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
For revolutionary solutions to create a sustainable, not-for-profit economy in place of global capital alongside a real democracy based on People’s Assemblies. Visit our web site at www.aworldtowin.net
Showing posts with label toxic debts. Show all posts
Showing posts with label toxic debts. Show all posts
Wednesday, January 19, 2011
Friday, April 03, 2009
Secret G20 communiqué says it all
The draft communiqué below from the G20, revealed here exclusively by A World to Win, bears no resemblance to the statement eventually published yesterday evening, which is not surprising:
We the leaders of the G20 group of major bankrupt economies meeting in London pledge our undying commitment to the cause of restoring the ailing global capitalist economic system to health by any means necessary. We will do whatever it takes to rebuild the balance sheets of the banks and to restore people’s confidence in a system that has come off the rails and is unfortunately and mistakenly despised by increasing numbers of our citizens.
We acknowledge that the transnational corporations (TNCs) and global financial institutions have, with our encouragement, transformed a capitalist system from one that was fundamentally flawed and riddled with contradictions to one that is even more fundamentally flawed and riddled with contradictions and is in meltdown.
The G20 under the inspiring leadership of Gordon Brown accepts that corporate-driven globalisation has created a grossly unequal world between and within nations; that prime minister Brown never said in June 2007 that the City had created a new “golden age”; that TNCs and the World Trade Organisation call the shots; that as a result the democratic process is now meaningless; that we can and will do nothing about this.
And let no one suggest that we are indifferent to the irreversible damage that corporate globalisation has caused in terms of climate change, manifested by extreme weather patterns. The G20 knows that relentless, profit-driven growth is the main contributor to global warming that now threatens humanity.
However, as someone once said, business is the only real business of the planet and its inhabitants. So let’s get down to business. Tackling climate change must not sidetrack us.
Taking all the above into account, while putting much of it to one side, we therefore pledge to:
* take measures to restore growth through persuading people once more to buy goods they don’t necessarily need or want with money they don’t actually have
* hand over another $1.1 trillion (made possible by fast printing presses) to the financial system through the International Monetary System and World Bank
* prepare for large-scale cuts in public spending to pay for past and future bank bail-outs
* encourage business to take on more welfare functions because our states have run out of money (the UK in particular welcomes yesterday’s statement by Richard Lambert, director-general of the CBI, that “the state should become a commissioning agent indifferent to whether services were delivered by the private sector, public sector or third sector.”
* use the forces of the state to deal harshly with any threat to private property or those who think capitalism is past its sell-by date and want to replace it. We want to record our thanks for the splendid efforts of the Metropolitan Police in protecting our common interests during the summit.
The G20 leaders who have come together to save the world in less than a day, accept that these measures will almost certainly make not a blind bit of difference. Question marks remain, for example, about the level of toxic debt still buried deep within the financial system. (If anyone knows how we can find out more about this, please get in touch with Tim Geithner or Alistair Darling at info@toxicdebtsrus.com asap.) We also noted that while we drawing up this communiqué another 3,000 job losses were announced in the UK alone. All of us are in agreement that this is a price well worth paying in terms of our future wealth.
In conclusion, we are confident that the people of our different countries will rally to the cause of getting those profits and bonuses rolling again. Never forget, their prosperity is also yours. If you believe that you will probably believe anything.
G20 draft communiqué ends.
Wednesday, March 25, 2009
'Cash for trash' is just rubbish
If someone suggested that you spend a sizeable proportion of your income on buying a pile of household waste from the local refuse tip, you would rightly think they were off their heads. That, however, is exactly what’s happening in the United States in what is now being dubbed by some as President Obama’s “cash for trash” programme.
The “rubbish” in this instance are the dodgy “assets” held by the country’s banks, which they can’t get rid of because no one is willing to put a price on them. Once described as toxic, the White House is apparently now describing them as “legacy” assets. Some inheritance for American working people!
The “cash for trash” programme is truly staggering in its complexity but the essence is that private funds will actually receive a subsidy from the US central bank and another state body to buy rubbish assets from the banks. If the asset miraculously rises in price, the funds keep the profits. If they fall in price, the state takes the hit. As one investor put it: “It’s a win win situation.” Up to $1 trillion could be involved in what is euphemistically called the “Public Private Investment Program”.
This mad-cap scheme is a sign of the desperate nature of the financial crisis in the United States and also reflects a growing rage over taxpayer bail-outs to profligate banks and insurance companies who, like AIG, use the money to pay executive bonuses. A Bill is in Congress that aims to impose a retrospective 90% tax rate on AIG bonuses, which Obama is under fire for doing nothing about.
Will it work? Many have serious doubts. New York Times columnist and economist Paul Krugman believes that not only is it the wrong policy but that the political mood is “getting ugly” and that the failure of the “cash for trash” policy will prevent Obama from going back to Congress for more funds.
Similar concerns are voiced by the Financial Times’ most eminent commentator, Martin Wolf who today admits to “becoming ever more worried” by Obama’s lack of decisiveness against a “grim background” of the “worst global economic crisis since the 1930s”. He is also concerned that if somehow if, against all odds, the scheme works, fund managers will make vast returns. “I fear this is going to convince ordinary Americans that their government is a racket run for the benefit of Wall Street.” Looking at the prospects for next week’s G20 summit, Wolf concludes that with the “US at an impasse” the outlook is ”frightening”.
For both Wolf and Krugman, the main issue remains the recapitalisation of the banks. And neither the money nor the political will exists for the state to undertake such a project. Certainly not in Britain, where the governor of the Bank of England yesterday pointedly told the New Labour government that the state is over-mortgaged and can’t spend any more. In fact, steep tax rises and sharp cuts in public spending lie ahead.
It’s not just the US that’s in an impasse. The crisis has already led to the collapse of the Czech government, the departure of the Hungarian prime minister as well as mass student and worker actions in France. There are no magic solutions that will end the global capitalist crisis and for all Gordon Brown’s determination to talk up next week’s G20 in London, it will come up with a big fat zero.
Ultimately, there are just two options: the major economies plummet uncontrollably into deep slump, with mass unemployment, wages cuts and the rest; or we put people first by establishing social control of economic and financial resources as the precondition for creating a more rational system. There is no middle way.
Paul Feldman
AWTW communications editor
The “rubbish” in this instance are the dodgy “assets” held by the country’s banks, which they can’t get rid of because no one is willing to put a price on them. Once described as toxic, the White House is apparently now describing them as “legacy” assets. Some inheritance for American working people!
The “cash for trash” programme is truly staggering in its complexity but the essence is that private funds will actually receive a subsidy from the US central bank and another state body to buy rubbish assets from the banks. If the asset miraculously rises in price, the funds keep the profits. If they fall in price, the state takes the hit. As one investor put it: “It’s a win win situation.” Up to $1 trillion could be involved in what is euphemistically called the “Public Private Investment Program”.
This mad-cap scheme is a sign of the desperate nature of the financial crisis in the United States and also reflects a growing rage over taxpayer bail-outs to profligate banks and insurance companies who, like AIG, use the money to pay executive bonuses. A Bill is in Congress that aims to impose a retrospective 90% tax rate on AIG bonuses, which Obama is under fire for doing nothing about.
Will it work? Many have serious doubts. New York Times columnist and economist Paul Krugman believes that not only is it the wrong policy but that the political mood is “getting ugly” and that the failure of the “cash for trash” policy will prevent Obama from going back to Congress for more funds.
Similar concerns are voiced by the Financial Times’ most eminent commentator, Martin Wolf who today admits to “becoming ever more worried” by Obama’s lack of decisiveness against a “grim background” of the “worst global economic crisis since the 1930s”. He is also concerned that if somehow if, against all odds, the scheme works, fund managers will make vast returns. “I fear this is going to convince ordinary Americans that their government is a racket run for the benefit of Wall Street.” Looking at the prospects for next week’s G20 summit, Wolf concludes that with the “US at an impasse” the outlook is ”frightening”.
For both Wolf and Krugman, the main issue remains the recapitalisation of the banks. And neither the money nor the political will exists for the state to undertake such a project. Certainly not in Britain, where the governor of the Bank of England yesterday pointedly told the New Labour government that the state is over-mortgaged and can’t spend any more. In fact, steep tax rises and sharp cuts in public spending lie ahead.
It’s not just the US that’s in an impasse. The crisis has already led to the collapse of the Czech government, the departure of the Hungarian prime minister as well as mass student and worker actions in France. There are no magic solutions that will end the global capitalist crisis and for all Gordon Brown’s determination to talk up next week’s G20 in London, it will come up with a big fat zero.
Ultimately, there are just two options: the major economies plummet uncontrollably into deep slump, with mass unemployment, wages cuts and the rest; or we put people first by establishing social control of economic and financial resources as the precondition for creating a more rational system. There is no middle way.
Paul Feldman
AWTW communications editor
Monday, March 09, 2009
Stop the bail-outs and repudiate 'toxic debts'
When the Financial Times of all newspapers launches a series called “The Future of Capitalism”, and the Archbishop of Canterbury attacks growth as the basis of the global economy, it’s fair to conclude that the system is shaking from head to foot
The patent failure of states and governments to sort out the financial crisis is all too apparent, for example, with the continuing collapse of shares in Lloyds following its shotgun marriage with the bankrupt HBOS bank orchestrated by prime minister Brown.
Now the state owns more than 60% of Lloyds and is guaranteeing no less than £250 billion of toxic (i.e. worthless) “assets” in a desperate bid to revive its fortunes.
On the production/demand front, Japan this morning announced its largest ever balance of trade deficit following the collapse in overseas demand for its cars, electronic goods and other exports. Jobs are disappearing at the rate of over 650,000 a month in the United States, where the dole queue is now more than 12 million long.
While New Labour fails to convince anyone that it will all turn out alright in the end, or to acknowledge any responsibility for events, the Financial Times series is at least honest about the scope of the crisis. Martin Wolf, its most prominent writer, admits : “What will happen now depends on choices unmade and shocks unknown. Yet the combination of a financial collapse with a huge recession, if not something worse, will surely change the world. The legitimacy of the market will weaken. The credibility of the US will be damaged. The authority of China will rise. Globalisation itself may founder. This is a time of upheaval.”
While Wolf’s extensive analysis acknowledges that financial deregulation contained the “seeds of its own downfall”, some subversive sub-editor has gone further and headlined the article “Seeds of its own destruction”. This, of course, is a not-so-hidden reference to the famous phrase in the Communist Manifesto of Karl Marx and Frederick Engels published all of 161 years ago, which was the first to popularise the contradictions within the capitalist system. What on earth is going on down at the FT?!
The merit of the lecture in Cardiff given by Rowan Williams, the Archbishop of Canterbury, at the weekend is that he argues that blaming the greed of individual bankers had made people lose sight of the fact that "governments committed to deregulation and to the encouragement of speculation and high personal borrowing were elected repeatedly in Britain and the United States for a crucial couple of decades".
Dr Williams is not in any sense anti-capitalist. In fact, in his lecture he talks about periods when capitalism was apparently more “ethical” and that society should somehow return to this period. Neither is the FT, of course. Its “survival plan for global capitalism” consists of concerted international action to restore demand for consumer goods while propping up the financial system.
But the British state has already committed 20% of the value of its gross domestic output in loans to failed banks. Now it is printing new money, further depressing savings rates and the value of government bonds. If this is allowed to continue, the price will be paid in massive public spending cuts, hyper-inflation and a social breakdown as the government of the day tries to avoid state bankruptcy.
When something is toxic, you don’t add to its poisonous nature by throwing more money at it – you get rid of it in the safest possible way. The same goes for the banking system, therefore. Our aim should be to take the “toxic debts” and bury them somewhere deep in the North Sea. In other words, they should be repudiated, rejected and disowned because we didn’t generate them in the first place. After that we could reconstruct a sane financial system based on mutual ownership and control. A drastic, revolutionary approach for sure, whose logic is common ownership and control of a not-for-profit economy. But far more practical than what either the FT or Dr Williams is advocating.
Paul Feldman
AWTW communications editor
The patent failure of states and governments to sort out the financial crisis is all too apparent, for example, with the continuing collapse of shares in Lloyds following its shotgun marriage with the bankrupt HBOS bank orchestrated by prime minister Brown.
Now the state owns more than 60% of Lloyds and is guaranteeing no less than £250 billion of toxic (i.e. worthless) “assets” in a desperate bid to revive its fortunes.
On the production/demand front, Japan this morning announced its largest ever balance of trade deficit following the collapse in overseas demand for its cars, electronic goods and other exports. Jobs are disappearing at the rate of over 650,000 a month in the United States, where the dole queue is now more than 12 million long.
While New Labour fails to convince anyone that it will all turn out alright in the end, or to acknowledge any responsibility for events, the Financial Times series is at least honest about the scope of the crisis. Martin Wolf, its most prominent writer, admits : “What will happen now depends on choices unmade and shocks unknown. Yet the combination of a financial collapse with a huge recession, if not something worse, will surely change the world. The legitimacy of the market will weaken. The credibility of the US will be damaged. The authority of China will rise. Globalisation itself may founder. This is a time of upheaval.”
While Wolf’s extensive analysis acknowledges that financial deregulation contained the “seeds of its own downfall”, some subversive sub-editor has gone further and headlined the article “Seeds of its own destruction”. This, of course, is a not-so-hidden reference to the famous phrase in the Communist Manifesto of Karl Marx and Frederick Engels published all of 161 years ago, which was the first to popularise the contradictions within the capitalist system. What on earth is going on down at the FT?!
The merit of the lecture in Cardiff given by Rowan Williams, the Archbishop of Canterbury, at the weekend is that he argues that blaming the greed of individual bankers had made people lose sight of the fact that "governments committed to deregulation and to the encouragement of speculation and high personal borrowing were elected repeatedly in Britain and the United States for a crucial couple of decades".
Dr Williams is not in any sense anti-capitalist. In fact, in his lecture he talks about periods when capitalism was apparently more “ethical” and that society should somehow return to this period. Neither is the FT, of course. Its “survival plan for global capitalism” consists of concerted international action to restore demand for consumer goods while propping up the financial system.
But the British state has already committed 20% of the value of its gross domestic output in loans to failed banks. Now it is printing new money, further depressing savings rates and the value of government bonds. If this is allowed to continue, the price will be paid in massive public spending cuts, hyper-inflation and a social breakdown as the government of the day tries to avoid state bankruptcy.
When something is toxic, you don’t add to its poisonous nature by throwing more money at it – you get rid of it in the safest possible way. The same goes for the banking system, therefore. Our aim should be to take the “toxic debts” and bury them somewhere deep in the North Sea. In other words, they should be repudiated, rejected and disowned because we didn’t generate them in the first place. After that we could reconstruct a sane financial system based on mutual ownership and control. A drastic, revolutionary approach for sure, whose logic is common ownership and control of a not-for-profit economy. But far more practical than what either the FT or Dr Williams is advocating.
Paul Feldman
AWTW communications editor
Monday, November 24, 2008
Time to slay the dragon
As the clocks struck midnight in Washington on Sunday, the Bush government scrambled to rescue Citibank, formerly one of the world’s most powerful financial institutions, to prevent it from total collapse when the markets opened today. Another weekend, another bail-out of bankrupt banks as the era of fantasy finance unravels in remorseless fashion.
This time the bill for US taxpayers was $20 billion down and another $270 billion in guarantees in the likely event that Citibank cannot sell off its so-called toxic assets – bad debts to you and me. Not even the planned sacking of 75,000 staff could stop the downward plunge of Citibank shares. So the US Treasury’s printing presses continue to spew out crisp new dollar bills in a desperate attempt to keep the show on the road.
And that’s all it amount to. Despite all the bail-outs in the United States and Britain, the banks still refuse to lend to each other and to most corporate and small business customers. That is because the financial system remains weighed down by incalculable debts, tied up in packages that there is no longer a market for.
These so-called securities are now so insecure they are literally not worth the paper they are printed on. Even the US Treasury believes that to be the case. At the end of last week, it announced that it would not buy distressed mortgage securities through the Troubled Asset Relief Program (Tarp). Yet this plan was at the heart of the package voted through by Congress in October at the second attempt. Another month, another plan.
Governments are literally staggering from pillar to post in increasingly frantic efforts to sort out the financial system and “kick-start” the real economy at the same time. Today in Britain, hard-pressed, debt-burdened consumers will be told it’s their responsibility to save the capitalist economy by spending like there is no tomorrow.
The media is increasingly gripped by the need for governments to do something, anything, to stem the flow of job losses, home repossessions and the other consequences of the recession that have followed the financial crash. The right-wing Daily Express was almost beside itself at the weekend, declaring in its editorial: “Like it or not, the global economy depends on high indebtedness and rampant consumerism. We have created this monster and we must continue to feed it. Otherwise it will devour us.” (November 22).
So there you have it. The monster of globalised capitalism demands to be fed, assuming a mythical power over people, with shocking results if they don’t obey. It’s hard to believe we are living in the 21st century when you read drivel like this, which is more suited to fairy tales about the Dark Ages than a description of the state of affairs in 2008.
The fact is that we don’t actually have to feed the “monster”. It would make more sense to slay the dragon and set society on a more rational course where real people, not speculators and capitalists, assume rational control of social affairs. Don’t, of course, expect to see any recommendations along these lines from the Express or the rest of the media. And certainly not from New Labour, the party of choice for big business.
Paul Feldman
AWTW communications editor
This time the bill for US taxpayers was $20 billion down and another $270 billion in guarantees in the likely event that Citibank cannot sell off its so-called toxic assets – bad debts to you and me. Not even the planned sacking of 75,000 staff could stop the downward plunge of Citibank shares. So the US Treasury’s printing presses continue to spew out crisp new dollar bills in a desperate attempt to keep the show on the road.
And that’s all it amount to. Despite all the bail-outs in the United States and Britain, the banks still refuse to lend to each other and to most corporate and small business customers. That is because the financial system remains weighed down by incalculable debts, tied up in packages that there is no longer a market for.
These so-called securities are now so insecure they are literally not worth the paper they are printed on. Even the US Treasury believes that to be the case. At the end of last week, it announced that it would not buy distressed mortgage securities through the Troubled Asset Relief Program (Tarp). Yet this plan was at the heart of the package voted through by Congress in October at the second attempt. Another month, another plan.
Governments are literally staggering from pillar to post in increasingly frantic efforts to sort out the financial system and “kick-start” the real economy at the same time. Today in Britain, hard-pressed, debt-burdened consumers will be told it’s their responsibility to save the capitalist economy by spending like there is no tomorrow.
The media is increasingly gripped by the need for governments to do something, anything, to stem the flow of job losses, home repossessions and the other consequences of the recession that have followed the financial crash. The right-wing Daily Express was almost beside itself at the weekend, declaring in its editorial: “Like it or not, the global economy depends on high indebtedness and rampant consumerism. We have created this monster and we must continue to feed it. Otherwise it will devour us.” (November 22).
So there you have it. The monster of globalised capitalism demands to be fed, assuming a mythical power over people, with shocking results if they don’t obey. It’s hard to believe we are living in the 21st century when you read drivel like this, which is more suited to fairy tales about the Dark Ages than a description of the state of affairs in 2008.
The fact is that we don’t actually have to feed the “monster”. It would make more sense to slay the dragon and set society on a more rational course where real people, not speculators and capitalists, assume rational control of social affairs. Don’t, of course, expect to see any recommendations along these lines from the Express or the rest of the media. And certainly not from New Labour, the party of choice for big business.
Paul Feldman
AWTW communications editor
Subscribe to:
Posts (Atom)