Northern Jelly

JamieSW — Tue, 19 Feb 2008 13:14:15 +0000

A friend of mine who works in the City and is knowledgeable about the laws, regulations and internal procedures of investment banking said to me the other day: “Investors are the most pampered people in the world. There are so many laws and regulations designed to protect their rights, it’s unbelievable.” Laws designed to protect the property rights of the owners. Who would have imagined such a state of affairs? Well, today investors are predictably furious about the temporary nationalisation of Northern Rock. If a neoliberal government like ours undertakes a nationalisation, you know it’s serious. But the owners aren’t happy. Their shares, their shares! The socialistic government has stolen their money! Somehow they promise to mount a legal challenge, just as the shareholders in Railtrack did when the government allowed the company to go bankrupt rather than bailing it out with yet further billions in public money. The City is also alarmed. The government exists, as far as they are concerned, to defend their interests and as far as they are concerned that means the guarantee of private profits with public money, and private ownership with public risk. This sort of thing gives people ideas.

Nevertheless, there cannot be too much shock. Practically everyone knew that nationalisation was the only option in this case, and it was simply not plausible to continue ploughing in billions – the Bank of England has loaned the company £55bn, which is eleven times its value at its peak last year, and many more times its present value of £380m, while – while the owners floundered and frittered it all away. If anything, it would have been an obvious decision several months ago, long before a single penny of subsidy had been issued. The government has tried desperately to avoid it. And after all, the nationalisation is only a temporary measure designed as much to protect the institution and return to private capital in good condition once the economy gets back into good shape. And it will be run by highly paid individuals from the banking industry, such as Whatever the shareholders say, the rentier class will probably be quite relieved as a whole. Even Martin Wolf of the FT backs the nationalisation and gives a few reasons why the grasping bastards who have run the thing into the ground shouldn’t be given any compensation.

The Tories are arguing that this decision amounts to a ‘humiliation’ for Alistair Darling, and are raising the spectre of a return to the 1970s (a much maligned and underestimated decade). On the one hand, it’s faintly embarrassing in itself that to change your mind is supposed to be a source of embarrassment, but on the other hand, Darling has sort of brought that on himself by straining so hard to avoid nationalisation. Anatole Kaletsky is predicting catastrophe on the absurd grounds that nationalisation is a form of market ‘distortion’ and anyway the government is crap at running things. Are there really people who still believe in the free market fairytales? Does he not know how his employer pays the bills?

Nationalization is often a poor substitute for socialisation rather than a synonym for it. It is usually a prophylactic, in fact, against such measures, a manageable half-way house. In this case, it doesn’t even go as far as that. It is a temporary stop-gap, without any guarantees as yet for the workers in the bank, which places £100bn of public money on the line, with the company’s future co-determined by a small number of experts from the industry, in order to return the business to private ownership as soon as possible. But still, it does give people funny ideas. You know, in a world where Morales is nationalising the gas industry, Chavez nationalised much of the oil industry (and was going to nationalise the whole banking industry), and even the Scottish executive is planning to fully nationalise the railways, the convenient myth that public ownership is ‘unrealistic’ is starting to look, well, unrealistic. And that raises all sorts of questions.

We were told that privatising utilities would bring us more efficient, lower cost services. British Gas has just jacked up the prices and is making record profits, while energy companies like Npower do the same. The privatization of water has been disastrous in many places, and in the UK it has led to exorbitant costs and low maintenance. The privatised airports are uncomfortable and overcrowded because they allot most space to commercial facilities and provide little seating or other amenities. Privatization also led to increased unemployment and diminished bargaining power for labour. In each of the industries privatized by the Tories, employment fell dramatically – in steel by 75%, in railways by two thirds, and in electricity and water by about a half. Right-wing economists complain about over-employment, but the danger was always in the contrary temptation – to cut necessary staff and make the service unsound. And what is the point of having ‘competition’ in the banking industry when they all provide much the same lousy service and rip you off? Wouldn’t a publicly owned and accountable industry be better for customers? And why should we have to pay for their crisis? If a company can’t or won’t keep its business running to keep people employed, shouldn’t the government use its initiative, nationalise, defend jobs and engage in industrial conversion if necessary?

Oh, Jesus no, don’t start thinking like that! Winter of discontent, remember? You don’t want to go back to the bad old days, especially not when everything is so fabulous.

A mucky business

JamieSW — Tue, 19 Feb 2008 13:06:27 +0000

THE whole Northern Rock fiasco has been a mucky business from beginning to end.

What was, a year ago, the darling of the Stock Exchange, with shares priced at over 1226p each, is now a crisis-ridden mess with shares priced at under 90p.

Despite all of the hot air pumped out by the money-men in the stock market, this fiasco is solely and exclusively the responsibility of greedy, profit-fixated speculators prepared to take any risk for a fast buck. And, boy, have they come unstuck.

Chancellor Alistair Darling claims that he is now “nationalising” the bank because that is the only way that the taxpayers’ money, which he so freely used to underwrite the failing enterprise, can be safeguarded.

But those of us who hold nationalisation dear, as a step towards the elimination of speculation and predatory capitalism, must step carefully here.

What Mr Darling calls nationalisation holds about the same relationship to the real deal as a farmyard chicken does to a golden eagle.

Bear in mind our treacherous Prime Minister’s description of the Chancellor’s brand of nationalisation. “We want,” he said, “a successful company that we can pass onto the private sector at the earliest opportunity.”

He insisted that the problems in the US sub-prime mortgage market which, he claimed, had led to the collapse of Northern Rock, could not have been foreseen.

But, despite all the talk, it was not merely the US sub-prime crisis that triggered Northern Rock’s problems. It was British banks losing their nerve and pulling the rug out from a company that had taken one gamble too many.

And it is not Mr Darling’s brand of nationalisation that will save it.

The issues that are important in this situation are the jobs of Northern Rock employees, which the unions are rightly concerned about.

And don’t forget the stability of the British economy, which will hardly be guaranteed by stripping out the problems of Northern Rock and handing it back to the same gang of speculators that screwed it up in the first place, the vultures of the City.

Putting Ron Sandler in charge of the company at over £1 million a year, with a deputy on very little less, is hardly a good sign.

It is to hoped that Mr Sandler’s reputation for toughness will mean that he can stand up to the hedge-fund profiteers who, having bought and increased their shareholdings after the share price dropped through the floor, are now the loudest in their protestations that the government is trying to rip off shareholders and demanding massive compensation for their supposed losses.

Hedge funds RAB and SRM involvement in campaigning for a fair deal for shareholders has raised eyebrows in light of the timing of their purchase, with many of their shares bought after the bank’s troubles began last autumn.

The hedge funds have, in fact, been increasing their stake in recent days and clearly hope to talk their sticky fingers into the public purse.

It will help if Mr Sandler resists both that and the temptation to cut jobs in order to slim the company’s costs.

But any real solution rests on messrs Brown and Darling resorting to real nationalisation, not the cosmetic exercise that they are contemplating.

And the chance of that happening with this new Labour gang is about the same as a farmer rearing golden eagles in a chicken run.

nationalisation | ukwatch.net

Northern Jelly

A mucky business