Banks in 'collateral crunch' as debts mount

Thousands of high school students took to the streets outside parliament in Nicosia yesterday. They were protesting against the harsh consequences the people of Cyprus can expect from the deal imposed by the European Union, International Monetary Fund and European Central Bank.

This conspiracy of non-elected bodies is the technical arm of a near-dictatorship ruling throughout Europe. It is fighting belligerently to save a social, economic and political system that is wrecking the fabric of societies. The resources that are being consumed, let alone the lives ruined, surely don’t justify the results. As for the people of Cyprus, they simply get no say as the deal is not going to parliament, just in case it’s rejected.

The banking crisis in Cyprus is just one of the storms in the vast clouds of credit and debt invented to finance the global growth of production and consumption from the 1980s onwards. This one was triggered months ago when Greece was forced to write down the value of its government bonds as part of the bail-out punishment for its people. At the end of 2011, the Bank of Cyprus had $14 billion tied up in Greek debt, while Laiki Bank had more than $24 billion.

The botched and brutal temporary patch designed to prevent a formal default by the smallest member of the eurozone will reverberate throughout Europe and the rest of the world. The imposition of capital controls to stop instant transfer of funds out of the country undermines the fragile state of both the eurozone and the wider European Union.

UK  civil servants won’t have been the only ones working through the night to minimise the impact on ex-pat Cypriot bank branches, like those in Mayfair and Birmingham. President Putin’s people will have been hard at it too, searching for ways to extricate the remains of the vast amounts of Russian wealth that found its way into Europe via Cyprus in recent years.

Cyprus, already in a deep recession, now facing an estimated further 20-30% cut in its GDP as a result of the deal, will be devastated. Thousands of businesses and tens of thousands of jobs will disappear overnight. The story is being replicated throughout Europe.

Portugal, where unemployment is heading towards 20%, is entering a third year of contraction amplified by austerity; and Spain’s jobless rate will pass 27% according to its central bank as the Europe-wide contraction drives the country into a deeper slump. France, the second biggest eurozone economy, has seen 22 months of rising unemployment, now exceeding 10% and certain to rise further as car factories are shut down due to overcapacity.

The global recession is spreading like a virus across the United States too. Cities wrecked by the crisis, including Detroit in Michigan, San Bernardino and Stockton in California are seeking bankruptcy protection to exempt their pension funds from being raided to pay debts.

In the UK, observers are warning that the decision by the Bank of England today to require banks to raise another £25 billion of capital, will could lead to a “collateral crunch” that could shut down the market for credit. So don’t fall into the trap of thinking it’s just Cypriot banks that are over-stretched. UK banks have piles of debt that no one is paying interest on, which is why the Bank of England has stepped in.

Wherever you look, which ever way you turn, the conclusion must be the same. Capitalism as an economic and political system is in extermination mode. In this situation,  private and public sector employees and pensioners need to unite with finance sector workers throughout the world with one goal in mind. All the resources needed for production, distribution and exchange must come under social ownership and control. So long as they remain out of reach, the worse our prospects become.

Gerry Gold

Economics editor

New financial meltdown under way

The potential for a second, more catastrophic breakdown of the global financial system is the reality behind emergency support for the banks announced by the chancellor George Osborne and the governor of the Bank of England, Mervyn King.

While attention was directed at the proposal to stimulate the economy with an £80 billion fund to lend on to borrowers – which few think will make any difference – the other half of the package is more critical.

A new credit crunch is well under way, driven by the slow-motion collapse of the eurozone. Banks in Britain, like all others, need short-term loans to maintain liquidity. But borrowing rates are rising because of the crisis of the euro. This is adding to banks’ reluctance to lend to business or would-be home owners.

So the Bank of England in a scheme exotically called the Extended Collateral Term Repo Facility will make it easier and cheaper for banks to borrow at least £5bn every month to cover any shortfalls in cash, according to Robert Peston, the BBC’s man who first broke the news of the collapse of Northern Rock in 2007.

In exchange, the Bank will accept a call on virtually any kind of assets banks can offer, rubbish or otherwise. That’s how desperate things are.

Governor King said that the Bank “will provide banks with whatever liquidity they require given the prospect of turbulence ahead." There’s plenty of that about already. Yesterday, the interest on Spain’s sovereign debt rose to 7%. This is regarded as a threshold point at which repayment becomes unsustainable and a bail-out is required. Spain has already been given €100 billion this week to hand on to its bankrupt banks. Now the state itself is facing bankruptcy.

The world’s central banks are also nervously eyeing the outcome of Sunday’s second Greek election in two months. At best, it will result in another hung parliament; at worst, for capitalism, the left-wing bloc Syriza will win and demand a renegotiation of the draconian conditions attached to existing bail-outs by the European Union and the International Monetary Fund.

Either way, Greece’s membership of the euro is in jeopardy and its economy is seizing up altogether due to a lack of credit for the most basic commodities and services.

So stand by for an attempt at co-ordinated global action by increasingly anxious central banks before the markets reopen on Monday.

The options are rapidly closing, however. Providing cheap credit to banks won’t solve the problem of a contracting economy. Corporations and households alike are cutting back on spending at a time of a sharp decline in real earning power, part-time work and massive unemployment.

As King himself acknowledged in a graphic admission the “industrialised world have thrown everything bar the kitchen sink” at the global economic meltdown. Which makes his call for “bolder action” rather meaningless. Especially as China and India and other “emerging economies” are slowing rapidly, adding to what King called an “ugly picture” of the global economy.

In reality, global capitalism isn’t working and creating new credit facilities won’t make a jot of difference. The boom that collapsed in 2007 was driven by debt that ultimately undermined the financial system itself and precipitated a global recession.

Having thrown trillions of dollars, euros and pounds at the problem, nothing has changed. A “return to growth” remains a mirage. Once again, the global capitalist economy is at the precipice. An imminent lurch into outright depression is a distinct possibility.

The system of production for profit is the root problem, not the failure of currencies or banks. A more sustainable, co-operatively-based economic model is urgent. To achieve this, we want a democratic transformation of the political system to ensure we do not become the victims of a crisis not of our making.

Paul Feldman

Communications editor

Hungary crisis driven on by new credit crunch

A chain under stress usually breaks at its weakest link. For the global financial system, the pressure point could well prove to be Hungary.

Although not in the single currency, Hungary’s depressed economy is entirely dependent on credit from banks that are in the eurozone, particularly those located in neighbouring Austria and Italy.

Those credit lines have dried up as a result as the drift to a full-scale banking crisis in Europe takes its toll on lending, leaving Hungary vulnerable to a sudden withdrawal of funds.

Banks everywhere, including the UK, are now reluctant to lend to anyone, including other financial institutions, for fear they won’t get their money back. And their scope for lending has been further reduced by a requirement to increase their asset base (which led to a run on Italian bank Unicredit’s shares yesterday).

Hungary’s beleaguered autocratic government led by the populist Viktor Orban yesterday had to pay interest of 10% to borrow some short-term money. A debt-swap auction was cancelled for lack of interest.

Hungary needs to roll over nearly €5bn of external debt this year and in February is due to start repaying a loan from the International Monetary Fund that saved the country from collapse in 2008.

The country is now asking for more help from the IMF. This won’t be straightforward as the IMF is demanding political and economic policy changes first. The danger of a Hungarian sovereign debt default remains high, which would have a contagion impact throughout Europe.

Orban’s nationalist posturing is adding to the risk, as does a growing political crisis which last weekend saw tens of thousands of people rally in Hungary against a new constitution that gives the state draconian new powers over its citizens (as well as the central bank, much to the angst of the EU and IMF who are not particularly bothered about the rest). A declaration on the “decline of democracy and the rise of dictatorship” in Hungary was circulated by a number of former political dissidents.

Other so-called periphery countries, like Rumania and Poland, are equally vulnerable to a credit crunch. Austrian, French, German, Greek and Italian banks are heavily committed to loans to these countries.

There are no “solutions” in sight, as billionaire investor George Soros acknowledged in relation to the eurozone crisis. Soros was only stating the obvious when he warned that a collapse of the single currency would be “catastrophic not only for Europe but also for the global financial system".

The stresses are showing up throughout the system. A survey by the Bank of England reveals that Britain's banks are more worried now about a credit crunch than at any time since the first one brought down Northern Rock in late 2007. Inter-bank lending rates have risen as a result of the eurozone crisis and these have been passed on to companies in the form of higher interest charges.

The survey also showed the first increase in default rates on loans by bigger business in two years. "For large and medium-sized corporates, default rates were reported to have picked up for the first time in two years and a further pick-up was expected," the survey said.

The central bank's quarterly Credit Conditions Survey also showed that small businesses' demand for credit had fallen sharply, and that banks expected demand for credit to drop in the coming months. The survey confirms that the UK economy is on a knife edge, heading from recession to outright slump.

Paul Feldman
Communications editor

Don't lose pension strike momentum

The commitment shown by at least 1.5 million workers in 29 unions who staged a 24-hour strike against attacks on the pensions, and marched in cities and towns in their tens of thousands, is now in jeopardy.

Union leaders are resuming talks with the ConDem coalition today in a bid to reach a settlement before the government’s imposed deadline of December 31.

But if they were really serious about defending their members’ interests, union bureaucrats would be boycotting the talks because, in reality, there is nothing really to negotiate about.

For yesterday’s historic action was, as every striker knows, not about winning an improvement in their hard-won pensions but about stopping the government from cutting them through higher contributions and having to work longer before entitlement.

So any “compromise”, along the lines called for by the wretched Ed Miliband – by the way just nine out of 258 Labour MPs backed a Commons motion supporting the strike – must mean worse pensions in one form or another.

A contributions increase will slice even more off the value of real wages, already reduced by a government-imposed, pay freeze – which union leaders did nothing to oppose. With chancellor Osborne imposing a below-inflation 1% pay limit for the next two years, incomes in the public are set to plummet by 15% by 2014.

We repeat: what is there to negotiate about?

While the government has declared class war on behalf of the banks and corporations, union leaders continue to live in a fantasy world where “common sense” will prevail and an all-out conflict can be avoided.

Worse, they consider their members as cannon fodder to be sent over the top before suing for peace. Conscious of the feebleness of their opponents’ officer class, the Coalition is playing a divide-and-rule game. Their plan is to get the teaching unions to agree a separate deal and split them from other unions.

The major Labour-affiliated unions like Unison have no plans for further co-ordinated national action – not least because of the dangers (for them) that it could lead to calls for strikes that are more than a one-day affair (which the government can handle).

Instead, if there is no deal by Christmas, there is talk of local, rolling so-called “smart” strikes. These will have no impact whatsoever and contain the danger of demoralising and isolating groups of workers.

Yet the conditions exist to maintain the momentum of yesterday’s tremendous strike. Osborne’s budget will slash the incomes of every household, not just those in the public sector as the Institute for Fiscal Studies report today shows.

The British economy is heading for recession, along with the rest of global capitalism. While trade unions were marching for their rights, the major central banks took desperate measures to try and prop up the euro. But it’s too late – another credit crunch is under way, leading to a second financial meltdown worse than that of 2008.

The deepening crisis will hit everyone very hard and provides the opportunity to bring all sectors of society together in new ways. Local, alternative seats of power such as people’s assemblies can maintain the energy of November 30 and more.

Limiting our response to calls for more strikes or days of action is inadequate. In Greece, for example, a number of general strikes have failed to end the massive attack on living standards.

Overriding every government’s actions are the demands of the financial markets and the recession that makes it impossible to return to the “growth” that is the lifeblood of the capitalist system.

The success of the pensions strike confirms without a shadow of a doubt the will to confront the government. Now is the moment for the rank and file to demand an end to negotiations and seize the initiative through the creation of democratic assemblies that can mount a serious challenge to the failed profit system itself.

Paul Feldman

Communications editor

Capitalism - guilty as charged!

It is rare enough for anyone on the voice-of-the-establishment BBC to even mention the ‘C’ word let alone devote a whole programme to it. Even rarer then for it to broadcast a two-parter entitled “Capitalism on Trial”.

Reality will out, however, because the evidence that this is a crisis of the system as a whole is piling up, hour by hour.

Today, Italy’s debt was further downgraded. Yesterday, frantic discussions over the worsening Greek-focussed Eurozone crisis led to a postponement of the country’s aid package.

The reason? European banks are in no position to cope with an inevitable Greek default. So they are going to have to be bailed-out in advance! In the meantime, a new credit crunch is gripping financial markets.

Consumer spending has slumped, with incomes slashed by inflation, unemployment and short-time working. Sales of petrol in the UK, for example, have fallen by 15% since 2008.

Hosted by former Tory Michael Portillo, who admitted having a small part in the early 1986 Big Bang deregulation of the financial markets by the Thatcher regime, the programme gave air-time to a handful of the BBC’s favourite commentators.

Its own Robert Peston, the FT’s Gillian Tett, and the ever-lugubrious Will Hutton were among those offering a variety of defences of the crisis-ridden system, accompanied by those in favour of state intervention and others who would prefer to see “creative destruction” allowed free rein. Even the Socialist Workers Party’s Alex Callinicos got a look-in, drawing attention to Marx’s discovery of the tendency of the rate of profit to fall – the system’s most fundamental flaw.

But it was Peruvian economist Hernando de Soto who got closest to the heart of the problem, explaining the necessity of current attempts to reconnect the stratospheric book values of financial assets that were set free by the Big Bang to the real value-producing components of the global economy.

When the 30 years of deregulation driven on by the expanding needs of globalising manufacturing corporations stretched the credit system to breaking point in 2007/8, the requirement outlined by de Soto became unpostponable.

On the sidelines, the Coalition’s George Osborne’s rabbit out of a hat of “new” credit for small businesses is more confidence trick than conference trick. It finds him floundering against the stream of more wildly radical would-be policy makers who are calling for bank and mortgage debts to be wiped out by 50-100% “haircuts”, so that consumers can be freed to start spending again.

Portillo’s programme ended with a serious challenge – the system may be in crisis, but as yet nobody, he suggested, has come up with a well-defined replacement.

It’s a test that cannot be ignored and must be taken up by the crowds of people assembling in city centres across the planet. How can we extend the multitude of not-for-profit, democratically-controlled, worker and consumer co-operatives to the rest of society?

How do we bring the corporations and financial centres under social, common, democratic control? What bits of the old system can prove useful and what should be discarded (eg hedge funds, stock markets)?

We have to aim to go beyond resistance, beyond protest and pressure, beyond strikes and even occupations to actually challenge and remove the system’s grip on people’s lives and futures.

There is a need to contest political, state power itself because that’s how the system is held together. Creating new democratic forms like people’s assemblies, we shoud bring them to the point of challenging and replacing the old order.

That has to be the focus of the growing occupations of places like Wall Street (where trade unionists will join today’s march) and plans for similar actions worldwide on October 15.

Capitalism has had its “trial” and been found guilty as charged.

Gerry Gold

Economics editor

Brown's short-term memory

So Gordon Brown is warning that the “world needs to act in concert” to avoid a re-run of the 2008 collapse of the financial system that, you may recall, happened on his watch.

The former New Labour prime minister is busily trying to reinvent himself as the man who saved globalisation from itself. He has written an apparently impenetrable book called Beyond the crash: overcoming the first crisis of globalisation.

Brown is also touted as a possible successor at the International Monetary Fund to that other alleged “socialist”, Dominique Strauss-Kahn who is currently in a maximum security prison in New York (not, unfortunately, for the crimes committed by the IMF itself).

Once Brown was a cheerleader for the global financial system that grew and grew to fund and drive forward globalisation. Who can forget his memorable speech to assembled bankers in June 2007, just before he replaced Tony Blair as prime minister.

The warning signs were already evident. Mortgage defaults were mounting in America, with home loan companies filing for bankruptcy. In Britain, personal debt had more than doubled inside six years, while people were being lent six, seven or eight times earnings by mortgage companies.

At the Treasury in Whitehall, studied ignorance was bliss. Brown’s speech praised his audience for creating an era “that history will record as the beginning of a new golden age for the City of London”. It was due in part, he said, to the City’s “deep and abiding belief in open markets” and noted how Britain was “a world leader in stability”.

No praise was too high for his audience, who heard: “The financial services sector in Britain and the City of London at the centre of it, is a great example of a highly skilled, high value added, talent driven industry that shows how we can excel in a world of global competition. Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate that is the hallmark of your success.”

But a global economy driven by debt had reached and passed a tipping point. Within weeks of Brown’s speech, in August 2007, the credit crunch began as overnight inter-bank lending stopped. In September, worried savers started queuing outside Northern Rock branches to get their money out. The bank was nationalised by the end of the year.

Brown is admittedly more sanguine now. Writing for the US magazine Newsweek, he warns that “if the world continues on its current path, the historians of the future will say that the great financial collapse of three years ago was simply the trailer for a succession of avoidable crises that eroded popular consent for globalisation itself”.

Rest assured, Brown is not referring to capitalism as the problem here. He is worried that there is no system in place – despite the 2007-8 crash – to chart “volatile and unsustainable wave of speculative capital flows” and no global consensus on capital and liquidity requirements for banks.

He rues the fact that despite the euphoria of the G20 summit in London in January 2009, nothing came of its declaration. The summit, says Brown, “has given way to indecision, to vested interests, and to a retreat into national shells”.

This admission of failure says as much, if not more, about the nature of capitalism than it does about world leaders. Brown, Blair, Bush, Clinton, Reagan and Thatcher encouraged the deregulated growth of the financial sector. Only if people were provided with credit could they buy the commodities the corporations were churning out.

As finance became footloose and fancy free, transcending borders and nation states on the click of a button, and developing unfathomable “products” like collaterised debt obligations, it became impossible to re-regulate. Worse still, the indebtedness that ultimately brought down the banks is still present, an albatross that no one can get rid of. Brown’s fears of another great crash are absolutely justified.

Paul Feldman

Communications editor

One corporation's power over life and death

Until now the largest and wealthiest commodities trader in the world, notorious for tax avoidance, has managed its murky business in the shadows. But it needs capital to fuel its growth, hence its launch on the London stock market today.

Most people on the planet will not have heard of Glencore, but virtually all are only too well aware of the inflationary effects of its control of a wide range of commodities. Glencore controls 60% of the world’s trade in zinc and 50% in copper.

According to the World Bank’s Food Price Watch, since June 2010, an additional 44 million people fell below the $1.25 poverty line as a result of higher food prices. In March 2011, the food index remained 36% above its level a year earlier.

Even the notoriously right-wing Daily Mail is disturbed by Glencore’s power over life and death. A special investigation says:

“Its empire stretches from the jungles of Colombia to the plains of Australia. It makes its money from metals, minerals, oil, sugar, grain — commodities that form the very building blocks of world trade. And, armed with the best possible knowledge of global events, its traders buy these at the lowest possible price and sell at the highest possible mark-up.”

With its share issue – the biggest-ever in London – Glencore is now drawing together many more threads in the global web of capital consolidation that is driving food and fuel inflation and forcing tens of millions over the edge into starvation.

Everyone who is anyone in the exploitation of the planet and its people wants to get in on the game of building profit from starvation. Aabar, a unit of Abu Dhabi’s International Petroleum Investment Company is set to be its largest external investor, taking $1 billion. GIC, Singapore’s sovereign wealth fund, will take $400m. Fund managers BlackRock and Fidelity, are set to take $360m and $215m, respectively. Swiss banks Credit Suisse, UBS and Pictet will also take part. Zijin Mining, the Chinese group, will buy as well as several other institutional investors, including hedge funds Och Ziff, Eton Park and York Capital. The launch brings huge fees to the banks which underwrite it. The group is led by global co-ordinators Citigroup, Credit Suisse and Morgan Stanley.

Commodity speculation took off in a big way in the wake of the 2007/8 global financial meltdown. In a co-ordinated panic action, governments and central banks threw billions of every currency onto the world’s credit markets trying to stave off the inevitable recession. But with banks refusing to lend, a great deal of the money found its way into the commodity markets, driving price inflation way beyond the effects of demand and supply pressures.

In 2003, the commodities futures market amounted to just $13 billion. But when the global financial crisis hit, commodities – including food – seemed like the last, best place for hedge, pension, and sovereign wealth funds to park their cash. "You had people who had no clue what commodities were all about suddenly buying commodities," an analyst from the United States Department of Agriculture said. In the first 55 days of 2008, speculators poured $55 billion into commodity markets, and by July, $318 billion was rolling the markets. From 2003 to 2008, the volume of index fund speculation increased by 1,900%.

But speculation is not the only cause of inflation in food and fuel. Severe weather vents induced by climate change, increased competition for food and land especially from China, increasing costs of production as oil reaches its peak. And the switch to bio-fuel also contributes to the underlying pressures that Glencore and the other speculators feed upon.

A small, and now declining. number of global corporations driven by profit for the benefit of shareholders, have brought the planet to the limits of its ability to support life, and its people to the limits of their ability and willingness to endure its effects.

Gerry Gold
Economics editor

Bailouts beyond belief

How a government that has saddled taxpayers with liabilities of up to £850 billion – roughly £40,000 for each household – for bailing out the banks can now parade itself as the party for ordinary people as opposed to the “Tory toffs”, is beyond belief.

The bailouts of the banks are the largest, swiftest transfer of wealth in the history of British capitalism. And it was carried through by New Labour which, in turn, had presided over the same banks as they built fortunes on what proved to be calamitous mountains of debt.

In July 2008, while still chancellor, Gordon Brown hailed the dawn of a new “golden age” in the City of London; a few months later, this time as prime minister, he was pouring money down the throats of the bankers to the point where they were almost drowning in taxpayers’ cash.

The government spent £117 billion buying shares in banks and lending directly to financial institutions, a National Audit Office (NAO) investigation published today calculates. That represents a liability of £5,530 for every one of the 21.1 million families in Britain. When are other commitments are added in, the total rises to £850 billion.

And where has all this money gone? Despite being taken into state control, Royal Bank of Scotland (RBS) and Lloyds-TSB have failed to meet targets for lending, according to the NAO. In effect, although the NAO naturally doesn’t draw the same conclusion, taxpayers have financed the transfer of cash to other banks and the write-off of so-called “toxic assets”.

All to do what? Preserve a banking system that operates entirely in the interests of shareholders and senior staff and one that dazzled the government so much that the Treasury gave RBS clean bill of health less than a week before having to bail it out in October 2008, according to the NAO report.

Joining the queue for state hand-outs were financial advisers and lawyers who between them shared £107 million of taxpayers’ money in fees for services and advice during the crisis, and could receive a further £5.8 million in bonus payments. Nice work if you can get it.

Now the board of the largely state-owned RBS is threatening to quit unless it can pay out large bonuses to senior staff. New Labour is caught like a rabbit in the headlights. It can’t afford to alienate the bankers who might then move out of London to friendlier environments, and whose support helped to create New Labour in the first place. Yet public anger against the bankers is mounting as it dawns on people that massive public spending cuts are on their way after the forthcoming general election – whoever wins.

In the end, the laws of capitalist competition will prevail over the hot air from ministers like Lord Myners, himself a former fund manager and chairman of Europe’s largest property company.

The “choice” between New Labour and the Tories boils down to no choice at all. Just as Blair and then Brown carried on where the previous Tory governments had left off, Cameron’s New Tories will, if elected, deepen the class divisions and gross inequality they inherit from the present government.

The economic crisis is intensifying, as today’s announcement of the closure of the Corus steelmaking plant on Teesside shows. As far as the financial system goes, no one really knows the size of the huge debt overhang out there and may make the credit crunch look like a slight blip when the reckoning takes place. While the main parties play their political games ahead of the election, the threat to all our futures continues to mount.

Paul Feldman
Communications editor

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

More shocks on the way

The disarray – and fear – in ruling class circles over the future prospects for the financial system is growing apace. Far from rescuing the banks, unprecedented levels of state intervention have, according to Mervyn King, Governor of the Bank of England, and others, reinforced existing weaknesses.

King has put himself at odds with the New Labour government, which has poured billions of pounds of taxpayers’ cash down the throats of the banks to no avail. Not only have they failed to resume previous levels of lending, bankers are paying themselves huge sums in bonuses, which for 2009 are up 50% on last year.

So King told Scottish business organisations last night: “The sheer scale of support to the banking sector is breathtaking. In the UK… it is not far short of a trillion (that is, one thousand billion) pounds, close to two-thirds of the annual output of the entire economy. To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.”

He went on: “It is hard to see how the existence of institutions that are ‘too important to fail’ is consistent with their being in the private sector.” King has a point, of course. In effect he is saying that the private sector can only function through the capitalist state and that this is not a genuine kind of private enterprise capitalism. He is right there!

Just over two years ago the financial system went critical, highlighted by the panic withdrawal of funds by Northern Rock’s depositors. The combination of the worst financial crisis since the Great Depression and now the longest recession since the Second World War was triggered by a rising rate of defaults on sub-prime mortgages in the US, the weakest point in a worldwide explosion of credit secured against overpriced property.

The world’s governments and central banks were forced into drastic action. They’ve taken some bankrupt institutions into public ownership, provided guarantees against loss for others, and cast trillions into the credit markets. They’ve reduced interest rates to historic lows, effectively entering negative territory. And they’ve created new money to inflate their own balance sheets.

In a wide-ranging comment on King’s speech, Martin Wolf, the Financial Times’ senior columnist accurately assessed the effect of this intervention, and all the half-hearted attempts at regulation. He concludes: “Trying to make financial systems safer has made them more perilous. Today, as a result, neither market discipline nor regulation is effective. There is a danger, therefore, that this rescue will lead to still greater risk-taking and an even worse crisis at some point in the not too distant future.”

King is proposing something different to regulation however. It puts him at odds with the rest of the establishment. His proposal for a separation of traditional banking from investment, high-risk activities is an echo of the American Glass-Steagall Act of 1933. This was a rapid reaction to the banking crisis that swept America after the 1929 stock market crash, in which investment banks played a key role. Glass-Steagall’s restrictions were steadily eroded in the 1980s to allow globalisation to proceed and the law was finally abandoned by the US in 1999.

Both King’s proposals for a return to the pre-globalisation era and Wolf’s assessment show that the crisis is far from over. More shocks are on the way. For example, soaring stock market prices contain little of substance and are essentially a new bubble just waiting to burst while house prices remain artificially high.

The IMF is warning that the global recession is having an adverse effect on commercial property prices and defaults are soaring. Increasing unemployment is also accelerating the rate of repossessions in America and Britain. The conditions for a second wave of the global financial crisis are already present. It wouldn’t take much to touch it off.

Watch this space.

Gerry Gold
Economics editor

Brown presents the bill

A year and a day ago the Federal Reserve, the US central bank, took the decision to instruct Lehman Brothers to file for bankruptcy after 158 years of trading. It was a case of too big to fail and too big to save. Within days, the world economy fell off a cliff and has never recovered.

With its roots in barter, exchanging manufactured goods for raw cotton, Lehman’s history is inextricably a part of the history of capitalism. The company began its diversification into financial services in the 1880s (around the time of Marx’s death).

In the 20th century, Lehman was instrumental in enabling the explosive growth of profitable commodity production and exchange, notably through finding the capital for retail giants like Woolworths, then television and later computer manufacture. It also helped finance Halliburton, the oil company at the heart of the Bush administration’s war on Iraq.

At its pinnacle it was among the elite of the world’s financial services companies, actively spinning the web of debt that enmeshed the world. As the credit crunch took hold in August 2007, it closed its sub-prime mortgage lender with the loss of 1,200 jobs.

But it was all too late. A year later, its liabilities exceeded its assets to such an extent that not even the American government could bail Lehman Brothers out and it went to the wall. Today, like much of the global capitalist economy, Lehman Brothers is bankrupt but still trading. So many dead men walking.

As the world was considering the significance of the passing of Lehman yesterday, prime minister Gordon Brown was opening a new chapter in the rapidly worsening global economic crisis that went hand-in-hand with the decline of banking and finance.

Brown was a key figure in ensuring the subordination of the British economy to financial interests, announcing a new “golden age” for the City just weeks before it all went pear shaped. Now he’d come to present the bill for the damage, not to the bankers, but to the assembled ranks of the representatives of the organised working class at the TUC in Liverpool. They listened with protest messages raised while for the first time he talked of public spending cuts to come after the next election.

Attempts to restore the flow of credit have failed. Global stimulus packages have concentrated on eliminating huge swathes of the global car industry, dumping hundreds of thousands of workers on the streets. Unemployment is soaring. Tens of millions around the world are already without work, soon to be homeless if they aren’t already, without healthcare or pensions. And now Brown talks of cuts.

Politicians of all parties are competing to prepare voters for the devastation to come, the price to be paid for keeping the capitalist system in existence. This bidding process finds parties competing for the right to inflict the impact of the crisis on the majority of the world’s population, forcibly if necessary.

Commentators may delude themselves with good news, but the majority will see no sign or possibility of a “recovery”. They will not benefit from an illusory “return to growth” that is in essence the prelude to a further lurch towards outright slump.

Lehman Brothers was broken by fantasy financing that in the form of debt fuelled the economic boom. And there are mountains of debt still out there with claims on real assets and future earnings. In the absence of a recovery, these assets – in the shape of jobs, pensions and homes – are likely to be wiped out by capitalist bankers and corporations.

So this is no time to be caught up in discussions about ending “unbridled free market capitalism”, nor speculating on “a realignment of world capitalism”, nor even pushing for the kind of change that would “renew capitalism in a fairer form”. These are mere palliatives that leave the basic cause untouched and untreated.

What we must now do is to acquire the power to switch from a credit-dependent system of for-profit production based on legalised exploitation of labour to production for need guided by democratic decisions based on collective ownership. That’s how to fight the cuts as well as create a sustainable future.

Gerry Gold
Economics editor

Counting the cost of the meltdown

While the International Monetary Fund suggests that the recession has bottomed out, all the signs merely indicate a pause in the crisis before a further lurch towards slump in the coming months.

The recession continues to deepen in Chile and South Africa, for example. Further shocks are to be expected as commercial property values decline, and rising unemployment forcing more workers to default on mortgage and credit card debt adds another twist to the downward spiral.

Germany’s economic ministry is working with its central bank on measures to deal with a second credit crunch expected early next year. Hartmut Schauerte, the economic state secretary says firms with weak balance sheets may struggle to roll over loans as they come due in coming months. Negotiations with banks could prove "very difficult", he admits.

The UK government’s gamble with quantitative easing, its last-ditch largely failed attempt to restore the flow of credit by printing money, is looking dangerously inflationary and is leaving buyers of government bonds increasingly jittery.

The costs of slowing the decline to slump, let alone any return to growth, are appearing in many forms. Alongside short-lived government sponsored scrappage schemes designed to clear millions of over-stocked cars, billions have been poured into “restructuring” the industry worldwide – the costs of mothballing factories and sacking workers.

Where workers have resisted – as in the now ended 77–day occupation of Ssangyong’s plant in South Korea – the price included the mobilisation of state forces in scenes evoking dystopian medieval pitched battles, with besieged workers armed with slingshots and bamboo staves taking on company thugs, helicopters dropping teargas and taser-wielding riot police.

UK tax income has fallen as economic activity has shrivelled and, at best, will continue at low levels for the foreseeable future while government borrowing to bail-out the banks will result in huge cuts in public sector spending in every area, whoever wins the next election.

It’s already beginning in at least 12 of the 50 states in America, and many more of its counties and cities. They have begun slashing services and forcing unpaid holidays on their employees as revenues from sales taxes, property taxes, investment income and service/building fees continue to plummet.

California's economy, the world's eighth largest, is expected to register a jobless rate near an agonising 13% next year. That state's attempt to reduce its massive $24 billion budget deficit includes three unpaid days a month for state workers to save $820 million. The unemployment figures leave out many of the illegal migrant workers from Mexico on whom the economy depended in the boom times. The loss of remittances is having a devastating impact on the families they left behind.


Michigan, home state of the bankrupt car industry in Detroit, has scheduled six days – a day a week- on which it won't pay about 37,400 employees to save $21.7 million by September 30.

The corporate-sponsored backlash against Barack Obama’s modest proposals for a state health insurance scheme in parallel with the existing for-profit schemes run by insurance companies are the palest of indicators of the political struggles to come.

Obama’s crisis also signifies that this is not the period when capitalism is prepared to grant reforms. Quite the reverse is true. For the mass of the world’s population there can be no acceptable solution to the deepening crisis without a wholesale transfer of productive resources to common ownership subject to democratic control.

Gerry Gold
Economics editor

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

Banks show who rules Britain

So Alistair Darling is going to “get tough” with the banks over their lending rates. Don’t make me laugh! The fact is that the banks have simply stuck two fingers up to the government and let New Labour know that when it comes to real power, they are in charge.

After all, the banks have called the government’s bluff once and they know they can do it again. Since the autumn of 2007, when Northern Rock collapsed, the government has propped up the banks to the tune of £1.3 trillion– more than half the value of a whole year’s output of the entire economy.

The outcome? Closures and government-enforced mergers have left the banking sector dominated by just a few operators, who are using their monopoly position to charge exorbitant interest rates while rationing the scale of their loans to those in need like homeowners and small businesses.

The official bank rate is 0.5% yet according to a recent survey, the banks are often lending at between 4-5% in a desperate bid to rebuild their balance sheets at the expense of customers. Mortgage rates have seen the sharpest rise. Three months ago, the price of a typical two-year fixed mortgage was 4.65%. Now it's 5.17%.

Michelle Slade, of the financial information website Moneyfacts, said potential profit margins – the difference between what it costs a bank to borrow the money itself and what it charges its customers –are the highest ever on record. "Typically we would have seen a 0.8% margin on top of their product. Now we are seeing a 3.1% margin," said Ms Slade.

Behind the scenes, the banks are still not lending to each other for the simple reason that the real extent of toxic debt in the system is still a secret – especially from the government! What this clearly indicates is that another stage of the global financial meltdown is on the cards.

This could centre on credit card defaults, which has already hit major American banks. The International Monetary Fund estimates that 7% consumer debt in Europe will be lost, with much of that falling in the UK, the continent’s biggest nation of credit card borrowers. A UK national debtline says calls about debt arrears reached 41,000 in May – double the number it received in May 2008.

With millions of homeowners in negative equity, for example, the previous practice of remortgaging to pay off credit cards has disappeared. Banking analyst Sandy Chen says that the poorer sections of society are being hit hardest, with roughly half of UK households “facing negative cash flows, an inflationary environment and the combined threats of negative equity, difficulties in refinancing or remortgaging, and unemployment” while top earners are seeing their real incomes actually rise.

The bank bail-outs (which have signally failed to revive the financial system) and falling revenues from the economic recession have led to the spectre of state bankruptcy itself. Add in the political bankruptcy gripping Britain and you could see what a dangerous moment this is. It could conceivably produce a national coalition government to “save the nation” by imposing massive spending cuts and tax rises.

The price to try and save a failed capitalist economy and banking system is not worth paying. Far too much hard-earned taxpayers’ money has been wasted already. A more practical solution would be to bring the banks under public ownership and control without further compensation or bail-out payments. Then we could strip out the toxic debts and bury them somewhere deep in the ocean. Mortgage and credit card debts would be renegotiated or written off so that ordinary people did not suffer. In other words, we need to relaunch the entire banking system on a new footing, a task patently beyond the capacity of the bankers’ government, New Labour. Drastic? Too revolutionary? Got any other suggestions?

Paul Feldman
Communications editor

If it can't be fixed, scrap it!

At the end of last week, Lord Mandelson, the authentic, unelected voice of global capital within the New Labour government, stated what he saw as the “simple problem”. He was making a bid for supranational influence in Washington, in a speech entitled “Can we fix globalisation?".

He put it like this: “The stability of the global economy is the sum of sovereign national macroeconomic policies on interest rates, currency levels, domestic spending and demand. There is no mechanism to mediate between these policies or enforce action that would counter systemic risk, in financial markets or at the general level of the global economy.”

Mandelson, who is now effectively deputy prime minister after saving Gordon Brown’s skin, couldn’t have put it clearer: the whole thing is beyond control. Capital does what it has to do, regardless of what policymakers and wonks want. Take pensions, for example. Employers now see their contributions as a major cost to be cut at a time of crisis.

Yesterday, the Organisation for Economic Cooperation and Development warned that the destruction of the value of both private and public pensions threatened to turn the two year financial crisis into a “social crisis lasting decades”. An OECD survey found that private pension plans lost 23% of their value last year, while higher unemployment “leaves little room for more generous public pensions”. At the same time, accountancy firm PricewaterhouseCoopers revealed that for the first time many firms are planning to end their final-salary pension schemes for existing staff as well as new entrants.

What, you may ask, about the total of $5,000bn (about £3,000bn or £3 trillion) already pumped into banks and pledged by governments to stimulate their own economies? Even if you discount the fact, according to Kroll, the world’s leading risk consultancy, in the rush to spend the money, more than $500 billion – at least a tenth of the total - will be lost to fraud and bribery it’s still a load of cash. Surely all that money is doing its job, freeing the credit markets and restarting investment? Surely the upturn is on the way?

No, it isn’t.

The World Bank, another global agency with no power at all to fix the crisis, projects that the world economy will now contract 2.9%, seriously worse than its forecast of a minus 1.75% just three months ago in March.

Capital inflows to developing countries will turn sharply down, says the report, falling by a shocking 75%, leading to a 50% contraction in industrial outputs. Germany, Japan and South Korea are heavily dependent on capital intensive exports to economies like Russia, China and Hungary, so will suffer badly from the reciprocal effect of the accelerating downturn. Shares in Russia have crashed 20% this month already, and its banking system has all but ceased lending due to growing fears about a second wave of financial crisis that could hit the banking sector later this year.

Meanwhile, back in the UK, 16 weeks have passed since the Bank of England began “quantitative easing” after Alistair Darling authorised the creation of £150 billion of new money, widely trumpeted as the last throw of the financial dice. So far, £96 billion has been spent, of which £93.5 billion was used to buy “gilts”, which means it was not lent to industry for capital investment but lent to the government.

But it isn’t working. Overall, lending to private, non-financial companies fell by an average of £1 billion over each of the past six months. It’s OK though, Alistair’s capitalist friends haven’t gone empty-handed. They’ve had £750 million in the form of corporate bonds. It’s amazing how they’ve got away with it for so long, and it’s high time they were stopped. The simple truth is that the capitalist system cannot be “fixed” and instead would benefit from a unique scrappage project much more radical than the one introduced to try and boost car sales.

Gerry Gold
Economics editor

For a future without the FT!

The Financial Times major series of articles grandly entitled “The Future of Capitalism” should at least have a question mark after it, especially as the main contributors are, to say the least, struggling to come to terms with what’s actually happened, let alone what lies ahead.

Whilst the contributors admit that the post-1980s period of neo-liberal, unregulated financial markets is at an end, none can tell us anything about the reciprocal, causal relations between credit and the production of real value, or even between the bursting of the financial balloons and the freefall in global production. 

Gillian Tett seems to be uncertain whether the financial system has collapsed or not. First she tells us hopefully, that “the pillars of faith on which this new financial capitalism were built have all but [emphasis added] collapsed”. But later in the piece, things get a lot worse: “Last September,” she says, “the final pillar of faith collapsed.” 

According to Tett, two revolutions occurred in the 1970s.  Banks abandoned centuries of safe lending practices. They started to sell their credit risk –  the risk that the people they’d lent money to wouldn’t repay the loans –  to third-party investors in the new capital markets. And they adopted complex computer-based systems for measuring credit risk. As a result everything got too complicated. Nobody could understand what was going on any more. 

Why this happened, what started it, what the motive force was that drove the demand for increased credit she can’t and doesn’t say. It doesn’t even arise as a question. But there are plenty of places, human failings, to apportion blame: “Naked greed, lax regulation, excessively loose monetary policy, fraudulent borrowing and managerial failure.” 

There’s no hint of a connection between the inner logic of capitalist production for profit that drives growth, pushes regulation aside, creates new forms of credit to finance consumption and production –  and breeds the conditions for the crash, its inseparable opposite. 

Martin Wolf at least acknowledges the existence of the real economy where goods and services are made by human labour. He even goes so far as to establish a connection between it and the world of finance. 

“Today, with a huge global financial crisis and a synchronised slump in economic activity, the world is changing again,” he writes. “Synchronised”? That just means that things are occurring at the same time. “The combination of a financial collapse with a huge recession…will surely change the world.” A “combination”? Yes Martin, but what connects them? How do they affect each other? 

Wolf is worried. He doesn’t know what will happen next. “It is impossible at such a turning point to know where we are going.” In support of his campaign for co-ordinated government action to stimulate demand, he asks us to remember what happened in the Great Depression of the 1930s: 

“Unemployment rose to one-quarter of the labour force in important countries, including the US. This transformed capitalism and the role of government for half a century, even in the liberal democracies. It led to the collapse of liberal trade, fortified the credibility of socialism and communism …xenophobia and authoritarianism. Frightened people become tribal: dividing lines open within and between societies. In 1930, the Nazis won 18 per cent of the German vote; in 1932, at the height of the Depression, their share had risen to 37 per cent.” 

But what about the Second World War, Martin, the destruction of property and lives?  For capitalist recovery, the destruction of surplus productive capacity was essential to restarting the business of making profit. For Wolf, the FT’s most prestigious commentator, it never happened. 

If we are to prevent a new, unimaginably greater orgy of destruction, unsustainable, broken capitalist society has to be consigned to history. We have to start planning for a world beyond the immediate crisis, one in which there is no “future of capitalism”, where there’s not even a copy of the Financial Times to be had! 

Gerry Gold
Economics editor

 

 

There is another way

Trying to solve a global capitalist economic and financial crisis fuelled by credit and debt, which has driven consumers to the wall and left increasing numbers unemployed, with marginal (and temporary) tax cuts only shows how desperate the Brown government has become and is little more than PR exercise.


We are in the midst of the greatest destruction of capital since the 1930s, where the means of production are being wiped out on a vast scale in every country on every continent. There is a self-generated momentum to this process which waits for no one, including governments like New Labour. Yesterday Citibank announced another 50,000 job cuts and manufacturers like GKN have cut production by 20%. As John Willman, business editor of the Financial Times acknowledges:

Nor is there much comfort in the hyperactivity of policymakers, recapitalising banks, bailing out insurers, cutting interest rates towards zero and turning on the public spending taps. This is pushing at a piece of string, with no certainty that enough will be moved at the far end to stem the decline. In the present mood of panic, much of any extra money pumped into the economy will be used to reduce debt or build up savings. A lot of the rest will be spent on imports that will benefit the economies of other countries, which may be less able to reciprocate.

The fact is that neither New Labour nor any other capitalist government has an answer to the first major world economic crisis for nearly 80 years. One of the reasons is that corporate-driven globalisation has created a beast that lives (and dies) beyond the reach of national states and governments. The transnational corporations and banks that are slashing jobs and production are not bound by borders or “national interest”. They form the interlocking aspects of a truly global economy that has supplanted the national-based economies that pre-dated the most recent period of capitalist globalisation.


Gone are the days when unemployment in Britain could be eased through better credit terms or higher wages. Decisions about jobs and production are, in most cases, being decided by global corporations like GlaxoSmithKline operating on a transnational scale with regard to only one thing – sustaining the bottom line and shareholder value on stock markets across the world through ruthless cost-cutting operations. The pharmaceutical conglomerate owes no allegiance whatsoever to the British state which, in turn, has no control over the corporation’s decisions.


Of course it’s possible to imagine some immediate decisions that could stem the jobs haemorrhage and keep people in their homes as a prelude to reorganising the economy on more rational lines. For example, it would make sense to take over the failing building developers and materials suppliers, along with available land, and use their resources to enable the 250,000 unemployed construction workers to return to work. They could build the new homes required to solve the housing crisis and these could be made available at a reasonable rent. Eliminating the needs of shareholders and the exorbitant price paid for land would mean that public investment would go a lot further than the same resources in private hands.


Empty offices and factories could be requisitioned and plans drawn up for the production of socially-useful services and products like solar panels or eco-friendly vehicles. Those without work could be paid the average wage to enable them to pay their bills and support their families until new jobs are available. Public transport (including the railways) could be made available at an affordable price so that no one is left isolated. Banks now wholly dependent on state finance could be taken into public ownership and run by boards of workers, consumers and elected officials as mutually-owned businesses.


Of course, the present capitalist state and proxy governments like New Labour have no intention of challenging the status quo in this way. Both the immediate and long-term answer to the present crisis lies, therefore, in creating a new political democracy that can act on behalf of the majority instead of the minority who have wrecked the economy and now threaten the futures of millions of people.


Paul Feldman

Communications editor

The 'bipartisan' fraud

“Bipartisanship” has broken out all over. Just as we are confronted with the gravest economic and financial crisis since the 1930s, politicians on both sides of the Atlantic have decided that politics is a luxury society cannot afford. Well, there’s a surprise.

In America, both major parties have come together to impose the $700 billion hand-out to bankers. Senators Obama and McCain are rushing back to Washington today to vote for the package that the House of Representatives rejected on Monday. In truth, neither presidential candidate really supports the Bush plan but “bipartisanship” will prevail.

In Britain, the Tories have offered support to the beleaguered New Labour government, with leader David Cameron making an emergency statement to his party’s conference, to say that “we are not playing politics with this”. He has offered to back legislation that the Brown government wants to introduce. The only problem is that Parliament isn’t sitting and no New Labour MP has demanded a recall to discuss the crisis. That, presumably, would be carrying “politics” too far.

The Tory Evening Standard has caught the political mood and declared last night: “This crisis is too big for politics.” The paper commented approvingly that Cameron had offered “a bipartisan (that word again) response to the crisis”. In practice, and without any recourse to the electorate, all this amounts to a national government. New Labour will, as Brown puts it, do “everything it takes” to save the financial system from collapse and the Tories are right behind the government.

This attempt to shut down conventional politics for the duration speaks volumes about the fraud of the existing political process. Politicians like Brown and Cameron, together with their parties, are tied in countless ways to the status quo of corporate and financial power. Their parties take turns in administering a capitalist state that is directed towards sustaining and developing the insane and irrational profit system that has produced the current crisis. Now they are trying to enrol the population in their attempts to save the financial system from itself at the expense of jobs, homes, pensions and savings.

New Labour and the Tories pass off responsibility for helping to create the conditions for the growth of fantasy finance which led to the credit crunch. Yet without their actions in reorganising the state, in deregulating finance and privatising state industries, in encouraging people to get rich quick through inflated house prices, in reducing the power of the trade unions, in promoting transnational corporations and the power of the City, none of what we are experiencing today would have been possible. But this is playing politics, when we know that it really is the time for bipartisanship.

As the political class clearly has nothing worthwhile to say and intends to dump the bankers’ crisis on our backs, they are inadvertently making out the case for their own demise. There are solutions to the crisis to be found through the development of alternative models of common ownership and democratic control that take us beyond the madhouse that is capitalism. Carrying that forward falls on movements like A World to Win and other organisations and has to lead to the creation of a politics that is vibrant and genuine in place of the “bipartisan” nonsense we are burdened with today.

Paul Feldman
Communications editor

Escape from Neverland

New Labour’s crisis deepened over the weekend, with the Chancellor Alistair Darling’s open admission about the seriousness of the credit crunch. He said today’s economic times are “arguably the worst they’ve been in 60 years”, causing the pound to fall against the Euro and the dollar.

As the government’s popularity – and with it Brown’s status - sinks ever lower, Darling decided it was best to go for broke and admit the truth that everyone else had already known, and in doing so, steal a march on the Prime Minister.

After a year of denial, the Chancellor pricked the bubble of New Labour’s fantasies, to shock all around. Like his namesake Wendy Darling in the fairytale world of Peter Pan, he preferred telling stories and fantasising to the mundane everyday world of real life the rest of us have to deal with, but at last he has been forced to admit that there’s a big problem. “I think it's going to be more profound and long-lasting than people thought", he told a Guardian journalist.

He claimed that when he first became Chancellor, “we knew that the economy was going to slow down”, but he did not have “any idea” that there would be a major financial crisis: “No, no one did. No one had any idea,” he claimed. But to any serious observer of the global economy, it was already clear back then that a huge financial crisis was starting to blow as the US mortgage market went into tail-spin.

A World to Win warned about its effect on the British economy well over a year ago:

‘The contagion is certain to spread as there are very many over-borrowed, over-stretched corporations - not just financial institutions - as well as the millions upon millions of individuals who find themselves in trouble in every country. The British economy is particularly vulnerable... Some observers are comparing the situation to 1929, when the Wall Street crash led to a world-wide slump...’

Now, as house prices have fallen by over 10% in a year, widening the gap between the mortgage debt millstone millions of people are struggling to repay and the value of the property they are trying to buy. More than 30% of all UK borrowers – around 3 million households - are expected to be caught in the negative equity trap if prices drop by a further 30%, as many are predicting.

Even the remaining mutual Building Societies, like the small but successful Swansea, which has continued to lend only against the money its savers have deposited, are caught up in the vastly overblown finance fantasy.

Whilst banks and financial institutions are free to simply write down the declining value of the assets they have accumulated, no such freedom exists for those who are stuck with impossible levels of mortgage payments. In the US, around 1 in 5 of the population are already in negative equity, and many who are unable to sell their houses in an already oversupplied market are simply walking away.

Our solution? Rather than passing the buck to local councils to take over a portion of the debt – effectively using even more taxpayers’ money to shore up the private usurers - investors and borrowers should take control of the mortgage lenders without compensation to shareholders and, following the banks’ example, write down the value of the property as prices fall, and recalculate outstanding loans based on the now much lower value. Simple. But not something New Labour can countenance whoever the leader might be.

Gerry Gold
Economics Editor

Global economy goes belly up

When the debt-fuelled boom came to an end a year ago, official pronouncements from every part of the world assured us that the economic fundamentals were sound. Gordon Brown was to the fore in his confidence that after ten years in his care, the British economy was better placed than most to weather what he and others told us was as a temporary problem affecting the world of finance dubbed the "credit crunch".

How different things look today. After months of falsely optimistic denial, the grim spectre of global recession is showing up in statistics from the US, Europe, the UK and practically everywhere else. So-called experts are playing catch-up in their hopelessly inadequate attempts to predict the course of this multi-dimensional crisis. Every day brings new surprises which force them to revise their forecasts of the severity, extent and duration of “the downturn”, which, it is now hoped, will bring its own silver lining to the clouds of inflation.

Those who are sticking with the dominant theories of the last few decades admit that the coming period will bring much painful “adjustment”. They say, however, that this is necessary to restore the economy to health and must be allowed to take its course, with hundreds of banks closing, production going into freefall and unemployment rocketing.

As the scale of the catastrophic crisis forces itself into brains dulled by the capitalist mantra “There is no alternative”, the chorus of calls for more and better regulation has given way to a plethora of more or less emergency proposals. As Larry Summers, Harvard professor, and former Secretary of the US Treasury has pointed out, chaos in the economy is reflected in cacophonous policy debate, with policymaking that is “increasingly reactive and erratic”.

There are many, fearful of the consequences of economic freefall, who are promoting a variety of contradictory, partial interventions to be made by central banks and governments acting either alone, or in unison. The interventions, it is claimed, could shore up the housing market, minimise soaring inflation, increase credit and debt, or restore “the balance” between corporate power and the strength of labour. With nothing better to go on, some with a sense of history are turning to the experience of previous crises for inspiration. Comparisons are being made with the 1990s, the 1970s and with the Great Depression of the 1930s.

But the reality is that there is no historical precedent for the present crisis brought on by unprecedented corporate expansion. As everyone knows, overproduction has led to the climate changing as a result of over-exploitation of the planet’s resources. Left to continue, diseases of overconsumption, like obesity, will worsen. Inequality will increase in leaps and bounds as the recession turns to crash. Wars for the world’s resources of oil, water and food will escalate. Let the war between Georgia - acting as America’s proxy - and Russia be a warning in this respect because the question of energy supplies is not far from the surface.

In reality, none of the policy actions being taken or being proposed to restore health to the economy can do anything but make things worse. What’s needed now is to bring the broken profit-chasing system to a conclusion. We should not aim to "rebalance" the 200-year old power struggle between capital and labour but to break the power of the corporations and to replace it with a new motivation – to identify and meet the needs of the majority with a new unified social, economic and political system which can restore the health of the planet.

Gerry Gold
Economics editor