Weapons of financial mass destruction threaten new meltdown

On the fifth anniversary of the great global financial meltdown, set in motion by the collapse of Lehman Brothers on Wall Street, the government’s narrative about the state of the economy is odds with those in the know.

On the one side, the ConDems are talking up indicators that could indicate that things are on the up and up. They hail accelerating economic growth, rising house prices, official figures about falling unemployment, record profits for the banks and continuing low interest rates.

But sober financial experts on both sides of the Atlantic warn that none of the causes of the biggest crash in history have been removed. Indeed, quite the opposite.

Chief among the indicators that another meltdown is looming is what some term “the financialisation” of the economy. This is a renewed and massive increase in the power and size of the banks and the global money markets. Alongside this are huge rises in government debts.

At the same time, the oversight that governments, financial experts and international institutions insisted was needed to prevent a repeat has not happened. Putting in rules and regulations in place – with powers to enforce them – has proved to be impossible.

Daily Telegraph financial writer Jeremy Warner has warned that “the underlying fault lines that created the crisis in the first place” have worsened. And his concern about the absence of serious financial reform is amply reinforced by Time magazine’s cover story, “How Wall Street Won, the myth of financial reform”.

Rana Foroohar writes that the “financialisation of the American economy, a process by which the nation has become inexorably embedded in Wall Street” just keeps rolling on. She notes:

“US financial institutions remain free to gamble billions on risky derivatives around the world. A crisis in Europe, for instance could still potentially devastate a US institution that made a bad bet and in turn, send shockwaves through the $2.7 trillion held in US money market funds, much of which is owned by Main Street investors.”

Faroohar’s recommendations point to the scale of the problem. She says that what is needed is to fix the too-big-to-fail problem; limit leverage; expose “weapons of mass financial destruction”; bring shadow banking into the light and “reboot the culture of finance”.

In her dreams!

Her argument is reinforced by the top US Federal Reserve official responsible for oversight, Daniel Tarullo.  He says that regulators should force the biggest banks to reduce their borrowings and improve their liquidity. Post-financial crisis rules were inadequate and left too much “too-big-to-fail risk”.

Despite new financial rules introduced by president Obama, the reality is that regulation has proved impossible. An extraordinary investigation by journalist Massimo Calabresi demonstrates how the privatisation of banking oversight has turned financial regulation into a massively profitable  - and politically incestuous – industry.

Under new US laws, private accounting firms have taken over from publicly- accountable examiners. The complexity of global banking and the legal attempt to “control” them have become so complex that it appears that only outside consultants can actually fathom them.

But this “insider knowledge” comes at a deeply compromising price. The reality is that the “the revolving door between Washington and Wall Street [is] still spinning like a top”, Calabresi concludes.

Julie Williams was disgraced in her role as primary regulator for the Office of the Comptroller of the Currency. But this did not prevent her from becoming gamekeeper-turned-poacher. Earlier this year she was hired by the giant accounting firm Promontory as managing director. And, you’ve guessed it, Promontory helps banks self-regulate and find a route round government oversight. Promontory raked in nearly half the £1 billion consultancy fees paid by the banks to private consultants.

The story of Promontory and the US regulators is only the proverbial tip of the iceberg and that independent – or any other - regulation is a pipe dream. The last five years are proof if proof be needed that the financial markets are an out-of-control beast.

The global capitalist economy remains debt driven while the financial sector still resembles the house of cards that fell apart in 2007. Stand by for Meltdown II.

Corinna Lotz

A World to Win secretary

Co-operative movement at the crossroads

Signs of a meltdown at the Co-operative group of companies are multiplying at an alarming rate. Following last week’s mark-down of bank debt to junk status, the malaise is hitting all of its operations including insurance, supermarkets and beyond. 

The head of the bank, Barry Tootell, has resigned. He was hired three years ago to lead the purchase of 632 Lloyds branches. That failed. The Co-operative was found not to be up to scale of the task.

Then came the news that the group was forced to consider selling its long-established insurance businesses as the bank struggles to meet a shortage of capital estimated to reach as much as £1.8 billion.

Increased centralisation in its distribution network has led to supply problems with smaller shops being left with empty shelves for part of the day. Staff are said to be furious at being forced to accept worsening conditions, including increased productivity and longer hours.

Customers are complaining that the range of Fair Trade goods, which have been at the heart of the supermarket’s ethical brand image, is being reduced, and prices are rising.

The Co-op’s problems are bad news for the Labour Party which depends on a huge £3.9 million overdraft from the bank, the latest in a long series of loans on favourable terms. The trade union-backed Unity Trust Bank is also concerned because it is 27.6% owned by the Co-operative.            

So what has gone wrong with a bank that has 6.5 million customers and claims an ethical approach to investment?

In 2009 the bank merged with the Britannia Building Society, an apparently good partner for the Co-op, with a shared concern for ethical trading and environmental issues close to its heart.  But appearances can be deceiving.

When Lloyds staff were going over the books in preparation for the takeover of branches they discovered the awful truth. In merging with the Britannia, the Co-op had acquired a portfolio of highly aggressive commercial property lending and buy-to-let mortgages, dangerously exposed to the downturn. Now the losses are mounting

What can be learned from all of this?

The co-operative movement began in 1844, and now involves a billion members of 1.4 million co-operative societies across the world – and it is spreading as the crisis deepens. 

But the movement is at a crossroads. Its members can no longer sustain the idea of a peaceful co-existence with its capitalist competitor. Many say that the UK Co-op lost its way years ago, attempting to ape the behaviour of the major supermarkets, whilst offering a caring, sharing alternative.

New and old co-operatives elsewhere in the world face similar problems.

On May 9, after along struggle, the 17 remaining workers of the 280 who famously occupied the US Republic Windows and Doors factory in 2008, officially opened the New Era Windows Cooperative after purchasing the production equipment and materials. But the 17 are working without pay.

Meanwhile In Spain’s sharply contracting economy, workers at the co-operatively-owned Mondragón Corporation voted unanimously to create a restructuring and employment fund. This is intended to guarantee the financial sustainability and employment of Fagor Electrodomesticos, a large domestic and commercial appliance manufacturer.

Half of the €70 million fund will come those companies in the group that have profits, draining a permanent fund usually used in order to set new projects in motion. The remaining 50% will come from all the companies in the group. They will hand over 1% of their gross salaries for six years.

So even in this most successful of co-operatives, co-existence within the capitalist model means the worker-members have to vote to absorb the effects of the global crisis.

These self-defeating acts of defiant compliance pose the question of replacing the for-profit capitalist model of production lock, stock and barrel. In a new framework, co-operative working would predominate rather than remain the junior partner that it is now.

Gerry Gold

Economics editor

Signals at red as wrecking crew take over

Trying to find an image that conveys the gravity of the global economic crisis is proving a real challenge. Since its far from being a natural disaster, like the earthquakes currently shaking Nothern Italy, transport analogies might help.

Consider a 17-carriage eurozone high-speed train crashing into a wall of concrete. The front coaches – Ireland, Greece, Spain – have already been crushed, whilst Italy and Portugal are just now rearing up into the sky.

Many of those on the following coaches are only dimly aware of the problem and their governments are driving blind, donkeys chasing tthe elusive recovery carrot, always just out of reach.

If we stretch the transport analogy, we might say that there are two, much longer trains: the United States and the European Union. They are meeting head-on on a cheaply-made, shoddily built and fragile Chinese bridge now disintegrating under the shock.

The highly volatile fuel that brought the trains together in a paroxysm of mutually-assured destruction was a dangerous mixture of coal, oil, gas – and most explosive of all - credit and debt, with the Chinese buying US debt like there was no tomorrow, to keep the whole global system of production and consumption in business.

As of yesterday, however, as part of measures to reverse the return to slowdown and slump the Chinese announced that, for the first time, they’ll bypass the dollar, scrapping the US currency as the intermediary exchange currency. From Friday, they’ll deal directly with Japan, their biggest trading partner, exchanging yuan for yen. The implications are far-reaching, especially for the US which is the world’s most indebted nation.

Or, perhaps to give a more urgent flavour we could use a nuclear analogy, as in the uncontrollable meltdown of the Spanish economy. Yesterday alone saw the EU turn down Spain’s plan to save the failed Bankia, which reported the biggest loss in the country’s banking history; the departure of the central bank governor; retail sales slumping by 9.8% in April; the cost of borrowing soaring to levels likely to trigger the need for a bail-out. 

We’ve all been made familiar with the internal, country-by-country-by-regional comparative accounts of falling, or slowing GDP, soaring levels of unemployment, declining house prices, unassailably essential reductions in supposedly oversized public sectors; all explained by specific national characteristics, mistakes, like the alleged laziness of the Greeks (whose working day just happens to be much longer than the average German).

But dig a little deeper, and you begin to realise, as many do, that the debt disease is systemic, something to do with the flow of almost worthless currency around the arteries and veins of the entire global economy. If only we could fix the money problem – that private interests have taken over the issue of “money” (actually credit, to be more precise), swamping “our democracy”, some say we’d be able to return to a kind of normality. 

Ah but, say others, it’s all down to human greed, human nature. Not us, of course, we’re the altruists, the good guys. It’s them, they’ve succumbed to it. They’ve got the world in their greasy palms. (In the 1930s, they, the bad-guy banksters of the day were called, made equal to “World Jewry”, with dire consequences).

No, it just won’t do. These are all partial, one-sided, half-assed “explanations” for something more fundamentally wrong. And that is the breakdown of the social, economic and political relationships that came to dominate as a result of post-1945 measures generated to satisfy the internal dynamic of the system, aka capitalism.

This depends on, and is defined by privately-owned, profit-seeking capital invested in factories, offices, networks, and the right, or rather necessity to use some of it to employ wage and salary earners as the source of its most necessary expansion. Otherwise known as “growth”.

It’s the system stupid. Let’s build a new, different one, using the best bits of the old one to plan the sustainable production of goods and services to satisfy need. Before they wreck it all.

Gerry Gold

Economics editor

Get ready for another banking crash

The Bank of England’s Paul Tucker pulled no punches on the BBC last night. “When banks take the upside and taxpayers take the downside, something has gone wrong with the very heart of capitalism”, he said.

Tucker, deputy governor of the Bank, with special responsibility for financial stability, aimed his advice at the Coalition government. Instead of further government intervention to bail out banks, they should be allowed to fail, albeit in an orderly fashion.

Cameron, Clegg and Chancellor Osborne are anxiously awaiting the recommendations from the Banking Commission they established in June 2010, to look at the “size, scale and function” of the banking sector. But there’s no time to lose.

Tucker’s bite-the bullet proposal to let the likes of Lloyd’s and RBS fail – and presumably to take all their depositors’ money down with them, was delivered as the climax of the BBC’s business editor Robert Peston’s retelling of the story of rapid expansion of the financial sector that preceded the crash of 2007/8.

Tucker is saying that there’s another, much bigger crash on the way. This time the banks will be just too big to save.

Peston and the BBC’s media expertise took us once again through the breakdown of regulation and the rise of derivative financial “products” whose face value grew to be ten times larger than the total of the world’s annual production of goods and non-financial services.

But, as with most accounts, no underlying explanation was given for the exponential expansion of credit from the 1970s onwards. Apart from using Toby Baxendale, a wealthy fish merchant, to top and tail the hour-long programme, the real economy hardly got a look in.

Amongst Baxendale’s biggest customers was Lehman’s. When they cashed in their chips, Baxendale lost out. Now he’s got a sensible-sounding idea to end the madness – legislation to force banks to keep a customer’s deposits safe rather than lending them out, if that’s what the customer wants. We didn’t find out whether he expects to pay for the privilege, or wants to receive interest.

Either way it’s just a variant on the idea of returning to the days when savings banks had to be kept separate from the more risky lenders of capital for investment. The chances of that happening are less than zero.

This won’t solve the main problem. The banks are still stuck with monumental mountains of toxic assets. These are the unsustainable debts that can never be repaid, because repayment depends on recovery and there can’t be a recovery before the excess productive capacity they funded has been eliminated.

It has always been part of the BBC’s role to protect the state when danger threatens, and this was one of its better attempts to keep attention focussed on the banks, and away from the real heart of capitalist production – the place where real value is produced by people working, and working longer and harder than they need to satisfy all of our needs.

With students leading the campaign against the cuts, and beginning to widen their campaign beyond blaming the bankers, and the soaring price of fuel and food enraging the population, the state is beginning to come under attack. They can’t wait for the Banking Commission. Some might even smell a conspiracy of the Coalition, the BBC and the Bank of England to confuse the public, to keep the attention on the banks and away from the system as a whole.

Without the fairy tale expansion of credit and debt, the capitalist economy could not have continued to grow and profits and interest payments could not have continued to be extracted from the value the workers produced all over the world. But, as Tucker is saying to Cameron, it’s all over now, baby blue.

Gerry Gold
Economics editor

Toronto is a turning point

The failure of the G20 summit in Toronto to find a common approach to tackling the global economic and financial crisis had an air of inevitability about it. After all, capitalism is not exactly a rational system where sensible men and women come together to sort out an international crisis.

If that were really the case, the 20th century would not have experienced two catastrophic world wars, for example. Nor would the inter-war years have been dominated by the calamity of the Great Depression in Europe and America, which only ended when the major powers took to the battlefields.

In reality, what the Toronto communiqué – which apparently took all of 54 hours to negotiate – heralds is another period of intense competition and rivalry. In an abandonment of the unity of the past three crisis-era Group of 20 summits, the leaders decided to adopt "differentiated and tailored" economic policies for each country. Earlier proposals for a unified approach to limiting the activities of major banks by imposing tighter capital requirements were also put on the back burner.

In other words, it’s every country for itself. Sound familiar?

President Obama’s plea not to start cutting budget deficits too soon because it might harm the “recovery” was simply ignored. All the major economies are cutting deficits – and America won’t be far behind. Obama, it was noted, praised Britain’s “courageous budget” of last week.

He is aware that his stimulation package has failed to revive the US economy. On the contrary, unemployment continues to grow despite an increase in state spending. The recession has wrecked the finances of many states too, which are dependent on local property and sales taxes.

The small southern California city of Maywood is disbanding its police force and firing all public sector employees. Every service is being contracted out. US states have an estimated $200bn budget shortfall, equivalent to 30% per cent of all state budgets. The federal government’s deficit is about $1.3 trillion and rising.

The impotence of the political elites who gathered in Toronto reflects a stark reality of the problematic and contradictory relationship between capitalist nation-state systems and the globalised economy. Masked while the world economy expanded, this conflict has worsened since the 2008 meltdown of the banks.

Modern globalisation has created immense economic and financial forces that are greater in their impact and power than the sum of their parts. They are way beyond the control of even the most powerful states. Take, for example, the financing of government borrowing through what is known as the bond market. This isn’t some single marketplace, with a sign outside the door but is a series of inter-linked buyers and sellers in Europe, Asia and America, trading electronically around the clock.

Participants include commercial and investment banks, hedge funds, insurance companies, pension funds and – of course – the governments that guarantee interest on fixed-term bonds. Identifying all the various buyers and sellers globally is a task in itself; “bucking” this market is virtually impossible because states never know when they might come under attack. Just ask the Greek government.

Toronto, with its insistence on halving budget deficits by 2013, makes the transition from recession to depression much more certain. The political classes in every country are locked in a deadly embrace with economic and financial forces too powerful and inaccessible to cope with. So they take it out on ordinary workers, cutting their wages, pensions, jobs and services.

Remedial, curative action is not an option, just as it wasn’t in the 1930s. Telling the bond markets to take a running jump off a short pier, that they can whistle for their interest payments, for example, requires something quite different and quite revolutionary. The G20's failure at Toronto is a turning point. Now it’s our opportunity to seize the initiative.

Paul Feldman
Communications editor

Beyond resistance

As the coalition government lines up massive spending cuts that even prime minister David Cameron acknowledges will shake society, a strategy that goes beyond resistance is needed if we are to defeat the Lib-Tory government’s plans.

Because make no mistake – that is what is involved. Throughout Europe, governments are impervious to protests and one-day strikes against cuts in pensions, pay and services. They can ride out storms that are only temporary.

Resistance isn’t futile, however, but to succeed it has to be part of a wider strategy that addresses the root cause of enormous budget deficits, namely the crisis of capitalism itself. If not, there is a real danger that protests could burn themselves out.

The coalition has seized the ideological high ground by presenting its plans as if “There is No Alternative” when it comes to saving the country from financial disaster. Inviting the public (and trade unions) to suggest where the axe should fall is part of this seductive approach.

Britain’s budget deficit in particular is the result of the dramatic plunge in capacity that followed hard on the heels of the 2008 global banking crash. The independent Institute for Fiscal Studies believes that the fall in the annual value of goods and services could be as high as 10% from pre-meltdown levels.

Government revenues of all kinds have dropped as production and consumption has plummeted. Tax takes from the financial sector, which propped up New Labour’s spending, have declined sharply, for example. With the housing market frozen, revenue from stamp duty has faded. Meanwhile, spending on unemployment and social security benefits has risen. And then there’s the cost of financing the banking bailouts.

In sum, the budget deficit expresses the crazy nature of an economic system driven by mammoth amounts of debt – personal, corporate and state. By the time of the 2008 meltdown, it was estimated that global debt was four times higher than the value of goods and services. Something had to give. And it did.

The destruction of capacity in the private sector is now to be followed by a similar massacre in the public sector. That is how capitalism traditionally “solves” its crisis.

So what kind of strategy do we need?

Firstly, it has to be a combined political and economic approach backed by mass mobilisation of people and their communities. As pressure on the government makes no difference – the demands of the financial markets carry far greater weight – the political aim is to bring the government down.

Obviously there’s no point in replacing the coalition with a rebranded version of New Labour, which in 13 years turned Britain into a playground for financial markets and speculators. As there is truly no alternative in this case, we should build
support for People’s Assemblies to challenge the existing political system.

Secondly, we have to demonstrate that the heart of the matter is capitalism itself. We have to terminate an economic system where artificially-induced booms are followed by slump on a regular basis. Democratically-owned and controlled sustainable production and finance is not only possible but absolutely necessary. Some ideas along these lines are outlined in our Manifesto of Revolutionary Solutions.

Opportunities exist to change the debate, to reject the capitalist state’s version of events. The anti-cuts committees that are already springing up around Britain should consider how to bring these essential political and economic questions into the heart of their campaigns. We must move beyond protest to prevent a calamitous reduction in living standards that the coalition and the bankers are preparing to impose on society.

Paul Feldman
Communications editor

The mother of all bail-outs

In the run-up to the 2012 London Olympics, the New Labour government has put in a credible bid for victory in the financial events with the sums spent on bailing out the banks. The increasing size of the bail-outs shows one thing – the crisis is getting worse rather than better.

The Royal Bank of Scotland has so far received a world-record £53.5 billion since the onset of the crisis in 2007. That accounts for most of the total of £74 billion of taxpayers’ money the government has put into the banks, including Lloyds and HBOS, over the last two years.

The latest £25.5 billion for the RBS announced by Chancellor Darling yesterday is part of a second bank bail-out which adds up to nearly £40 billion, which is more than the amount handed over in 2008. The government is hoping this will keep the banks afloat whilst they tear themselves apart under direction from the EU’s competition commission.

The dismemberment of systemically important “too-big-too-fail”’ banks is a hot topic for the world’s financial community, but there is no agreement on a co-ordinated package of regulation and reform. Some want to return to the regime established in the wake of the 1929 crash which separated high-risk investment – gambling – from the relatively safer, but less profitable business of balancing deposits and lending.

Others, like the IMF, are busy trying to work out how to reduce the grossly unsustainable government deficits resulting from attempts to prevent global meltdown. All of the schemes under discussion concentrate their attention on repairs to the financial system. None of these can work however.

Martin Wolf, the Financial Times’ leading commentator puts it starkly: “It is idiotic to discuss the reduction of the huge fiscal deficits, without considering the nature of the offsetting adjustments in the private and external sectors.” What he implies is that the financial system can’t be fixed without either an “extremely perilous” return to credit-led growth.

Yesterday the Indian government gave its verdict on the health of the global economy. It swapped $6.7 billion of its US paper dollars for 200 tonnes of gold bullion put up for sale by the IMF. This is the latest and strongest indication that the Asian countries are moving away from a reliance on the declining dollar. India’s finance minister couldn’t have put his reasons clearer. He said the economies of the US and Europe have collapsed.

The contradictory movement of the tectonic plates of the capitalist financial and economic system is producing seismic shocks throughout the world. Even its most ardent defenders are losing faith in the possibility of a “solution” that is anything but an attempt to repeat the past.

Warren Buffet, the capitalist system’s most long-standing and successful investor of other people’s money has just bought a US railroad, in his biggest ever deal, describing it as “$an all-in wager on the future of the American economy”. Burlington Northern Santa Fe is a freight company. Its biggest cargo is coal for power stations. So much for concern about global warming.

Profit-motivated growth has brought us to an historical crossroads. The capitalist road leads to economic destruction, warfare and the collapse of life-support systems. If the historical process could speak to us directly, it would surely urge humanity to move forward to a co-operative social set-up where a financial system that serves only shareholders and speculators is put out of its misery and corporations that plunder the planet become the property of the people as a whole.

Gerry Gold
Economics editor

Dollar 'time bomb' adds to turmoil

The reaction to the global meltdown has so far consisted of so many variations on a common theme: governments deepening their debt to provide backing for too-big-to-fail stricken banks and central banks inventing new money. The single lyric on the hymn sheet is “save the system, return to growth!”

But it hasn’t been enough to do the trick and everyone knows it. The universal collapse in demand, trade and credit is forcing a new round of consolidation on struggling global corporations. The world economy is hanging on a hardly-functioning financial system while the boom on stock markets is a purely speculative bubble.

Every country is affected, and no government is able to act on its own. The only result of any significance from the G20 in Pittsburgh was the recognition that the unfolding global crisis has outpaced, outgrown and outstripped the 30-year-old political arrangements for managing international economic affairs.

There is a time bomb waiting to go off amidst this turmoil. This is the plan to replace the not-so-mighty dollar as the currency used to trade in oil. The dollar would be replaced by a basket of currencies in addition to gold, according to reports. This move would signal the demise of the United States as the world’s leading capitalist economy, which has used the pre-eminence of the dollar to borrow vast amounts to fund the country’s huge trade and government deficits

The October editions of the International Monetary Fund’s World Economic Outlook and the Global Financial Stability Report make for sobering reading. They tell us much about the contradictory forces at work in the economy.

* Reducing excess productive capacity means much higher levels of unemployment are inevitable but this will reduce demand further.
* More intense rates of productivity are needed to reduce costs and restore profitability, but falling prices mean already over-indebted consumers defer purchases awaiting even lower prices.
* More regulation is needed, but the “ability of lenders to diversify funding sources” – like the unregulated derivatives markets at the heart of the crisis – “need to be retained”.
* The financial system must be restored to health, but the reported losses from banks have reached only half the expected levels so far.
* A much greater degree of coordinated government intervention is likely to be needed to support a recovery of production to just a fraction of pre-crisis levels, but can’t continue without rising interest rates strangling that very same recovery.

The global gurus are also pretty sure about one other thing: they’ve no idea if their prescription for “unwinding” the current level of intervention will work, or lead to a new crash. They’re giving no guarantees. This is how they put it: “Given that this is uncharted territory for policymakers, some experimentation may be appropriate to test market conditions. If warranted, reinstatement of some facilities should not be viewed as a setback.”

In other words, they haven’t a clue. You wouldn’t buy a used car from them.

In Britain, Tories and New Labour are vying to carry out the IMF's instructions to slash public spending to pay for bailing out the bankers. Neither party is really letting on about their real intentions, however. Commenting on yesterday’s speech by shadow chancellor George Osborne, the Financial Times noted:

“The effects of these measures – grim though they are – are dwarfed by the scale of the budget deficit. Mr Osborne has announced plans to save £7bn ($11bn) per year by the end of the next parliament, with changes to the pension age – beginning in 2016 – eventually contributing up to £13bn. The budget deficit this year? £175bn.”

Balancing the books will, therefore, require cuts so immense that they will destabilise society and create social upheaval. The state is undoubtedly preparing for such an eventuality and we would be well advised to do the same.


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