Just one big lie

When Bernard Madoff, who is allegedly responsible for a $50 billion fraud that has hit banks, hedge funds and wealthy individuals, told his staff that he was "finished" and that "it's all just one big lie", he could just as easily been referring to the global capitalist financial system as a whole and not just his own “investment” fund.

Madoff ran a one-man house of cards, building a pyramid of debt that was undone by the credit crunch. He promised fabulous returns of around 10%, which he “achieved” by taking money from other funds. Were the banks wary of such promises? Of course not. The Royal Bank of Scotland and HSBC were among those who were drawn into the game, cheering as they went along.

After all, they were operating their own house of cards, albeit a relatively legal one. They just defrauded society as a whole – and were then bailed out with taxpayers’ money by the bankers’ government led by that notorious creative accountant, Gordon Brown. The banks are reportedly prepared to write off every penny of what they are owed, knowing that the state will not let them fail. In the end, of courses, bank customers will pay through higher loan rates and a further tightening of credit.

Ah, what it is to be a banker when the rest of the world is facing unemployment, repossessions and poverty as 2008 draws to a close. Or when a million of school kids from poor families are denied access to free school meals because the wretched New Labour government has drawn the rules so tightly that very few qualify.

What the Madoff affair also reveals is that the financial crash is still in its infancy. The US authorities barely knew anything about Madoff’s mostly unregulated business dealings. The auditors to Madoff's $50bn fund were an unknown firm consisting of a 78-year-old retiree living in Florida, one accountant and a secretary, for example. Although Madoff registered his investment advisory business with the Securities and Exchange Commission (SEC) in 2006, it has only just been inspected by the regulator.


Why? Because casino capitalism really took off in the 21st century. The number of registered advisers went up 50% in the first part of the decade. As a result, only about one in ten is inspected each year. But even if the SEC had inspected Madoff’s investment firm, it might not have found anything wrong. "One of the biggest factors that make this situation very difficult is I think it was an unregulated pool of money," former SEC Commissioner Laura Unger said yesterday, adding that as a result the SEC appeared to have "no clear jurisdiction."

So there you have it. Regulation is non-existent and no one really knows what’s going on out there. This all points to a more furious unravelling of the whole house of cards, aka as the global financial system. The consequences in human terms will be catastrophic unless we are able to chart another course.

There is no point in the present banking and financial system. It is part of the big lie referred to by Madoff. You take in other people’s money and then gamble and speculate until the day of reckoning. Bankers and speculators should be put out of business, along with the government that props them up. The world is crying out for a saner economic and financial system based on co-operation and mutual ownership. That has to be our agenda for 2009.

Paul Feldman
AWTW communications editor

Banks bail-out is a con and a swindle

The £50 billion bail-out of the banks is a desperate act by a cornered government. Worse, it is a futile bid to shore up a capitalist financial system that is in meltdown precisely because of the actions of the very same people the money is being handed over to.

Christmas has come early for banks who, egged on by New Labour and the Tories before them, created a world of fantasy finance based on building and trading in debt. Now that the wheels have come off the financial merry-go-round, the banks have gone cap in hand to the state.

They have not been disappointed. New Labour, without any shred of democratic approval, is to buy shares in eight banks and building societies (the shares will have no voting rights attached) and make another £250 billion available through the Bank of England.

So the banks are being handed new capital so that they can pay off their creditors and cover bad debts over the coming years. In other words, other banks and lenders are the priority, not ordinary people’s savings and deposits. There’s no guarantee that any of this money will ever find its way back to the Treasury. In fact, as the global financial crisis worsens the likelihood of the banks staying afloat diminishes by the day.

Financial capitalists are the ones who benefit from this state-perpetrated con and swindle. While New Labour can find cash for the bankers, the rest of us have to suffer the consequences of a crisis not of our making:

* There’s no state bail-out for people losing their jobs.

* Repossessions and homelessness are growing but the state washes its hands.

* New cancer drugs are too “expensive”, so there’s no state funds for those.

* Fuel and energy prices have gone through the roof but surprise, surprise, New Labour won’t do anything.

* The cost of living is soaring but the government says workers have to accept below-inflation pay deals.

From the trade unions and Parliament there is a deafening silence, a cowardly acquiescence as New Labour makes bailing out capitalism its only mission in life. One of the few honourable exceptions is the MP John McDonnell, who rejected the rescue package, saying: “Pouring taxpayers money into bailing out the banks by recapitalisation without nationalisation will mean that ordinary taxpayers pay for the crisis caused by the mistakes and greed of the bankers. Nationalisation to control the banks, prevent repossessions and halt company closures is the only way to provide the security needed."

The question is, however: Who is to carry through public ownership of the banks? Certainly not New Labour! This is an out-and-out capitalist government, as events of the last few weeks have demonstrated for all to see, which is as bankrupt as the system it presides over.

And the crisis will deepen as the world of fantasy finance continues to unravel under its own momentum, driving the real economy into slump. The system is beyond bailing out, as the negative reaction of the US markets to the $800 billion toxic debt buy-up package approved by Congress shows. State insolvency has hit Iceland and the United States could be next in line.

The entire financial system has failed but that doesn’t mean that capitalism itself will simply walk off the stage of history. We need to create a new revolutionary politics in the course of building mass opposition to the New Labour government and its policies. There is an urgent need to work out a plan to reconstruct the financial system along new lines, refounding them as people’s banks. These would have no private shareholders and repudiate the toxic debts accumulated by reckless speculation. They would put social needs first and not be driven by profit.

Achieving this transformation is, of course, an immense task. Rejecting the bankers’ bail-out is an important first step. Taking part in AWTW's October 18 Stand Up for Your Rights festival would be a great second step!

Paul Feldman
AWTW Communications editor


Who Pays for the Credit Crunch?
Monday 13th October, 7.30pm
Committee Room 10, House of Commons
Organised by the Left Economic Advisory Panel

An 'orderly' failure

Manchester United have a new sponsor this morning – the federal government of the United States of America! Yesterday, the global insurance company AIG was in private hands. This morning, 80% of the shares are owned by the government following a hastily-arranged take-over to prevent the company’s total collapse and a systemic failure of the global financial system.

Such is the measure and speed of the unravelling of the credit crisis that significant financial institutions are passing into the hands of the US government. In a series of desperate moves, Washington has taken control of mortgage lenders Freddie Mac and Fannie Mae. Last night in an extraordinary step, AIG was loaned up to $85 billion in emergency funds in return for a government stake of 79.9%.

George Bush is not going into the insurance business, however, which is just as well for the rest of the planet. AIG will be kept afloat just long enough to sell off its assets and repay the loan. In other words, the objective is orderly liquidation (after which United will need new sponsors). In a statement, the Fed, America’s central bank, said it was acting to prevent “a disorderly failure of AIG” which would “add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance”.

The dramatic moves came after earlier plans for a private sector bail-out were dashed by a further 21% slump in AIG’s shares, reducing the market capitalisation of the biggest insurance company in the world to just over $7.5bn (£4.2bn). AIG’s crisis has nothing to do with ordinary insurance, however. The corporation, which is a pivotal part of the global financial system, has lost billions of dollars on derivatives and mortgage-backed securities and is bankrupt.

And so the great unravelling goes on, with the mountains of fantasy finance created over the last 30 years taking their toll on banks, insurance companies, mortgage lenders and investment houses. Today, Lloyds TSB is arranging a merger with HBOS – whose shares have been driven down on rumours of a crash.

State intervention on both sides of the Atlantic cannot halt, stabilise or reverse this process. The accumulated debts in the financial system – running into thousands of trillions of dollars – are so enormous that they cannot possibly be absorbed through central bank actions. Nor will the crisis unfold in an “orderly” way. It is like the collapse of a house of cards - it has a momentum of its own, which is already taking its toll of jobs, pensions and people’s homes. Official figures released this morning show a leap of 81,000 in UK unemployment in August alone. The subsequent loss of purchasing power will fuel the recession and the drive towards slump.

To sit back and wait for the dust to settle would not only be foolish but irresponsible. The ever-closer alliance between the state and corporate finance has sinister political implications, with its echoes of the 1930s in Germany and Italy. We have to take maximum advantage of the crisis to make the case for revolutionary political and economic changes as the way forward. Our Stand Up for Your Rights festival on October 18 emphasises the need to take control of our lives away from New Labour, the state and the corporations. Register for the festival today!

Paul Feldman
Communications editor