and market traders in red braces. Northern Rock demutualised in 1997 exactly five months after the election of the first New Labour government.
Now, the determining factor of its future is the rapidly declining value of its mortgage book - the 700,000 households who are increasingly unable to make their monthly payments. And decline it surely will. As Martin Wolf, the Financial Times’ leading analyst, is now acknowledging : “The connection between the bursting of the housing bubble and the fragility of the financial system has created huge dangers, for the US and the rest of the world.”
New Labour can never repeat the Northern Rock bail-out. Not only would it bankrupt the state, it would also make no difference as decades of debt-fuelled expansion unwind. There is an alternative to making the entire population having to pay for the mother of all capitalist financial and economic meltdowns. Not-for-profit solutions to housing and other needs are well-known and well understood. They involve co-ownership, mutuality, not-for-profit finance, and a building programme targeted at need rather than what the market will bear. There is no alternative.
Gerry Gold
Economics editor
Monday, February 18, 2008
Darling going down with the ship
“Floundering - SS Corporate Globalisation taking on heavy water – pumps failing.” That was the essence of the emergency message relayed to the world yesterday by chancellor Alistair Darling as he announced public ownership of failed bank Northern Rock following failure to strike a deal with venture capitalists led by Sir Richard Branson. His was the equivalent of announcing "don't panic" to passengers on the Titanic.
So a government that promoted with gusto the virtues of the deregulated market-driven global capitalist economy has now taken on responsibility for the bank’s mortgages, arrears and repossessions and the fate of several thousand Northern Rock employees. Or rather Ron Sandler, the bank’s new executive chairman who at a mere £90,000 a month will be making the decisions on behalf of New Labour.
Darling says that the intention is to return the bank to the private sector when “market conditions improve”. His grey hair may have all fallen out if and when that ever happens. For Northern Rock’s demise is only the most public face of a growing global financial crisis, one which is having the greatest impact in the United States and Britain where “economic growth” has been based on astronomical levels of debt. The government is, of course, taking over Northern Rock just as the bottom falls out of the housing market.
The panic, Sunday morning decision to nationalise Northern Rock rather than let it go into administration means that the British state – or, more precisely, taxpayers – have been saddled with mountainous debts with uncertain prospects of them ever being repaid. Taxpayers are already subsidising Northern Rock in loans and guarantees to other lenders to the tune of about £55 billion. Under the new plans this will jump to a staggering £110bn, a cost of £3,500 per taxpayer and getting on for a quarter of annual government spending.
What the Northern Rock fiasco also shows is that it is far easier for governments to promote and facilitate market-driven globalisation than it is to rescue parts of the system when the wheels come off. The globalised economic system is transnational in character, with an objective existence and presence that is far more powerful (and uncontrollable) than nation states. The evolving financial crisis is essentially beyond the reach of central bankers and governments. The fictitious nature of much of the financial system is exposed on a daily basis now that the real economy is slipping into recession.
Nationalising Northern Rock won’t stop other banks, particularly those heavily committed on the mortgage front, from going the same way. In fact, it might encourage a few more to declare themselves insolvent on the basis that the government will rush to the rescue.
New Labour clearly dithered over Northern Rock as it contemplated an autumn election. Now its actions are seen as damaging to the City of London, which is one the most powerful – and vulnerable - sectors of the global financial system. Prime minister Brown personally set up the regulatory system that so clearly failed in the case of Northern Rock.
Roger Bootle, the managing director of Capital Economics and a former adviser to the Treasury, said: "This is an iconic representation of the collapse of all the ideas over the past few years about the quality of our economic management.” He added: "This is clearly political dynamite.”
We have entered a slash and burn crisis phase of corporate-driven globalisation. That means jobs, homes, pensions and incomes are under threat in every country. At the same time, the political system is clearly incapable of dealing with the crisis. The challenge immediately ahead is to promote political and economic solutions that take us beyond the limitations and dangers of the capitalist market economy.
Paul Feldman
AWTW communications editor
So a government that promoted with gusto the virtues of the deregulated market-driven global capitalist economy has now taken on responsibility for the bank’s mortgages, arrears and repossessions and the fate of several thousand Northern Rock employees. Or rather Ron Sandler, the bank’s new executive chairman who at a mere £90,000 a month will be making the decisions on behalf of New Labour.
Darling says that the intention is to return the bank to the private sector when “market conditions improve”. His grey hair may have all fallen out if and when that ever happens. For Northern Rock’s demise is only the most public face of a growing global financial crisis, one which is having the greatest impact in the United States and Britain where “economic growth” has been based on astronomical levels of debt. The government is, of course, taking over Northern Rock just as the bottom falls out of the housing market.
The panic, Sunday morning decision to nationalise Northern Rock rather than let it go into administration means that the British state – or, more precisely, taxpayers – have been saddled with mountainous debts with uncertain prospects of them ever being repaid. Taxpayers are already subsidising Northern Rock in loans and guarantees to other lenders to the tune of about £55 billion. Under the new plans this will jump to a staggering £110bn, a cost of £3,500 per taxpayer and getting on for a quarter of annual government spending.
What the Northern Rock fiasco also shows is that it is far easier for governments to promote and facilitate market-driven globalisation than it is to rescue parts of the system when the wheels come off. The globalised economic system is transnational in character, with an objective existence and presence that is far more powerful (and uncontrollable) than nation states. The evolving financial crisis is essentially beyond the reach of central bankers and governments. The fictitious nature of much of the financial system is exposed on a daily basis now that the real economy is slipping into recession.
Nationalising Northern Rock won’t stop other banks, particularly those heavily committed on the mortgage front, from going the same way. In fact, it might encourage a few more to declare themselves insolvent on the basis that the government will rush to the rescue.
New Labour clearly dithered over Northern Rock as it contemplated an autumn election. Now its actions are seen as damaging to the City of London, which is one the most powerful – and vulnerable - sectors of the global financial system. Prime minister Brown personally set up the regulatory system that so clearly failed in the case of Northern Rock.
Roger Bootle, the managing director of Capital Economics and a former adviser to the Treasury, said: "This is an iconic representation of the collapse of all the ideas over the past few years about the quality of our economic management.” He added: "This is clearly political dynamite.”
We have entered a slash and burn crisis phase of corporate-driven globalisation. That means jobs, homes, pensions and incomes are under threat in every country. At the same time, the political system is clearly incapable of dealing with the crisis. The challenge immediately ahead is to promote political and economic solutions that take us beyond the limitations and dangers of the capitalist market economy.
Paul Feldman
AWTW communications editor
Wednesday, January 16, 2008
Banks’ losses threaten action on climate change
Despite Government loans and guarantees in the region of £55billion and the sale of a choice part of its assets to J P Morgan, (perhaps coincidentally the first of Tony Blair’s private sector income streams), Northern Rock’s problems are not easing. It isn’t making enough to repay the penal interest rates charged by the Bank of England. Plans for a state takeover – nationalisation -are well-advanced.
For the Government, as reported on epolitix.com, a private deal is the preferred option, but potential bidders Virgin and Olivant are reported to have had troubles in securing financing for the deal as a result of the global credit crunch.
Asked if ministers had any concerns about offshore ownership of the bank, the Number 10 spokesman said: "The priority here is to protect the interests of taxpayers, depositors and savers." The chancellor told MPs that the government had put guarantees in place to protect savers, not shareholders.
Reassured? Not if you’re one of the huge number of people with mortgages from the former building society. No mention of their interests. And interest is what they will be paying in shedloads whoever ends up owning their debt. With many holding up to 125% of the value of the property when they bought it, house prices on the way down, food and fuel on the way up, defaults are sure to mount.
The £25billion or so already lent to the failing bank comes at a price. It isn’t money transferred from another budget somewhere. It’s another injection of invented billions to add to the crumbling mountain of credit and debt issued at an ever faster rate to sustain global growth over the last few decades. And the whole shaky pile is founded on the expectation of increasing wealth generation and the consequent ability of wage earners to repay their mortgages at interest rates high enough to generate a profit for shareholders.
But there’s a recession on the way, so it won’t work any longer. It won’t work for Northern Rock, and it won’t work for Citigroup, the world’s largest bank, which yesterday revealed a 40 per cent dividend cut, a $9.83bn fourth-quarter loss, $18bn in subprime-related credit writedowns and remaining exposure of $37bn to subprime mortgages. Neither will it work for Merrill Lynch which is due to report this week. A form of transfer into state hands – some call it state capitalism – is underway for both of them too. Only the funds are coming from elsewhere: governments - and private investors - in the Middle East and Asia, representing the biggest-ever single transfer of capital to US banks from abroad, in exchange for a stake in the business.
Next week, the World Economic Forum meets in Davos. Up for discussion is Global Risks 2008, a report written for the event by a team of collaborating organizations. It is hardly reassuring to know that Citigroup is top of the team. In the light of the ongoing and rapid economic deterioration that has come out into the open since the report was finalised, it makes pretty chilling reading. With uncertainty about the short- and medium-term future and about who is responsible for dealing with global risks ‘Action to mitigate climate change, for example, may be put in danger should the global economy weaken substantially – even though many of the political, economic and investment decisions which will shape the future path of global climate will need to be made in the next five years.’
In other words, attempts to ensure the survival of the capitalist world economy will take priority over action on climate change.
You won’t find a better or more urgent reason for joining us in building the means to put capitalism on the compost heap where it belongs.
Gerry Gold
Economics editor
For the Government, as reported on epolitix.com, a private deal is the preferred option, but potential bidders Virgin and Olivant are reported to have had troubles in securing financing for the deal as a result of the global credit crunch.
Asked if ministers had any concerns about offshore ownership of the bank, the Number 10 spokesman said: "The priority here is to protect the interests of taxpayers, depositors and savers." The chancellor told MPs that the government had put guarantees in place to protect savers, not shareholders.
Reassured? Not if you’re one of the huge number of people with mortgages from the former building society. No mention of their interests. And interest is what they will be paying in shedloads whoever ends up owning their debt. With many holding up to 125% of the value of the property when they bought it, house prices on the way down, food and fuel on the way up, defaults are sure to mount.
The £25billion or so already lent to the failing bank comes at a price. It isn’t money transferred from another budget somewhere. It’s another injection of invented billions to add to the crumbling mountain of credit and debt issued at an ever faster rate to sustain global growth over the last few decades. And the whole shaky pile is founded on the expectation of increasing wealth generation and the consequent ability of wage earners to repay their mortgages at interest rates high enough to generate a profit for shareholders.
But there’s a recession on the way, so it won’t work any longer. It won’t work for Northern Rock, and it won’t work for Citigroup, the world’s largest bank, which yesterday revealed a 40 per cent dividend cut, a $9.83bn fourth-quarter loss, $18bn in subprime-related credit writedowns and remaining exposure of $37bn to subprime mortgages. Neither will it work for Merrill Lynch which is due to report this week. A form of transfer into state hands – some call it state capitalism – is underway for both of them too. Only the funds are coming from elsewhere: governments - and private investors - in the Middle East and Asia, representing the biggest-ever single transfer of capital to US banks from abroad, in exchange for a stake in the business.
Next week, the World Economic Forum meets in Davos. Up for discussion is Global Risks 2008, a report written for the event by a team of collaborating organizations. It is hardly reassuring to know that Citigroup is top of the team. In the light of the ongoing and rapid economic deterioration that has come out into the open since the report was finalised, it makes pretty chilling reading. With uncertainty about the short- and medium-term future and about who is responsible for dealing with global risks ‘Action to mitigate climate change, for example, may be put in danger should the global economy weaken substantially – even though many of the political, economic and investment decisions which will shape the future path of global climate will need to be made in the next five years.’
In other words, attempts to ensure the survival of the capitalist world economy will take priority over action on climate change.
You won’t find a better or more urgent reason for joining us in building the means to put capitalism on the compost heap where it belongs.
Gerry Gold
Economics editor
Monday, November 19, 2007
Bankers the priority for New Labour
When it comes to bailing out bankers, the New Labour government’s coffers are deep, as shown by the vast amounts of taxpayers’ money used in the futile bid to save Northern Rock. Contrast this with the treatment meted out to people claiming disability benefits and spending cuts imposed on climate change agencies as well as the body that reviews miscarriages of justice, and you get the picture about where priorities lie.
The government has loaned the failed Northern Rock anywhere between £22 and £40 billion and is not quite sure when - or even if - the state will gets its money back. There’s billions in interest due on top of the capital sum and city commentators are agreed that that this is unlikely ever to be repaid by whoever ends up buying the first British victim of the global financial crisis. Today it is revealed that potential buyers have valued the stricken mortgage bank at well below the closing price of its shares on Friday. They were selling at 132.6p each, giving the bank a valuation of £560 million. So much for the government’s soothing words about Northern Rock’s assets totalling over £100 billion.
Meanwhile, spending cuts are coming in thick and fast as the government slashes vital services in a bid to balance its books. According to leaked reports, there are plans to cut £300 million off the budgets of agencies funded through the Department of the Environment, Food and Rural Affairs (Defra). Nature England is being asked to cut 30% from its budget for new conservation work. In addition, it is being asked to repay the £12 million spent on setting it up! Another agency facing cuts is the Waste and Resources Action Programme, along with other organisations dealing with canals, national parks, forestry, fisheries, sustainable development and environmental protection. These cuts expose the sham nature of the government’s claim to be tackling climate change just as leading scientists warn of an impending catastrophe as a result of global warming.
Also facing swingeing cuts is the Criminal Case Review Commission (CCRC). Staff are not being replaced and chairman Professor Graham Zellick said that the CCRC had made “great strides” in dealing with a backlog of cases. “Now that’s all going to be reversed, I suspect.” Solicitor Campbell Malone, who helped clear the name of a man wrongly jailed for murder, was more blunt. “The philosophy of this government seems to be that miscarriages of justice don’t matter any more. The climate is changing and the thinking seems to be that, if you go on interviewing people long enough, they will eventually confess.”
Soon to join the wrongly convicted as victims are the disabled. Work and pensions secretary Peter Hain has announced that fewer sick and disabled people will qualify for disability benefits for being unable to work, after a new test is introduced from next year. Hain says the changes will end what he calls "sick-note Britain", which is fine coming from someone who is paid £136,677 a year and who is entitled to endless holidays and various allowances. At the moment more than 60% of the people who apply for incapacity benefits are successful, but only 50% of people who take the new test are likely to pass it. The moral of the story is that if you’re a banker, New Labour will see you alright. But if you doing vital public service work or have a disability, forget it.
Paul Feldman
AWTW communications editor
The government has loaned the failed Northern Rock anywhere between £22 and £40 billion and is not quite sure when - or even if - the state will gets its money back. There’s billions in interest due on top of the capital sum and city commentators are agreed that that this is unlikely ever to be repaid by whoever ends up buying the first British victim of the global financial crisis. Today it is revealed that potential buyers have valued the stricken mortgage bank at well below the closing price of its shares on Friday. They were selling at 132.6p each, giving the bank a valuation of £560 million. So much for the government’s soothing words about Northern Rock’s assets totalling over £100 billion.
Meanwhile, spending cuts are coming in thick and fast as the government slashes vital services in a bid to balance its books. According to leaked reports, there are plans to cut £300 million off the budgets of agencies funded through the Department of the Environment, Food and Rural Affairs (Defra). Nature England is being asked to cut 30% from its budget for new conservation work. In addition, it is being asked to repay the £12 million spent on setting it up! Another agency facing cuts is the Waste and Resources Action Programme, along with other organisations dealing with canals, national parks, forestry, fisheries, sustainable development and environmental protection. These cuts expose the sham nature of the government’s claim to be tackling climate change just as leading scientists warn of an impending catastrophe as a result of global warming.
Also facing swingeing cuts is the Criminal Case Review Commission (CCRC). Staff are not being replaced and chairman Professor Graham Zellick said that the CCRC had made “great strides” in dealing with a backlog of cases. “Now that’s all going to be reversed, I suspect.” Solicitor Campbell Malone, who helped clear the name of a man wrongly jailed for murder, was more blunt. “The philosophy of this government seems to be that miscarriages of justice don’t matter any more. The climate is changing and the thinking seems to be that, if you go on interviewing people long enough, they will eventually confess.”
Soon to join the wrongly convicted as victims are the disabled. Work and pensions secretary Peter Hain has announced that fewer sick and disabled people will qualify for disability benefits for being unable to work, after a new test is introduced from next year. Hain says the changes will end what he calls "sick-note Britain", which is fine coming from someone who is paid £136,677 a year and who is entitled to endless holidays and various allowances. At the moment more than 60% of the people who apply for incapacity benefits are successful, but only 50% of people who take the new test are likely to pass it. The moral of the story is that if you’re a banker, New Labour will see you alright. But if you doing vital public service work or have a disability, forget it.
Paul Feldman
AWTW communications editor
Tuesday, September 18, 2007
Government joins the panic
Desperate times, desperate measures. That’s the only explanation for New Labour’s emergency decision to underwrite every last penny of depositors’ money in Northern Rock – and do the same if any other lender looks like going belly up. The statement was intended to restore confidence in the shattered Northern Rock and stop the run on the bank from spreading to other lenders like Alliance & Leicester, whose shares also plummeted yesterday.
But if the government ever has to put its pledge to the test, the sums involved would actually bankrupt the state, such is the dire nature of the global financial crisis and its impact on Britain. Northern Rock alone has £23 billion in deposits (the maximum they were obliged to return to each investor is just £30,000 should the bank collapse). So New Labour effectively pledged to nationalise the bank as a last resort not so much with depositors’ interests at heart as those of the banking sector, on which this government has come to rely.
The coincidence of the economic and political crisis is self-evident. Last week, Chancellor Alistair Darling called for a return to “old-fashioned banking” methods. In the wake of the first run on a major bank in Britain for over a century, Darling promptly abandoned his position last night. He was forced to act when disbelieving depositors simply ignored statements that the Northern Rock was as solid as it name suggested and continued to queue from dawn to dusk to take their money out. Withdrawals are estimated at £3 billion in three days, equivalent to an eighth of the bank's deposits. Yesterday its shares dropped 155p, or more than 35%, to 283p, from a £12.58 high in February this year.
In fact, the bank’s fortunes have been heading southwards since the crisis on world financial markets got under way in the summer. Over 70% of Northern Rock’s liquidity is dependent on raising cash on wholesale money markets. These markets have dried up because of the contagion of bad debt that emanated from the United States, where the bottom end of the housing market has collapsed. Paradoxically, attempts to sell Northern Rock off foundered when would-be purchasers were unable to raise the money because of the same credit crunch. Today the Bank of England pumped over £4 billion into the money markets in a futile attempt to ease the credit log jam, again reversing a decision of only last week that intervention would serve no purpose!
While the government prattles on about the “fundamentals” of the economy being sound, the opposite is the case. The huge expansion of public and private debt leaves the economy exposed to the chill winds blowing through the financial system. The loss of confidence is forecast to lead to less spending and more saving – probably under mattresses. Mortgages are becoming harder to get and house prices are beginning to fall. The financial services sector – which is the mainstay of British economy – is certain to contract in the wake of the credit crunch, leading to rising unemployment.
At the heart of the crisis is the fact that the recent period of corporate-driven globalisation was funded by an expansion of credit, leading in turn to an international financial system where loans are traded in “debt packages”. Many of these are now what as known as “distressed” or “non-performing”. In other words, they are worthless. What is now threatened is a massive, global destruction of real, physical assets – property, factories, offices as well as pensions. No amount of government guarantees or attempts to bail out banks can put Humpty Dumpty together again. The present economic and political system is clearly unsustainable and not-for-profit alternatives are urgently needed.
Paul Feldman
AWTW communications editor
But if the government ever has to put its pledge to the test, the sums involved would actually bankrupt the state, such is the dire nature of the global financial crisis and its impact on Britain. Northern Rock alone has £23 billion in deposits (the maximum they were obliged to return to each investor is just £30,000 should the bank collapse). So New Labour effectively pledged to nationalise the bank as a last resort not so much with depositors’ interests at heart as those of the banking sector, on which this government has come to rely.
The coincidence of the economic and political crisis is self-evident. Last week, Chancellor Alistair Darling called for a return to “old-fashioned banking” methods. In the wake of the first run on a major bank in Britain for over a century, Darling promptly abandoned his position last night. He was forced to act when disbelieving depositors simply ignored statements that the Northern Rock was as solid as it name suggested and continued to queue from dawn to dusk to take their money out. Withdrawals are estimated at £3 billion in three days, equivalent to an eighth of the bank's deposits. Yesterday its shares dropped 155p, or more than 35%, to 283p, from a £12.58 high in February this year.
In fact, the bank’s fortunes have been heading southwards since the crisis on world financial markets got under way in the summer. Over 70% of Northern Rock’s liquidity is dependent on raising cash on wholesale money markets. These markets have dried up because of the contagion of bad debt that emanated from the United States, where the bottom end of the housing market has collapsed. Paradoxically, attempts to sell Northern Rock off foundered when would-be purchasers were unable to raise the money because of the same credit crunch. Today the Bank of England pumped over £4 billion into the money markets in a futile attempt to ease the credit log jam, again reversing a decision of only last week that intervention would serve no purpose!
While the government prattles on about the “fundamentals” of the economy being sound, the opposite is the case. The huge expansion of public and private debt leaves the economy exposed to the chill winds blowing through the financial system. The loss of confidence is forecast to lead to less spending and more saving – probably under mattresses. Mortgages are becoming harder to get and house prices are beginning to fall. The financial services sector – which is the mainstay of British economy – is certain to contract in the wake of the credit crunch, leading to rising unemployment.
At the heart of the crisis is the fact that the recent period of corporate-driven globalisation was funded by an expansion of credit, leading in turn to an international financial system where loans are traded in “debt packages”. Many of these are now what as known as “distressed” or “non-performing”. In other words, they are worthless. What is now threatened is a massive, global destruction of real, physical assets – property, factories, offices as well as pensions. No amount of government guarantees or attempts to bail out banks can put Humpty Dumpty together again. The present economic and political system is clearly unsustainable and not-for-profit alternatives are urgently needed.
Paul Feldman
AWTW communications editor
Monday, September 17, 2007
Northern Rock storm blows confidence away
The financial storm battering the Northern Rock expresses not just the unravelling of the last 30 years of credit-led expansion but also a growing loss of confidence in both politicians and bankers. Every supposedly reassuring statement and action by chief executive Adam Applegarth, the Bank of England and Chancellor Alistair Darling has had the opposite effect. Every appeal for calm only lengthens the queues outside Northern Rock’s branches and depositors’ attempts to transfer money online. “Confidence” is an essential part of capitalism’s armoury and when it evaporates like it has done over Northern Rock, the entire economic system is affected.
The Bank of England’s unlimited, but expensive loan facility is a transparent but hopeless attempt to control the uncontrollable and keep people with mortgages tied into a lifetime of repayments. Yet the Bank – which only hours before Northern Rock asked for help said publicly that it would not provide lifebelts for troubled institutions - is only one of many central banks trying to keep their economies afloat. A global hurricane of imploding credit is, however, destroying all local defences. Despite recent globalisation, no unifying institution has been created which is able to regulate, control or protect the national components of the global economy from the destructive forces now unleashed.
The credit crisis that has swept the world’s financial markets may have been triggered by America’s housing crisis, but this and Northern Rock’s problems have deeper causes. For more than three decades the bloated financial markets provided increasing credit to service the growth of globalising corporations on the promise of interest payments and profits from increased sales. Consumption was pumped up by drawing consumers into debt.
America’s housing crisis signalled the limits of growth. Consumer demand was already faltering as wages were driven down, savings exhausted and interest rates rose. Inevitably, defaults on mortgage payments followed. Today Alan Greenspan, the former head of the US Federal Reserve, tells the Financial Times that the American housing market contains a large bubble and that prices will tumble. The same process is certain to hit the UK. The level of household debt in the UK surpassed the value of annual production for the first time this year and is unsustainable.
These are signs of an economic and social system that has failed and represents a political crisis for the New Labour government, under which personal debt has mushroomed. Now repossessions will accelerate as people find it increasingly difficult to repay mortgages. However, no-one should lose their home as a consequence of the failing system which exists to extract profit from dependence on the essential need for a place to live.
Northern Rock and all banks and former building societies involved in the mortgage business should be turned over to mutual status. The debts on the mortgages they hold will have to be cancelled, and new arrangements agreed and established through democratic debate. The millions of properties they hold as collateral against loans should be taken over by not-for-profit housing organisations. The owners and directors of Northern Rock could act as unpaid advisers before moving to jobs in the housing industry - on the building sites of a much needed crash programme of zero-carbon house construction. In this way, we could mark the start of a society organised to satisfy the needs of its members rather than the bankers and fatally compromised politicians who misled and lured people into this crisis.
Gerry Gold
AWTW economics editor
The Bank of England’s unlimited, but expensive loan facility is a transparent but hopeless attempt to control the uncontrollable and keep people with mortgages tied into a lifetime of repayments. Yet the Bank – which only hours before Northern Rock asked for help said publicly that it would not provide lifebelts for troubled institutions - is only one of many central banks trying to keep their economies afloat. A global hurricane of imploding credit is, however, destroying all local defences. Despite recent globalisation, no unifying institution has been created which is able to regulate, control or protect the national components of the global economy from the destructive forces now unleashed.
The credit crisis that has swept the world’s financial markets may have been triggered by America’s housing crisis, but this and Northern Rock’s problems have deeper causes. For more than three decades the bloated financial markets provided increasing credit to service the growth of globalising corporations on the promise of interest payments and profits from increased sales. Consumption was pumped up by drawing consumers into debt.
America’s housing crisis signalled the limits of growth. Consumer demand was already faltering as wages were driven down, savings exhausted and interest rates rose. Inevitably, defaults on mortgage payments followed. Today Alan Greenspan, the former head of the US Federal Reserve, tells the Financial Times that the American housing market contains a large bubble and that prices will tumble. The same process is certain to hit the UK. The level of household debt in the UK surpassed the value of annual production for the first time this year and is unsustainable.
These are signs of an economic and social system that has failed and represents a political crisis for the New Labour government, under which personal debt has mushroomed. Now repossessions will accelerate as people find it increasingly difficult to repay mortgages. However, no-one should lose their home as a consequence of the failing system which exists to extract profit from dependence on the essential need for a place to live.
Northern Rock and all banks and former building societies involved in the mortgage business should be turned over to mutual status. The debts on the mortgages they hold will have to be cancelled, and new arrangements agreed and established through democratic debate. The millions of properties they hold as collateral against loans should be taken over by not-for-profit housing organisations. The owners and directors of Northern Rock could act as unpaid advisers before moving to jobs in the housing industry - on the building sites of a much needed crash programme of zero-carbon house construction. In this way, we could mark the start of a society organised to satisfy the needs of its members rather than the bankers and fatally compromised politicians who misled and lured people into this crisis.
Gerry Gold
AWTW economics editor
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