Business/Economy | ukwatch.net

EU leaders fail to agree finance strategy

Alex Doherty — Mon, 06 Oct 2008 10:25:35 +0000

Following the most turbulent week in European financial markets since the 1930s, a group of European leaders met in Paris on Saturday to discuss measures to prevent a collapse of the European banking system.

The heads of state of France, Germany, Italy and Britain, along with European Central Bank chief Jean-Claude Trichet, European Union (EU) Commission President José Manuel Barroso and Luxembourg Prime Minister Jean-Claude Juncker (also head of the Euro group of finance ministers), met in emergency session.

In the course of the Paris summit much criticism was made of the US as the source of the banking and finance crisis, but the assembled European leaders were unable to present any viable coordinated strategy to abate the growing financial storm engulfing European banks.

The only concrete proposal to emerge from the meeting was the establishment of a 15 billion euros fund to help small businessmen. Vague resolutions were adopted for a relaxation of European financial targets and new regulations to rein in the excesses of speculators, and an appeal was issued for a global summit to discuss the crisis. Plans proposed last week for a European bailout fund failed to appear on the summit’s agenda.

French President Nicolas Sarkozy called the meeting on Saturday, at short notice, following the collapse of a series of large European banks.

Just over a week ago, European governments and private banks bailed out no less than five major banks—Germany’s Hypo Real Estate, Britain’s Bradford & Bingley, the Dutch-Belgian Fortis group, the Belgian Dexia bank and one of Iceland’s biggest banks.

Despite the various government bailout packages, the plight of most of the troubled banks has worsened. Last Friday, the Dutch government intervened once again to buy up all of the Dutch assets of Fortis, whose share price has plummeted. In Germany, the bailout package for the country’s second biggest mortgage loan company, Hypo Real Estate (HRE), has collapsed. According to the latest estimates, a new rescue package for HRE could cost German taxpayers up to 50 billion euros.

In Switzerland, UBS, having already cut 4,100 jobs as a result of losses from the US subprime crisis, announced last week that it planned to slash a further 2,000 investment banking jobs. Italy’s banking sector was also hit last week, with the country’s largest bank, Unicredit, loosing nearly one quarter of its share value.

All of the major European stock markets suffered heavy losses last week, with bank share prices suffering the biggest declines.

Also last week, economic institutes in France confirmed that the country’s economy was entering recession, with anticipated negative growth in the third and fourth quarters of this year. Britain and Spain are already acknowledged to be in recession, and the same fate threatens the German economy in the near future. This would set in motion a chain reaction plunging the entire Eurozone into recession.

It was against this background that a group of leading US and European economists warned that European nations had to take emergency, coordinated action “to address this crisis head-on before it spirals out of control.”

Underlining their dire prognosis, the economists, in a statement published by the German Economic Institute (DIW), drew parallels with the 1930s: “Europe is in the midst of a once-in-a-lifetime crisis. Every European knows what happened when financial markets seized up in the dark years of the 1930s. It is not an exaggeration to say that it could happen again if governments fail to act.”

The statement issued by the DIW amounted to an appeal for the establishment of a central fund by European nations to bail out banks along the lines of the $700 billion plan drawn up by US Treasury Secretary Henry Paulson and passed by Congress at the end of last week.

Concrete proposals for a pan-European bailout fund were first put forward last week by Dutch Prime Minister Jan Peter Balkenende, who played an active role in the bailout of Fortis, the biggest European banking concern to be toppled by the international financial crisis.

Balkenende called upon all EU countries to contribute three percent of their gross national product towards a €300 billion ($415 billion) fund to assist ailing banks. The French Finance Ministry supported his proposal.

The plan received the enthusiastic backing of leading bankers and economists, including the managing director of Germany’s biggest bank, Deutsche Bank, Josef Ackerman, and the president of the German Banking Association, Klaus-Peter Müller. Additional pressure for the establishment of an EU bailout fund came from the managing director of the International Monetary Fund (IMF), Dominique Strauss-Kahn.

An argument advanced in support of the proposal was that it was needed to avert a situation in which individual countries and their banking systems sought to gain an advantage from the crisis at the expense of their European rivals. On Thursday last week, the Irish government announced a blanket guarantee of all deposits in the country’s six biggest banks. British bankers immediately criticised the measure, declaring that it gave Irish banks an unfair advantage and would allow them to steal customers from their counterparts in the UK.

On the same day, the Greek government made a similar move, when Finance Minister George Alogoskoufis declared Greece’s banking system “totally safe and reliable.”

In the midst of this debate, French President Nicolas Sarkozy called for the mini-summit of EU countries that are members of the G-8 group of industrialized nations that was held on Saturday.

Despite the backing of the finance ministries of France and Luxemburg as well as leading European bankers, the EU bailout plan failed to make it onto the agenda of the meeting held Saturday in Paris.

Prior to the summit, both the finance and economic ministers of Germany expressed their opposition to the bailout plan and were supported by German Chancellor Angela Merkel. German qualms about such an EU fund are not based on any principled opposition to bailing out banks.

The leaders of Germany, as well as their counterparts in Britain, Italy and France, have expressed support for the Paulson plan in the US. They have all pursued economic and social policies aimed at maximising the profits of the banks.

In recent days, Merkel, Sarkozy and British Prime Minister Gordon Brown have all been instrumental in diverting huge sums from their countries’ public purses to cover the bad debts of leading banks and financial houses.

However, a series of comments by German ministers made clear that while they were quite willing to milk the German taxpayer to prop up German banks, as in the case of HRE, they were not prepared to participate in a scheme that would benefit the banks of rival European states.

Under pressure mainly from Germany, Luxemburg and France were forced to remove their proposal for a bailout fund from the summit’s agenda. President Sarkozy went so far as to deny that he had ever supported the plan.

At the same time, sources inside the British government made clear that Britain was opposed to any far-reaching measures regarding the regulation and control of its own financial sector, which is Europe’s biggest.

Underlining the disunity of European countries, a number of EU members, in particular Spain, criticised the summit for failing to invite the 23 other states of the European Union.

Even before the Paris summit was held, it was clear that that the assembled leaders would achieve very little. The German chancellor used the opportunity provided by the summit press conference to stress that shareholders and those responsible for the bad debts should pay their share of costs of any rescue operations, while Sarkozy called for a form of capitalism which rewarded “entrepreneurs” rather than “speculators.”

Such statements were purely for public consumption. The notion that any of the leaders assembled in Paris will take serious action to penalise the architects of the financial crisis is illusory.

Italian Prime Minister Silvio Berlusconi is also the country’s richest individual, having made his fortune largely through dubious real estate dealings. A multi-billionaire, he is personally a key figure in Italy’s financial elite. Sarkozy has in the past flaunted his friendship with some of France’ richest media and business magnates. He has taken holidays paid for by billionaire bankers of the Lazard finance group.

As for German Finance Minister Peer Steinbrück, Der Spiegel magazine reports that his €27 billion bailout deal for HRE was struck shortly after midnight in a personal telephone call with Germany’s highest paid banker, Josef Ackermann.

The failure of the Paris summit to achieve any concrete results is an expression of growing national tensions between the main European states and, in the final analysis, the inability of the European ruling elites to resolve the current crisis.

As a new week begins, there is renewed speculation about which European bank will be next to topple.

Can’t buck the market? The market can certainly buck us

Alex Doherty — Sun, 05 Oct 2008 09:44:56 +0000

IN THE course of just one day, the most right wing American administration in living memory calls on the United States Congress for billions of dollars to bail out the country’s financial system, the Portuguese launch the world’s first wave power plant and British Energy is subject to a French takeover. So we no longer have any ownership of our energy infrastructure.

There are a lot of clichés we hear from politicians these days. Three of my favourites are: “We will learn the lessons”, “The family have been informed” and “Ownership does not matter”.

The last one is a catchphrase of Business Secretary John Hutton. We never hear it when politicians are talking about housing, of course. Forcing people to buy houses they could not afford is the main cause of the current economic mess.

And “Ownership does not matter” is not a phrase you hear from people who actually own things, such as Warren Buffet and Lakshi Mittel – or the French, for that matter. They will now have a constant stream of profits from their British energy business. Every time we turn on the lights, cash will stream across the channel.

The Business Secretary says this is good for Britain. He has persuaded a foreign firm with some intellectual property to take over and run yet another faltering British industry. So now we will get four new French nuclear power stations.

The modern British economy is a bit like the tennis at Wimbledon. Although Britain never wins the big prizes, we put on a good show. Most of the prize money goes overseas, but if we are lucky we get to stand on a hill and watch the action on a big screen.

In this Alice in Wonderland world, the British are the winners. The French have cheaper energy than us because they foolishly failed to embrace the market and instead invested in their energy industry for the long term. Now they have a product they can export across the world and reap the rewards. Just how silly is that?

Meanwhile, the global energy giants we put our faith in are refusing to invest in British renewables. As private firms, they see more lucrative investments in existing energy sources elsewhere. To most observers, this country is facing a looming energy gap. Because of our obsession with not bucking the market, we stand a good chance of being bucked by it.

Portugal has no indigenous carbon energy sources and yet it has managed to obtain more half its energy from renewables. Locked into free-market dogma, progress in Britain has been pitiful.

We can begin to turn this around when the Energy Bill comes back to the House of Commons. MPs can give renewables the support they need with some preferential help as regards tariffs in order to encourage investment,

But we need to go much further. The current global crisis in the banking sector shows the limits of regulation. When oil was discovered in the North Sea, it was soon realised that it was going to be a long-term and risky business bringing it to shore. A public sector business, the British National Oil Corporation, was established to undertake this challenge. If we are now to take on the challenge of developing a serious renewable energy industry, particularly in the capital-intensive wave and tide power arena, we will need a similar public sector champion: a British national renewables corporation.

Unlike the wind, you can set your watch by the tides around Britain’s coast. If the Portuguese can harness wave power, so can we. With a global shortage of credit, we cannot wait for the private sector to come to the rescue.

Banks are being saved by “nationalisation” in the United States and now our nuclear industry is being “nationalised” by the French. If we want a significant renewables sector, its early stage of development will require a large-scale public sector solution. It will be a better long-term investment than Northern Rock. And this time we will have to do it ourselves.

Nick Matthews teaches at Coventry University

Debts the way to do it

Ellie Keen — Sat, 04 Oct 2008 14:44:13 +0000

AS SCHNEWS RASHLY TAKES ON THE CREDIT CRUNCH AND THE FUTURE OF GLOBAL CAPITALISM

“Whoever is to blame for this week’s scenes on world stockmarkets, only the most churlish anarchist would welcome them.” – the Guardian, 1st October 2008

Blimey… you spend 15 years struggling against global capitalism and then the bloody thing collapses of its own accord. Building societies, banks and all manner of financial institutions are going to the wall.. City wide-boys, hands bloody from their ruthless assault on the world’s poor, are flinging themselves in front of trains – and nobody’s had to lift a finger – let alone throw a Molotov.

Since our report on the welfare state for business (SchNEWS 647) western governments have continued throwing infeasibly large amounts of money at the free-falling financial markets.

‘Meltdown Monday’ was only the start (Traumatic Tuesday, Woeful Wednesday etc) as here in the UK, Bradford and Bungly went belly up and had to be nationalised – well it’s massive debts did anyway with Spanish bank Santender, already owners of Abbey, encouraged to pick up the best bits of B&B for a song. Halifax nearly collapsed and had to be sold to Lloyd’s bank – forget the monopoly issues just keep the sinking ships afloat!

Over in the States, Bush and his cronies are desperately trying to get through a whopping $700 billion bail out bill to shore up confidence in a financial system teetering on the edge. They failed initially, leading to further market plummets before persuading Congress to approve a revised deal this week (being voted on by the House of Representatives today).

The nattily named credit crunch appears to be getting more and more bite, so what’s it really all about?

The explanation tossed around by most mainstream media tells us that it’s due a rash ‘sub-prime’ mortgage lending – OK, but if you want to understood why it’s knock on effects are so threatening to the system it’s actually a little more complicated.

The comparative economic boom (ridden with such self-congratulation by the ‘golden’ chancellor at the time…er, a Mr G. Brown) since the last recession in the early 90’s has been based on massively increasing levels of debt. Not just individual consumers spending their way to prosperity on credit cards, but banks, all the other types of financial institutions, corporations and governments.

Household debt has increased from 50% of GDP in 1980 to 100% in 2007. Financial sector borrowing has gone from 21% to 116% of assets in the same period. In fact, a chief cheerleader of the brave new financial world was the former boss of now bust Goldman Sachs – one Henry Paulson. He took them from $20 billion in debts in 1999 to $100 billion when he left. Having helped cause the crisis, and getting rich off it, he’s now the man putting forward the bail out plan as US Treasury Secretary. Despite self-imposed limits, Governments have also ramped up their debt levels – achieved by privatising everything in sight and putting all the deals ‘off balance sheet’ (thanks, Gordon!)

So lenders now routinely now lend out more than the total assets of the company. It was all made possible by massive deregulation, the completion of the project started in the Thatcher / Reagan free market era, as big business and their lobbies finally succeeding in getting politicians completely in their pocket, and indeed direct pay. Light touch regulation gave way to feather light.

The confidence of banks to throw ever more cash around was underpinned by the invention of the Credit Default Swap (CDS) market. This allows organisations exposing themselves by loaning out money to buy a kind of insurance against a default on that loan. In return for paying small regular premiums, priced depending on the perceived risk of default, that organisation could think of itself as no longer exposed to any risk, able to reduce any provisions put aside in case of default (so called ‘bad debt’) – and therefore free to lend out even more cash.

A culture of risky, unsound lending was thus created. To make things worse, all these debt contracts are traded, and indeed speculated on. They change hands multiple times as different people estimate their current value and risk differently. A tasty profit opportunity for canny get-rich-quick investors, but difficult for buyers removed from the original business to assess what they’d really bought.

In effect this all meant that many billions of debt could be considered assumed by people only having to put up in hard cash a tiny percentage of that figure. No problem as long as house prices, shares, bond prices etc all kept rising and more debt could be given out cheaply and easily to anyone who might otherwise be close to default. A debt mountain was gradually accumulated. In 2008, the amount of debt in the CDS market is estimated to be more than $50 trillion. That’s over twice the value of the entire US stock market.

Confidence started to collapse as the risks of sub-prime default got reassessed and foreclosure and bankruptcy rates started to climb. Banks panicked and realised they were caught in a kind of pyramid scheme. If people started defaulting in numbers nobody would have enough cash to pay out. The availability of cheap CDS contracts dried up and banks refused to lend to each other, wary that anyone of them could go under at any time. The cost of servicing the CDS exposures lept up, to the point where banks like Goldman Sachs and Bradford & Bingly couldn’t afford them and, unable to just borrow more to cover it, went swiftly bust. As credit availability goes down, the levels of debt exposure now threaten to bring down all types of companies, wrecking the economy from all sides at once.

Facing meltdown, governments have been forced to step in to avert complete collapse of the system. But it won’t work in the long term as they’re effectively giving a blood transfusion to a badly haemorrhaging patient. The bail outs may buy some more time – gambling taxpayers money for years to come on a high risk strategy financed through yet more debt (China and India have been helping by buying up US govt bonds, leading some to wonder whether this will see a further shift in the balance of economic power, but it’s all interconnected baby!) – but the fundamental flaws of capitalism will remain and bleed everyone dry in the end. In fact, the hand outs will just ensure that it’s the same old elite who will get richer as the system creaks on to it’s inevitable demise – it’s just a question of how long (end of the world in 2012 anyone?).

BACK IN THE REAL WORLD

In the meantime, what will it all mean for the average SchNEWS reader in the street? What’s gonna happen next?! If you’re poor, lacking large debts, a mortgage, share portfolio and high paying job, you might even enjoy the ride.

If the credit crunch triggers a full-blown recession we’re going to see a surge in repossessions of houses. Squatters paradise! The number of endless yuppie flat developments and ego-driven showpiece towers will plummet. Less 4×4s, less sports cars. The consumer slowdown will be good for the environment – economic collapse is the only realistic way of reaching those carbon emission targets! On the down side there’ll be less food available for looting from skips as bargain hunting shoppers clear out the aisles, but local food production will have to increase.

As the job queues swell, access to social services will become less punitive. When you’re one of three million as opposed to one of 300,000, there’s only so much hassle at the dole office to go round.

The wave of depression should throw up new political opportunities. For a long time in the developed west, the majority of the opposition to capitalism was essentially moral. Fair trade and charity was thought good enough to stave off the guilt of being disproportionately wealthy. But as the spoils of globalisation become increasingly only available to a smaller and smaller elite, interest in alternative ways of doing things should also increase.

Recent events have shown capitalism is a hothouse flower – it has to exist swaddled in a life-support system of regulations and laws protecting private property, allowing corporations to exist . Most importantly it requires the state to be a lender of last resort.

Despite the endless free market rhetoric we’ve been forced to swallow since the Thatcher era – the government has always functioned as a welfare state for the rich. This life support system has been filtering the real wealth upwards in society for years but now it’s all out on the open as the bankers stretch out their begging bowls.

It’s now been demonstrated to all and sundry (who’d previously not been reading SchNEWS) that the ‘free’ market is no such thing. Pundits might spew about ‘irresponsible’ lending and try to pin the blame on a few bad apples but in fact all the markets were doing is what markets are supposed to do – chase after the largest amount of profit in a single-minded ruthless way – and human beings are just a minor obstacle in that pursuit.

Perhaps as times get tougher, people might finally get it together to demand more fundamental changes – and not leave the super rich in charge of it.

Democratising the UK economy

Alex Doherty — Sat, 04 Oct 2008 08:57:06 +0000

Exclusively to ukwatch.net Corinna Lotz of A World to Win talks to Alex Doherty about the financial crisis and the prospects for a democratic self-managed economy in the UK.

Can you tell our readers what A World to Win is – what are the organisation’s aims and how did the organisation come into existence?

A World to Win exists to work for a society in which human beings can live in a not-for-profit relationship with themselves and the planet.

We believe that the globalisation of the world economy over the last 30 years has led to a greater division between the rich and the poor, in Britain and throughout the world, as well as global warming and ecological devastation.

Our aim is to help facilitate a transition to a not-for-profit, co-operatively owned, non-wasteful economy based on using existing resources and technology in new ways. Such a transition requires a far more advanced type of democracy than the present hollowed-out form in which people have been politically disenfranchised.

Our book, A World to Win, a rough guide to a future without global capitalism, advanced these ideas and became the stimulus for launching the organisation in 2005.

How is A World to win structured internally? Is it a cooperative or hierarchically managed or…?

A World to Win functions with a steering group, a secretariat and special groups which are set up as and when required for specific projects and aims, such as our Stand Up for Your Rights festival on October 18, which we invite your readers to come along to. We have a constitution which is published on our website.

What is your view of the current financial crisis? What does it reveal about contemporary capitalism? Does it spell the beginning of the end for global capitalism as some have suggested?

The current financial crisis is due to capitalism’s inherent need constantly to expand, which leads to systemic crises. As we explain in our book A House of Cards – from fantasy finance to global crash, the debt contagion that began with the US sub prime crisis last summer, was the unravelling of the vast amount of fictitious (fantasy) finance that became the biggest bubble in the history of capitalist financial markets. Over the last two decades, new financial instruments, credit arrangements and market speculation caused debt to balloon out of all proportion to real production and trade. The market in credit default swaps, for example, exploded over the past decade to more than $45 trillion by mid-2007.

The present crisis reveals that global capitalism cannot function only with a free market and requires the state to bail it out. Without public money as its present life-support system, the banking system would literally seize up. The crisis also shows that all those who said the system was fundamentally sound were wrong. It is fundamentally flawed in its very heart. As we speak, capitalist governments in the US, UK, Ireland and elsewhere are using taxpayers’ money to shore up banks, without so much as a by-your-leave from any voter.

By itself the crisis does not spell the end of global capitalism because governments will seek to resolve the crisis at the expense of working people and the most vulnerable sections of society, and, eventually by going to war, as happened in the 1930s. But events will now demonstrate to millions of people the highly toxic and destructive nature of the system and that it cannot guarantee the most essential rights. The alternative to going beyond the capitalist form of globalisation to a socially-owned, non-capitalist form will be a catastrophic drop in living standards for the majority of people.

In our view, the resources that are now being squandered on rescuing the banks should be used instead in a democratically-controlled way to create a not-for-profit, cooperatively-owned banking system and economy. In this way we view the crisis as an opportunity for human beings to go forward to more advanced social system. If it is not replaced, disasters of the kind that resulted from the Wall Street crash of 1929, compounded by the ecological crisis, are inevitable.

How is this transformation to a cooperative society to be achieved?

Proposals for this are outlined in A World to Win and in the final chapter of A House of Cards, from fantasy finance to global crash called Composting Capitalism.

Is there a role for parliamentary politics?

Again, in A World to Win, the chapter Reconstructing the State outlines the principles on which a transitional state would be based. Our forthcoming book Unmasking the State – rough guide to a real democracy deconstructs existing parliamentary democracy, by showing how it came into being, how workers fought for representation and how the welfare state has become a capitalist, market state.

What about trade unions? what should their role be? How are we to get to this imagined future?

Trade unions must continue to exist in any future society to safeguard workers rights. Their role would change as the rights they campaign for become enshrined in a new constitution and when the ruling capitalist class is disempowered.

Can you describe what self-management would mean at the concrete level. What would a self-managed factory or hospital or school be like as compared with those existing within a capitalist economy?

The chapter, News from the Future – when health comes first in A World to Win does exactly this.

The experiences of socialism in Russia, China and Cuba is used to show that capitalism is the best that we can hope for. What do you say to that?

The revolutions in these countries took place under different historic conditions than today and they were isolated from technological and cultural developments in the West. The rise of Stalinist and Maoist cliques in the former two states undermined the positive sides of the revolutions. Cuba suffers from the after-effects of Stalinism on one side and the US boycott on the other. The cultural and economic level of the masses, and the globalisation of the system as a whole today provides more favourable conditions to prevent the monstrous distortions that arose in the Soviet Union and China.

What are the intellectual roots of a world to win? Who do you consider to be your most valuable intellectual predecessors?

We have a variety of intellectual roots. Philosophically we work with a non-dogmatic, materialist outlook which draws on contemporary science, and dialectical philosophies. We are inspired by the ancient Chinese and Greek dialecticians such as Heraclitus, philosophers, political theorists and leaders including Hegel, Marx, Engels, Lenin, Trotsky, Ilyenkov, Gerry Healy, as well as poets, musicians, artists and writers past and present. We aspire to an active, open, searching view of things in which discussion can stimulate new ideas and solutions. To encourage debate on the burning issues of the day we have published five books in four years and operate a dynamic 1,800-page website with a daily blog, and many other resources.

There is a rich vein of ideas regarding self-management within the anarchist tradition too – is there any reason you do not draw on that heritage as well?

Our concept of human nature and human social development foregrounds the self-determination of human creativity and ingenuity. In my discussion of Antony Beevor’s book on the Spanish Civil War , for example, I referred to the important role of the largely anarchist collective farms and industries in Spain. At the same time, the Spanish experience demonstrated in a bitter way that a transformation of the state is a pre-condition for the successful and democratic self-management of land, factories and society in general.

The publications mentioned in this interview are available for free download at A World to Win

Alex Doherty is a member of the ukwatch.net collective

The death of the ‘dream’ of global free-market capitalism

Alex Doherty — Fri, 03 Oct 2008 09:24:53 +0000

New Labour and the Tories are muttering that the left musn’t be allowed to exploit the current economic crisis in order to make a comeback. They have nothing to worry about: the systematic, publicly funded government intervention we’ve seen the world over that has been necessary to rescue global capitalism from collapse demolishes once and for all the myth that private control of capital has anything to do with the ‘free market’. What capital really fears isn’t state intervention per se, but economic democracy: nationalisation without economic democracy suits capital just fine. A worthwhile, pro-working class left would be demanding that in return for being rescued at public expense, the public should be given an increased say in the running of the economy. The middle-class left isn’t doing this, and has no interest in doing this, and so will remain an irrelevance.

Earthquakes on a fault zone

Back in March, the chief economics correspondent of the Financial Times, Martin Wolf, wrote: “Remember Friday March 14 2008: it was the day the dream of global free-market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Sterns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Josef Ackermann, chief executive of Deutsche Bank, that ‘I no longer believe in the market’s self-healing power’. Deregulation has reached its limits”.

The events of the last two weeks, which have the seen the disappearance of two of the four remaining major independent Wall Street investment banks, with the two left voluntarily giving up investment bank status and scurrying toward the Federal Reserve for protection ; the biggest bank failure in US history, and large scale state intervention the world over to prevent the total collapse of the global financial system (the bailout of AIG following the de-facto nationalisation of Freddie Mac and Fannie Mae; the injection of billions upon billions of pounds of taxpayers funds into the money markets by the world’s major central banks to prevent those markets from grinding to a halt, because “nobody trusted any credit other than the government’s” ; the temporary banning of short-selling on both sides of the Atlantic; the state co-ordinated takeovers of Merrill Lynch by Bank of America and of HBOS by Lloyds, which was waved through by the British state on public interest grounds in order to “ensure the stability of the UK financial system”, and now the nationalisations of Bradford & Bingley here and Fortis on the continent) represent the final nail in that dream’s coffin. This has all culminated in the extraordinary bail-out plan, devised by the most right-wing administration in US history in collaboration with Wall Street, to spend $700bn of taxpayers money on the systematic nationalisation of risk in the US financial system, a plan described by the Financial Times as “the most extensive peacetime expansion of the role of government in the financial system since the Great Depression”.

Indeed, there is only one possible criticism that can be made of Wolf’s coroners report: rather than a ‘dream’, the concept of ‘free-market capitalism’ is perhaps better thought of as a hallucination, or an oxymoron. There is no such thing as a large-scale industrial free-market economy, and there never has been, something the economist William Lazonick refers to, quite correctly, as ‘the myth of the market economy’. It has been rhetorically useful for the right, from Hayek onwards, to equate the private control of capital with free markets, and free markets with individual liberty, but in reality capitalist development has always depended upon state assistance and the abrogation of free-market principles¹, as current events are amply demonstrating. The neo-liberal experiment with deregulation of the financial sector of the economy that we have seen over the last thirty years has been taken as far as possible, and will now be reined back in: as Wolf has put it, “In deregulated financial systems crises are inevitable, like earthquakes on a fault zone. Only timing is uncertain”

But what does this mean for the rest of us? Will the crisis of finance capital cross over to the real economy and result in recession, large scale unemployment and a drop in living standards for the mass of the population? Are we going to see some repeat of the depression that followed the great crash of 1929, the last time Anglo-Saxon capitalism suffered a comparable financial shock? It should be pointed out that even during the so-called ‘boom’ of recent years, the benefits were largely confined to the upper income brackets. The real story of the last 30 years of neo-liberalism is not rising prosperity for all, but rather the utter destruction of the wealth and savings of the bottom half of the population. Outside of property, 50 per cent of the population now own just 1 per cent of the wealth whereas in 1976 it was 12 per cent. Back in July, Ernst and Young reported that average household disposable income after tax and bills had fallen by 15% since 2003 ; a report by the Campaign to End Child Poverty in late August declared that “Poverty is now one of the greatest dangers faced by our children. If poverty were an infection then we would be in the midst of a full-scale epidemic with all the attendant public health measures, including vaccination” ; meanwhile, Guardian columnist Polly Toynbee has written several times since June that in the five years between 2001/2 and 2006/7 those on median incomes of around £23,700 had seen their incomes grow by less than 1% a year, while between 2004/5 and 2006/7 those in the bottom third of the income distribution saw their incomes fall . For much of the population the downturn has long since begun (or never ended), but this has apparently not been considered as newsworthy as the travails suffered by the masters of the universe currently sucking on the taxpayers teat on Wall Street, Canary Wharf and the Square Mile.

But from even this inauspicious starting point, a downturn in the real economy is already in evidence. The last monthly unemployment figures showed a rise of over 80,000 to 1.7m, with both the Confederation of British Industry and the Trades Union Congress predicting the figure will hit 2m before the end of the year, and incomes growth excluding bonuses has fallen to zero (link and link). Manufacturing is experiencing its “worst operating conditions” in 17 years (link and link), economic growth has ground to a halt and the European Commission is predicting a recession , and yet inflation continues to rise toward 5% (significantly higher over the past year in the case of fuel and food: those who were so quick to pass on the rise in oil prices to the consumer have being a good deal less willing to pass on the subsequent falls). The turn toward neo-liberalism was supposed to eliminate such ‘stagflation’ but, now faced with it, the Bank of England has thus far refused to cut interest rates because containing inflation is more important than containing unemployment (inflation is bad for business, unemployment is not). Somewhat surprisingly, consumer spending appears to be holding up, at least according to governmental statistics (although these figures have been greeted with some skepticism by retailers, link and link). This, surely, cannot last: as we have seen, bubbles always burst and economic gravity cannot be defied forever. The Bank of England’s chief economist Spencer Dale has warned of an ‘adverse feedback loop’, or negative multiplier effect, wherein the downturn in property and banking will impact on banks’ ability to create credit and to lend, resulting in lower spending and ‘bringing painful adjustments for many households and businesses’. Likewise the Bank’s deputy governor, Sir John Gieve, has warned that “damage to bank balance sheets would lead to tighter credit conditions, lower asset prices, lower consumption and investment and to a severe feedback loop into more losses for banks and so on down a spiral”.

Financialisation

Herein lies the rub: the boom, and subsequent bust, was driven not by growth in the productive sector of the economy, but by speculation in property and finance which was largely fuelled by the easy availability of cheap credit, which of course is not and will not be so easily available from now on: as the governor of the Bank of England, Mervyn King, has said, the economy will have to adjust to “a more realistic pricing of credit”. With a contraction in the supply of credit, what else is there to sustain current levels of effective demand and fuel economic growth? At the time of writing, the British FTSE 100 index had dropped 23% over the previous year . The most optimistic predictions are that, after a short, sharp period of painful readjustment, there will be a return to business as usual. But what else is there to replace financial and property speculation as engines of growth? There is no significant manufacturing or industrial sector left to fall back on: on the continent and in Scandinavia, the industrial working class has been accommodated to a certain extent, whereas here and in the US it had to be smashed, with the result that finance has come to dominate the economy, something New Labour has been perfectly content to live with. The unusually high level of ‘financialisation’ in the UK economy (which has the additional attraction to capital of tending to concentrate wealth at the top, as outlined above, whereas manufacturing disperses it more widely) means that, contrary to Brown’s protestations, we are more vulnerable to any major financial downturn than comparable economies. Brown, the great Alan Greenspan devotee, bears personal responsibility for allowing what he has the nerve to call the ‘age of irresponsibility’ to happen on his watch, by enthusiastically embracing the deregulated, pro-capital model that has brought us to this pass.

Thanks to prompt and large-sale government intervention funded out of the public purse, we are unlikely to see a repeat of the Great Depression when capitalism went to the brink of annihilation. The lessons that were hard learnt in the 1930s have not been forgotten: regardless of the idiotic blatherings of free-market ‘libertarians’, the wiser heads at the top from John Maynard Keynes and Franklin D. Roosevelt up to Hank Paulson today have always understood that capitalism cannot survive without state support and systematic regulation and intervention -what the historian Michael Hogan calls ‘corporative neo-capitalism’- to ensure the socialisation of costs and risks whilst still guaranteeing the privatisation of profits and control (which is why the bail-out plan will be forced through, over-riding formal democracy if need be). But with nothing obvious on the horizon to make up for the credit shortfall, it is entirely possible that rather than booming again after readjustment, the economy will flatline in the longer term and we will have to get used to lower rates of accumulation, resulting in even less wealth trickling down the economy than now, with the increased distributional struggle that will come with it. Similarly, the downturn will see a decrease in the government’s tax take, resulting in either tax rises (which will fall disproportionately on those on low to median incomes) or cuts in public services, particularly if further large amounts of taxpayers money are required to bail-out the financial sector.

So rather than 1929, perhaps a more useful comparison to make would be the last time we saw economic turbulence on this scale, during the 1970s. Just as the Great Depression ushered in the era of Keynesianism and the Bretton Woods system, so the 1970s ended it and ushered in the era of neo-liberalism. There are a number of similarities between the ‘70s and now: stagflation, a spike in oil prices, imperial overreach on the part of the US threatening the credibility of the dollar as the world’s reserve currency. With the impending economic turbulence, we could well be entering a period of similar political turbulence. A leaked memo has revealed that Home Secretary Jacqui Smith fears the downturn may produce “upward pressure on acquisitive crime”, an increase in support for “far right extremism and racism” and widen “the pool of those susceptible to radicalisation” (link). Meanwhile, Tory leader David Cameron has said that “We must not let the left use this as an excuse to wreck an important part of the British and world economy”.

State control or economic democracy

If there actually were a left of any significance, as there was in the 1930s and the 1970s, then Cameron may have reason to be fearful. However, Cameron seems wilfully ignorant of the scale of the victory his side won last time round. The shift toward financialisation and speculation and away from industry and production not only concentrates wealth at the top, it also leaves no place or role for an organised working class: workers become atomized and have no option other than to become selfish in outlook and take care of number one. In this context, organising a working class challenge to capital becomes all the more difficult. So Cameron can rest easy: his side has successfully vanquished the left and quieted the working class, at least for now. While there will be increased regulation of the economy, it will carry none of the unpleasant baggage of the past, because this time it will be solely on capital’s terms. In 1929 a weakened capitalist class had to contend with a strong working class that had a knife to capital’s throat. Compromise had to be reached if capitalism was to survive, but there is no such imperative now. As soon as the post-war settlement between capital and labour had been reached, capital (again, from Hayek onwards) looked to break it. The economic crises of the 1970s provided that opportunity, and since then capital has been systematically rolling back the gains won by the working class as part of that settlement. The current crisis offers capital the chance to reorganise, regroup and come up with a new regulatory framework, but this time without working class interference, something Keynes (who was perfectly honest about his loathing of the working class) would regard as an ideal. Cameron’s side has nothing to fear from nationalisation without economic democracy.

Old Labour sees the crisis, and New Labour’s seemingly terminal decline, as a chance to re-assert itself, to ‘take back’ the Labour party. This is a dead-end for a number of reasons. Leave aside the fact that the party is near bankrupt; that membership has halved since 1997; that “Many CLP’s [constituency Labour parties] are now husks – hollowed out shells. There may still be lots of members, but active membership has completely collapsed” ; that even liberal cheerleaders like the Guardian’s Jackie Ashley fear “the party’s destruction as a major force in British politics”, or that Old Labour couldn’t even get a candidate on the ballot paper in last years leadership contest: the New Labour initiative has ended worthwhile democracy within the party, so there is no way of ‘taking back’ the party even if the will existed. And New Labour is fully aware of the danger and has no intention of allowing the party to being taken to the left, as Ruth Kelly made clear after her resignation from the Cabinet.

But more than that, for all the talk of ‘reclaiming’ the Labour party, when has it ever truly been a labour party, led by and for the working class? As Robert Dahl has pointed out, there are two potentially contradictory schools of left wing economic thought: state control of the economy and workers’ control of the economy, and by the time Labour came to power in 1945 under Attlee (a public school educated social worker) it had come out decisively in favour of the middle class Fabian tradition of state control and against workers’ control². Beatrice Webb, who along with her husband Sidney co-founded the Fabian Society and was one of the leading lights of the early Labour party, wrote on the second day of the 1926 General Strike that it would be “the death gasp of that pernicious doctrine of ‘workers’ control’ of public affairs”, which she considered “a proletarian distemper which had to run its course – and like other distempers, it is well to have it over and done with at the cost of a lengthy convalescence”. Of the strikers she wrote that “There will be, not only an excuse but a justification of victimisation on a considerable scale” and praised scabs as “patriotic blacklegs!” [the exclamation mark is Webb’s][3]. Fabianism is neither pro-working class, nor is it a winner in economic or political terms: it is a busted flush. And for what it’s worth, there is nothing particularly new about New Labour: as far back as 1959 the (CIA-backed) right wing of the party wanted to dump Clause IV and change the party’s name⁴, a victory it ultimately took another 35 years for the right to win under Blair and Brown.

Starting from these kind of positions, it’s small wonder the middle class left has managed to completely alienate the working class. As things stand, the only likely beneficiaries of any upsurge in radicalisation will be the far-right, not the left (as evinced by recent events in Austria and Italy). A worthwhile, pro-working class, democratically inclined left would currently be demanding that in return for being rescued with public money, finance would have to be made subject to popular, democratic control. The left is not doing this, nor has any interest in, or awareness of the possibility of, doing so. The left had its chance to sever capital’s jugular vein in the twentieth century. It didn’t take it. Until the left takes a resolutely democratic, pro-working class approach, it won’t get the chance again. Neither will it deserve to.

Notes:

[1] See previous IWCA Cutting Edge documents ‘Friedman and Pinochet: an appreciation’, currently available at http://www.ukwatch.net/article/a_planned_economy; and part 4 of ‘Kicking away the ladder at home and abroad: immigration, globalisation and neo-liberalism’, http://www.iwca.info/?p=10129.

[2] Robert A. Dahl, ‘Workers’ control of industry and the British Labor Party’, American Political Science Review, vol. 41(5), October 1947. See also Dahl’s A Preface to Economic Democracy, Polity Press, 1985.

[3] The Diary of Beatrice Webb, vol. 4: 1924-1943 (1985), Norman and Jeanne MacKenzie (eds.) (London: Virago), p76, 77.

[4] Richard Fletcher (1978), ‘How CIA money took the teeth out of British socialism’ in Philip Agee and Louis Wolf (eds.), Dirty Work: the CIA in Western Europe (London: Zed Press), also available at http://www.wcml.org.uk/internat/wattw.htm. See also Hugh Wilford (2003), The CIA, the British Left and the Cold War (London: Frank Cass).

Alex Salmond pleads for Scottish finance

Alex Doherty — Fri, 03 Oct 2008 09:17:36 +0000

The Lloyds TSB takeover of Halifax Bank of Scotland (HBOS), forced by the collapse of the HBOS share price, has triggered an air of national crisis in Scottish political and financial circles.

While 140,000 HBOS and Lloyds bank workers across the UK and internationally face huge uncertainties as to whether they will have a job in a few months’ time, the sole concern exhibited by the Scottish political parties has been to prop up the financial services industry while extracting the best terms for the clique of Scottish financiers and businesses closely linked to HBOS and its predecessor, the Bank of Scotland.

Under the deal, which is already considered extremely shaky, Lloyds TSB was to pay £12 billion for HBOS, under terms that had been under discussion for months. But nothing has been finalised as yet. The new bank will be Britain’s biggest, with 39 million account holders, 30 percent of UK mortgages and deposits of some £300 billion.

Because of its exposure to the mortgage market, and dependence inherited from HBOS on wholesale money markets, even with these huge resources, industry analysts reckon that the new Lloyds TSB/HBOS combine can only remain afloat through making cost savings of around £1 billion a year. The new company will be saddled with a debt to deposit ratio of £1 debt for every £0.37 in deposits and can only survive through implementing tens of thousands of job losses across the UK. Initial estimates ran as high as 40,000.

Lloyds TSB are reported to have contacted property consultants over plans to close up to 700 of the 3,000 high street units the new merged group would control. There are also proposals to merge data and network services and outsource IT support. Analysts quoted in the Financial Times complained that £1 billion of prospective savings, 10 percent of operating costs, compared badly with 31 percent savings when Lloyds took over the former Trustees Savings Bank (TSB) in 1995.

HBOS itself emerged in 2001 from a merger of the Halifax Building Society and the Bank of Scotland. Both institutions had long histories. The Bank of Scotland was formed in 1695, while the Halifax was set up in 1852 as a credit union. The new company gobbled up a number of smaller banks, former building societies and insurance companies. An attempt to buy up the National Westminster bank was in the end trumped by Edinburgh-based rival the Royal Bank of Scotland (RBS).

When HBOS was formed, the Halifax was the wealthier and larger group. Nevertheless, HBOS corporate headquarters was based in Edinburgh, while the retail banking division remained based in Halifax. The merger cost at least 2,000 jobs. The intention, in addition to cost savings, was to allow the Halifax to enter bank markets and the Bank of Scotland to start selling mortgages. Both companies have subsequently become highly integrated into one outfit, while the former Bank of Scotland HQ on the Mound in Edinburgh has become a museum.

HBOS is thus a typical product of the rapid, and hugely profitable, consolidation in all areas of the global banking financial services industry over the last two decades.

None of this stopped Scottish first minister and leader of the Scottish National Party (SNP), Alex Salmond, from hypocritically denouncing the HBOS collapse as the work of “spivs and speculators.” Salmond warned that the Scottish economy could be plunged into “turmoil.”

His comment implied that HBOS was an essentially healthy, respectable and thoroughly Scottish outfit brought low by external, and rather immoral, gambling unconnected to its own operations. This is nonsense.

As Salmond well knew, HBOS’s demise was brought about by its attempt to expand rapidly into the mortgage market using market-based finance instead of customer deposits. This has also brought down Northern Rock and now Bradford and Bingley, another former building society.

Moreover, it rapidly emerged that some of the “spivs and speculators” were supporters of the SNP. Sir George Mathewson, former chair of RBS and a supporter of Scottish independence, was revealed as being a chair of Toscafund Asset Management—a £3.5 billion hedge fund specialising in short-selling on the financial markets. Mathewson is also chair of the Scottish government’s SNP-appointed Council of Economic Advisers. A number of other leading SNP figures also appeared to be playing leading roles in asset management funds of various types.

Nevertheless, Salmond has attempted to use the crisis to promote his case for Scottish independence, presenting the HBOS collapse as a blow to national prestige.

He told the press, “The position we are in at the present moment is a position that has been arrived at within the Union [referring to the 1707 Act of Union between England and Scotland], within the limited powers that we have. Would we have a Bank of Scotland if Scotland was independent? I think the answer is undoubtedly yes.”

Salmond claimed that an independent Scotland would have offered billions of pounds in credit to HBOS to allow it to survive as an independent bank. His position was ridiculed by the Labour Party, when Labour pointed out that £100 billion, double the entire Scottish budget, would have been necessary to save HBOS. But Salmond’s position is entirely consistent with his repeated call for Scotland to have the power to vary corporation tax in line with investment requirements. It expresses correctly the attitude that the SNP takes to social spending—that it should be entirely subordinate to the needs of the finance industry.

Financiers around the SNP were reported to be considering a counter-bid to the Lloyds TSB proposal. The names of merchant banker Angus Grossart, of Noble Grossart, recently appointed head of the Scottish Futures Trust, and Jim Spowart of Intelligent Finance, among others, were raised in the context of a £6 billion notion to carve out the Bank of Scotland operation from HBOS.

The Economist noted that Scottish businessmen, such as transport magnate Brian Souter of Stagecoach, also an SNP supporter, viewed the bank’s corporate lending policy, and its longstanding ties to thousands of smaller Scottish companies, as central to their success.

A petition appeared on the SNP web site calling for support for “the Scottish Government in its efforts to save Scottish jobs and ensure a strong future for the Bank of Scotland.”

A City of London broker told the Scotsman that a buyout could address political sensitivities in Scotland, while noting that the “quantum of cost savings and pricing power that Lloyds-HBOS would command would be far larger outside Scotland, so the deal strategy would remain relevant.”

In other words, Lloyds-HBOS could sell off Bank of Scotland in return for a free hand against its larger workforce in England.

In reality, any rump Bank of Scotland would be even more vulnerable than HBOS, since part of the attraction of the 2001 merger was the huge pool of depositor savings accrued by the Halifax. It would be even more dependent on collapsing global money markets.

Aware of this, Salmond has also lobbied Lloyds TSB, in the form of its chair Victor Blank, to encourage the company to leave at least part of its corporate HQ in Edinburgh. Salmond has also lobbied the chief executive of the Scottish Widows division of Lloyds TSB, Archie Kane. Kane told the press, “We have two organisations we are trying to put together which have a long, strong Scottish heritage.”

The Council of Economic Advisers plans to meet in secret, according to the Times, to “develop a business case to retain head-quarter functions and jobs in Edinburgh.” An HBOS communications manager insisted that the outcome of the deal would be “good for Scotland.” In addition to Mathewson, the council involves a number of leading academic economists and businessmen, including Professor Andrew Hughes Hallet, a former Federal Reserve consultant; Robert Smith, the chair of Scottish and Southern Energy; and Jim McColl, the chair of Clyde Blowers—a medium sized industrial process combine.

Salmond was offered all-party support in dealing with the consequences of the HBOS takeover. Newly elected Labour leader in Scotland, Iain Gray, called for the Scottish government’s Financial Sector Advisory Board, also comprised of industry figures, to incorporate all the political parties and council leaders from Edinburgh and Glasgow. Liberal Democrat leader Tavish Scott, also newly elected, agreed, insisting that the political parties “make crystal clear that there is a cross party effort for Edinburgh to remain a centre of gravity in the financial world.”

To the extent Labour has differed from the SNP, it is in pointing out that the Lloyds HBOS takeover was reportedly engineered by UK Prime Minister Gordon Brown, seeking to avoid a Northern Rock-style nationalisation of HBOS. Labour has presented this as a benefit of remaining within the UK.

Labour are hoping to avoid another by-election defeat to the SNP in the Fife constituency of Glenrothes by presenting Brown as a stable man in a crisis, and Labour locally as best placed to defend Scottish interests. Both the SNP and Labour will suppress the implications of the takeover for bank workers, particularly those in areas less immediately favoured by the financial aristocracy, such as Halifax, Yorkshire, where some 6,500 workers are currently employed by HBOS.

Bradford and Bingley nationalised

Alex Doherty — Thu, 02 Oct 2008 19:08:52 +0000

The chancellor of the exchequer, Alistair Darling, announced minutes before the London Stock Market opened on Monday that the government would take over the Bradford and Bingley (B&B).

The second such nationalisation after Northern Rock, the B&B is Britain’s largest buy to let (BTL) mortgage lender and faced bankruptcy. The Labour government organised the bailout on behalf of powerful financial interests without any public discussion, after private talks over the weekend with banking chiefs and regulators.

Darling said that nationalisation was necessary after B&B’s share price had fallen to 20p, down from a high of £5.20 only two years ago, raising the spectre of a run on the bank that might spread throughout the banking system.

“We had to stabilise the situation in order to protect the banking system as a whole, he said, insisting that Britain would do “whatever it takes.”

Prime Minister Gordon Brown also made it clear that he would intervene to protect the City. He said, “The governor of the Bank of England, the chancellor and I will take whatever action necessary to ensure continued stability.”

This is a pledge to use the money of hard-pressed working people, whose wages have for years been held down at the behest of big business and the City, to protect the wealth of the financial oligarchy—not just in this instance but in future bankruptcies.

The chancellor used his powers acquired under the emergency banking legislation to enable the nationalisation of Northern Rock, Britain’s fifth largest mortgage lender, last February. The legislation permits him to circumvent normal bankruptcy law and transfer a bank to another bank or take it over, with as much or as little compensation as he thinks fit.

The government will take over B&B’s £51 billion mortgages and loans. B&B’s £20 billion savings arm and its 197 branches are to be sold to the Spanish bank, Santander, which also owns the Abbey and the Alliance & Leicester mortgage lenders, for £600 million, making it the fifth largest bank in the UK. To ensure that Abbey has the funds to pay back the depositors, it will receive £20 billion from the Financial Services Compensation Scheme (FSCS).

Since the FSCS, essentially a depositors’ insurance fund provided by mortgage lenders should a lender collapse, has no funds of its own, the Treasury will loan the FSCS £4.5 billion and the Bank of England £14.6 billion, all of it taxpayers’ money. In the meantime, members of the FSCS, the 700 financial companies that take deposits, must pay interest on the loan estimated at £450 million for the first seven months due in 2009, and nearly double that the following year. This they will no doubt pass on to their depositors in the form of higher charges or lower interest rates on savings accounts.

The FSCS and thus the government, as the chief creditor, hope to recoup the £20 billion loan from when—or if—B&B’s mortgages are repaid or sold on. But it is far from certain that the £51 billion mortgages—85 percent of which are in the risky BTL and self-certification market—will realise £20 billion in the foreseeable future.

The government will seek to run down B&B’s mortgage book as it has with Northern Rock, by encouraging those who can to take out new mortgages with other lenders. This will leave those homeowners with the worst credit ratings with the B&B, offering the prospect of the government issuing repossession orders and turning families out on the streets.

The move came as:

The fourth largest US bank, Wachovia, had to be bought out in a rescue deal brokered by the US authorities.

The six largest US bank and savings and loan company, Washington Mutual, was taken over by the US government and JP Morgan Chase.

The Fortis bank had to be nationalised by the Dutch, Belgian and Luxembourg governments.

Glitnir, Iceland’s third largest bank, was taken over by the Icelandic government.

Since then Dexia has become the second Belgian bank in a week to be bailed out by governments in Belgium, France and Luxembourg to the tune of €6.4 billion.

The B&B bailout comes just one week after the government brokered a takeover of another failed bank and mortgage lender, HBOS, by Lloyds TSB by relaxing competition rules and providing other unspecified “support.”

B&B, with a history going back 150 years, demutualised just eight years ago under legislation announced by the Labour government in 1997, in order to gain access to the wholesale markets for funds to expand and thus avoid reliance on deposits.

It expanded recklessly in the riskier markets of BTL and self-certification mortgages and bought the loan book from GMAC-RFC, General Motors’ lending arm, further increasing its exposure to risky lending.

As the downturn in the housing market and the credit crunch took its toll, lenders struggled to keep up with repayments and the bank found it difficult to finance its activities. It was forced to launch a rights issue in May. But the situation was so grave that even after twice restructuring its rights issue, only 20 percent of its shareholders responded to its call for the £400 million necessary to bolster its capital reserves. This left the bulk of the shares with the six high street banks and two investment banks that had underwritten the issue.

This month, as fears rose about the financial crisis and mounting mortgage arrears, the ratings agencies cut B&B’s credit rating to just a notch above junk bond status. It renegotiated its contracts with GMAC-RFC, whose mortgage arrears have turned out to be even greater than B&B’s own arrears, slashed jobs, mounted an aggressive TV advertising campaign, and sold or wrote down its more exotic and toxic financial instruments to increase its capital ratios. But this was not enough. Its share price plummeted and its credit default swaps, a measure of risk, doubled in a week.

With its shares virtually worthless, tens of millions of pounds were being withdrawn by savers from B&B’s branches and Internet site on Friday and Saturday.

This raises new doubts over the BTL market that collectively owes £132 billion or 11 percent of all mortgages. As soon as the nationalisation of B&B was announced, some BTL lenders increased their rates, while others have closed their doors to new customers.

B&B’s collapse means that all the six building societies that demutualised to become banks since 1986 have been taken over or been declared bankrupt:

Woolwich was bought after just three years as a bank by Barclays in 2000. Halifax was bought by the Bank of Scotland in 2001 after four years as a bank. The Abbey demutualised in 1989 and was taken over by Santander in 2004. Northern Rock collapsed in 2007 after 10 years as a bank. Alliance and Leicester was bought by Santander in 2008 after 11 years as a bank when it found itself unable to obtain funding.

A 2005 study by a group of MPs of the demutualised societies found that consumers had benefited very little and in most cases were paying more for a mortgage from a bank than from a building society. The claims of the new owners added 35 percent to a bank’s costs. The real winners were the top managers, who saw their paychecks increase almost threefold compared with the 65 percent rise in pay for their counterparts in the building societies. The cost of converting to banks cost more than £1 billion.

The reason for the collapse in the US sub-prime market that has now spread to other mortgage lenders is the inability of the poorest and most vulnerable members of society to keep up their repayments alongside rising food, energy and transport costs and on wages that have failed to keep up with inflation.

The restructuring of the mortgage lenders and banks will further concentrate financial resources and power in the hands of a few giants. This will in turn increase pressure on small and medium size banks, undermine their competitive position, and force them to close or sell out to their larger rivals.

It will lead to high charges for loans and more aggressive threats of repossessions, should homeowners fall behind with their payments. It will also result in the loss of thousands of jobs as branches close and services are “rationalised,” adding to the thousands of jobs that have already been cut in the financial, property and construction sectors since the onset of the credit crisis in August 2007.

The government bailout of Northern Rock and B&B adds at least £127 billion onto the public sector’s liabilities, a sum equal to 8.6 percent of GDP in 2007-08, and increases total net debt to GDP to about 48 percent—assuming the government does not fiddle the books yet again.

To get some sense of the scale of what is involved, these two bailouts alone—without including the billions pumped into the money markets by the Bank of England—is more than the £110 billion scheduled for healthcare, by far the largest spending area, for 2009-10. It is double the £60 billion worth of capital investment in hospitals, schools, transport, etc., by the private sector over the entire lifetime of the Labour government since 1997. Yet the turn to private finance for public infrastructure was in part at least justified in terms of accessing the finance that the government could not provide.

Far from the rescue of B&B calming the financial markets, there are widespread fears that it could have a domino effect throughout the banking sector. Lord Turner, the chairman of the Financial Services Authority, said, “We are not necessarily right at the end of this process. We believe our other high street banks are well capitalised, and in a reasonable condition, but we will have to keep this situation under review.”

As he said this, shares of Britain’s banks were in free-fall. Mark Deans, dealing manager at Moneycorp, said, “Confidence in UK banking has fallen to a new low with the nationalisation of B&B.”

With interbank lending virtually at a standstill, despite an interbank lending rate of 6.26 percent, well above the Bank’s official rate of 5 percent, the Bank of England was forced to inject £40 billion of credit into the money markets and provide £10 billion in overnight credit.

Quick! These bankers need rescuing

Alex Doherty — Thu, 02 Oct 2008 19:02:51 +0000

The next move, presumably, will be to nationalise the country’s gambling debts. To revive confidence amongst blokes in betting offices, the Government will hand over £300bn to cover the money they’ve lost. Then a leading gambler will be quoted as saying: “This package goes some way towards restoring calm. The last week has been horrendous. One of my friends lost a ton on an 8-1 shot he’d been assured was a banker by a minicab driver.”

Another method might be to let the world’s share-dealers go bankrupt, and see if we manage to carry on without them. One advantage of this strategy would be the entertainment of seeing them fight the job losses. City traders would carry placards saying, “Stop the axe on Goldman Sachs!” Support groups would be set up that could hold collections in which people would be asked to donate riverside apartments to a fighting fund, as some of the bankers were undergoing such hardship they hadn’t bought one for over three months. But organisers of the fighting fund would have to be careful to keep some donations back until handed out as the Christmas bonus.

They’d certainly deserve our backing, as you get an idea of the nature of share traders from yesterday’s Daily Telegraph, which told us that after the rejection of the US recovery plan “there was disbelief among US traders who accused politicians of putting their own interests ahead of the American people”.

You see – even in this crisis, all they’re thinking about is the American people. They’ve never wanted the burden of accepting unimaginable salaries for buying and selling the same stuff, but they’ve soldiered on out of love for the American people. Well it’s time they understood there’s such a thing as being TOO selfless, and took a moment to consider themselves for once.

Their complaint was the failure to approve a $700bn bailout of failing finances, but it’s even worse than they fear. Because according to one commentator, one reason why politicians rejected the deal was that “they were receiving letters from the public running at 40 to one disapproving it”.

So it’s not just politicians, but the American people who are against the American people. Some of them, for example, might consider that $130bn to provide a National Health plan for all Americans for two years would be a better use of funds. Those poor traders must hold their heads in their hands and sigh: “It’s just ‘me me me’ with some people, isn’t it?”

So maybe there’s another solution. It seems that world governments will do anything at all, no matter how desperate, to revive “confidence” in the markets, as these markets, which are run by the dealers, control the economy. This means the dealers are far more powerful than governments. In which case, in the interests of democracy, instead of wasting time electing governments why don’t we elect the dealers? They could make speeches such as: “Let me assure the British people that, if elected, less of the wealth created by hard-working families will be taken by the state, and far more will stay where it belongs, with me.” And: “I apologise to my constituents for the embarrassing revelation that I’ve not been seen in an exclusive lap-dancing club for over a week.”

And one day we’ll all look back and wonder why we’d never thought of it before.

New Labour’s affair with the super rich

JamieSW — Wed, 01 Oct 2008 10:27:15 +0000

The sheer scale of the global financial crisis has forced Gordon Brown and the government into making a few critical noises about “excesses” in the City and corporate greed.

But New Labour has been tied to and subservient to big business throughout its time in office. This is not simply an ideological commitment – there are deeper economic reasons for this close relationship.

Despite the rhetoric you hear from business leaders about “freedom from state interference” and “cutting red tape”, corporations need a smooth relationship with the states they operate in.

In recent years big business has attempted to make government the direct servants of its immediate needs. You can see this most starkly when companies get into trouble and demand that the government bails them out.

But there is a wider background process of corporations asserting their control over the state. Thousands of private sector lobbyists swarm around Westminster jostling for access and influence.

Capitalism is built on competition, which creates pressure on each company to gain an advantage by developing strong relations with the state while cutting out its rivals.

Public relations firms set up “public affairs” departments dedicated to lobbying MPs and ministers. These tend to recruit individuals who have been members of the political elite or have worked closely with government ministers and top party officials.

New Labour has been an eager partner in this process of buying up political influence. Brown has even fast-tracked the whole process, bringing private equity bosses directly into government and making a former head of the bosses’ CBI organisation a trade minister.

The push for more privatisation has also strengthened the links between government and business. Over 24 former Labour ministers and senior civil servants are involved in the Private Finance Initiative (PFI) industry.

These include former Labour health minister Alan Milburn. He is a director of Covidien, which describes itself as “a $10 billion global healthcare products leader”.

Milburn is also a member of Lloyds Pharmacy’s healthcare advisory panel, and an advisor to leading private equity firm Bridgepoint, which specialises in healthcare investments. He gets £75,000 a year from these companies.

Former education and home secretary Charles Clarke is a non-executive director of the LJ Group, which supplies training services, teaching materials and equipment to schools.

Clarke is a also consultant to accountancy firm KPMG on public sector reform. He advises Charles Street Securities, an investment banking and private equity fund management firm. On top of all that, he is a consultant to Beachcroft, a legal firm specialising in PFI deals.

Patricia Hewitt was health secretary from 2005 to 2007. She is now paid over £55,000 a year to be a senior advisor to Cinven, a private hospitals and healthcare group that is backed by private equity. Hewitt also gets a further £45,000 a year for being a special consultant to Alliance Boots, which is owned by private equity firm KKR.

And it’s not just ministers. Some of the government’s most senior officials also have extremely close ties to some of the biggest banks – and vice versa.

Going strong

Jonathan Powell, former chief of staff to Tony Blair, is now at investment bank Morgan Stanley. Jeremy Heywood, now the top civil servant at 10 Downing Street, worked for Morgan Stanley in the past.

This movement from government to the banks and back again is going strong under Brown’s premiership.

The close connections between New Labour and the City are just one aspect of a wider picture of the ultra-rich being given a free hand by this government to make money at our expense. And even with economic disaster on the horizon, they are still making a pretty packet.

Stephen Green, chair of the HSBC banking group, said last week that the the £14 billion paid out last year in bonuses by London’s financial institutions was “excessive”.

He has a point. Green received a bonus of £1.75 million last year, on top of his £1.25 million a year salary. Last week HSBC announced 1,100 job cuts.

It is in the nature of the economic crisis that while banks and companies fail, some rich individuals carry on doing very well.

About 80 percent of those worth £50 million or more plan to splash out more of their obscene riches this year, according to a survey by US-based wealth analysts Prince & Associates.

The number of billionaires worldwide is growing by almost 20 percent a year, according to Forbes magazine.

There were 476 billionaires in 2003 – this grew to 946 by 2007. A further 179 have joined the ranks since.

The richest 50 people in the world are now worth £723 billion, a 23 percent increase on one year ago. The richest man in the world, Warren Buffett, has a net worth of almost £62 billion.

In the US the richest 0.5 percent of the population spends £75 billion a year – equal to total household expenditure across the whole of Italy.

London boasts 36 billionaires. These include Lakshmi Mittal, the steel mogul worth £28 billion, and Roman Abramovich, the Russian oligarch whose personal fortune stands at £12 billion.

In the middle of the economic crisis some companies are making a fortune gambling on the chaos.

There are an estimated 8,000 hedge funds around the world controlling around £1.37 trillion – a sum that would pay for over 9,000 hospitals at £150 million each.

The job of hedge fund managers is to make the very rich – a category that conveniently includes themselves – even richer.

For instance, Philip Falcon made millions gambling that HBOS’s share price would plummet.

He recently bought a £24 million home that boasts a room specially built for Pickles, his pot bellied pig.

He “earned” £950 million last year and his firm now manages two funds with a total value of £10 billion.

John Paulson, another billionaire, placed a near £1 billion bet that that bank share prices would fall.

But it isn’t just a matter of individual “rogue traders”.

One of the companies betting on banks’ shares falling was Barclays Global Investors – owned by Barclays Bank. The ultra-secretive, mega-rich elite plies its trade behind the brass plates in the Mayfair and St James’s districts of central London.

One leading hedge fund manager, who was recently asked about what he did, replied, “It is none of your business – and until you have £1 million to invest and become a client, it will remain none of your business.”

Billionaires who’s who

Crispin Odey

Crispin Odey is one of London’s leading hedge fund managers and was outed as betting on bank shares plummeting during the financial crisis. He paid himself a cool £28 million this year.

Profits disclosed by his Odey Asset Management firm reveal that the company made £55 million in the year to 5 April. After Odey’s massive salary, the remaining £27 million was distributed between 11 partners in the firm. Odey Asset Management has £2.6 billion of funds under management and tripled its revenues to nearly £65 million last year.

Odey has been jokingly referred to as one half of the Posh’n’Becks of the City – he is married to Nichola Pease, a fund manager and heir of one of the Barclays banking families. Pease was one of the directors of Northern Rock before it went bust.

Odey and his wife are reckoned to be worth more than £300 million between them from their stakes in Odey Asset Management and in her company JO Hambro Capital, an offshoot of the Hambro banking empire.

Noam Gottesman

From GLG Partners’ office in a glass-fronted building in Mayfair, Noam Gottesman recently summed up his skills to a client in three words – “I make money.”

Gottesman and co-founder Pierre Lagrange are both ex-Goldman Sachs and Lehman Brothers traders. They are comfortably billionaires.

GLG Partners are the biggest players in the European hedge fund industry. Each of the partners holds £250 million stakes in the firm.

Its overseas assets are worth about £11 billion and last year Gottesman made an estimated £400 million.

Tragically, Gottesman is currently renting a house in Belgravia after being gazumped on a £27 million house in Chelsea. His rent is £20,000 a week.

Gavyn Davies

Gavyn Davies used to work for the investment bank Goldman Sachs, where Hank Paulson, US treasury secretary, used to be chair and chief executive. Davies is married to Sue Nye, Gordon Brown’s fixer and gatekeeper.

Davies was the chair of the BBC from 2001-4 and is a former economic advisor to the government. He is reported to have £150 million. Davies has in the past donated to the Labour Party and has been a long term supporter of the party.

He worked in Harold Wilson’s policy unit from 1974-6 and then as an economic advisor to James Callaghan from 1976-9.

Afterwards he had stints as chief economist at Simon & Coates and Goldman Sachs. He was later promoted to Goldman Sachs’s international managing director.

Tom Scholar

Tom Scholar is a senior civil servant and a director of Northern Rock, now owned by the government. He was previously chief of staff for Brown at 11 Downing Street and also an executive director at the World Bank.

Sir James Sassoon

Sir James Sassoon quit his post as Alistair Darling’s ambassador to the City earlier this month. Sassoon has technically been working as a civil servant in the treasury since 2002.

From 1985 to 2002 he was vice chairman for investment banking at UBS Warburg’s global privatisation business. Sassoon advised government departments on a variety of privatisation projects.

He was awarded a knighthood in recognition for his services to the finance industry this year. He is now advising the Tories on the City.

Baroness Shriti Vadera

Baroness Shriti Vadera, the parliamentary under secretary of state for business and competitiveness, is allegedly the person Brown trusts more than any other in his government.

She arrived at the treasury in 1999 after 14 years at the investment bank UBS Warburg where she had pioneered a privatisation programme in South Africa.

She has been involved in a number of high profile PFI and public-private partnership (PPP) processes, including the part privatisation of the London Underground train system.

Fleming Family

Tucked away in a townhouse on Dover Street in Mayfair, nestling among the posh shops and restaurants, sits Fleming Family & Partners – just one of the numerous investment services tailored towards the ultra-rich.

In order to get your foot in the door and to stand on the fine Turkish carpets, you need to have at least £10 million of ready cash to invest.

In return, you get small army of financial flunkeys to advise you on keeping down tax bills and to offer you a range of investments.

There is a cheque book and dark green credit card, both of which signal that you are seriously rich. The bank manages £6.3 billion of assets and trusts for 41 wealthy families.

Fleming is a major shareholder in Jersey-based Highland Gold, which owns and runs goldmines in Russia.

It bought them several years ago from Roman Abramovich at a rather low price.

The bank has close links with billionaire businessman Wafic Said. In 2005 it bought Sagitta Asset Management, which looks after investments of other wealthy Middle Eastern families.

Said’s son Khaled sits on the Fleming board. Wafic Said was the subject of a Serious Fraud Office investigation – abandoned by the government – into a slush fund to induce Saudi Arabia to buy British weapons.

The Emperor's NEW new clothes

Ellie Keen — Mon, 29 Sep 2008 00:00:00 +0000

Only two things are infinite, the universe and human stupidity, and I’m not sure about the former.

Albert Einstein

Once upon a time a smart guy found a way of making a synthetic product that appeared to be as good as gold. After explaining his findings to others he began to sell his products (mortgage backed securities) on the open market at prices that bought a handsome return. Gradually other clever people cottoned on to this and they began to produce similar products. For years the market grew as demand for these valuable commodities increased. More and more producers entered the market and imitated the actions of the pioneers. Yet, the new gold depended on one critical factor. Since the value of the products depended on the price of other assets, namely residential homes and commercial property, any change in these prices would have knock-on effects. Anyone who tried to explain this to the producers and purchasers of the new gold standard currency was reminded not to worry since the prices of housing and offices were only going in one direction. Therefore the new commodity could itself only increase in value.

The response from the doubters was that perhaps housing prices could fall since inequality and unemployment were increasing. As more and more capital was being invested in the strange financial products there was less and less available for investment in industry. Whilst the mortgage finance was increasing the jobs provided by construction companies, much of the new housing was being built in the suburbs and these depended on cheap oil to fuel trips to work in the city. If oil prices rose suburban housing would appear less attractive. Again the doubters were rebuffed and the market continued to grow. The only limitation was the ability of people to secure mortgages in the first place so as to continue to buy houses and many Americans were very poor and were unlikely to get loans. Then a bright spark suggested that since house prices were always rising, low-income, unemployed, and even blacks and latinos could be given loans and they could pay them back when their house had exceeded the original loan. This idea also caught on and banks and brokers feverishly lent money to these new customers so that the loans made could be converted into the new gold. At this point some commentators began to observe that there was now a great deal of the new gold in circulation and didn’t the value of the old gold depend on its scarcity. Around about the same time, others came forward with news that builders were having some trouble selling all those new homes they had built and that perhaps house prices were not going to rise indefinitely.

As these concerns were raised many of those who had bought the new gold at first denied there was going to be any problem. Maybe there was going to be a short-term blip in the housing market but this would soon be forgotten about. After all these things were to be expected, weren’t they? Despite their public confidence however, some of the owners decided to reduce their inventories of the new gold in favour of the old gold and even that other precious commodity, black gold. This had various effects: The price of gold and oil were rising even faster than the price of mortgage-based securities, prompting more investors to sell the latter and buy the former. As the oil price rose, more and more Americans found that living in suburban homes which could only be accessed by private cars run on oil was not economically viable. So they looked into the possibility of selling their homes and moving to the city to rent an apartment. As these events progressed, it became clear that there was now a glut of mortgage backed securities on the market as less and less people were willing to buy them. Those left holding the baby desperately looked around for support but for a time it looked like they would lose their shirts.

Now in a high state of anxiety these financialists rushed to the government, bearing expressions on their faces like the one worn by the uninsured teenager who has to tell dad that he’s crashed the family car. At first the government struggled to understand what the bankers were telling them and said don’t worry the market will take care of these things. After all the bankers had been telling government for years to let the market run the show. If the market price for milk is too low, don’t subsidize the dairy farmers. Let them go out of business and they can stop farming and become entrepreneurs. Simple as that! If the cost of food and fuel increases disproportionately for low-income households don’t worry, they can just work a bit harder and if the market also causes wages to fall then they can work a bit harder still.

This time however, the bankers shouted “don’t let the free market decide. That wouldn’t be fair to us because we deserve special protection and besides if you let us go out of business we can make things very difficult for you”. Happily, the government saw sense and decided to use all that tax money it had lying around to buy up the bankers products at a fair price. Of course this would mean that those improvements to the US healthcare system would have to be forgotten about and of course, in future many Americans would have to pay higher taxes to balance the governments books. Again the doubters began to whisper amongst themselves about potential problems such as civil unrest and the collapse of overburdened government institutions.

The bankers and politicians then summoned a very nice priest and they proceeded to pray earnestly to Mammon.

Bank Role for the Left

Ellie Keen — Mon, 29 Sep 2008 00:00:00 +0000

State intervention and nationalisationare both back with an incredible bang. Suddenly, the neoliberal orthodoxy of “Tina” – “there is no alternative” – to the free market looks as hollow as Brown’s promise to end the cycle of boom and bust. It reconfirms that in this age of hyper-globalisation and neoliberalism, the state and market regulation are still important.

The bail-outs we’ve seen in Britain and the US are nationalisations by the neoliberals and for the bosses. If they were carried out at the behest of the left and for the workers, taxpayers and citizens, they would look entirely different.

So when the senior management was changed when Northern Rock was nationalised one set of capitalist managers was merely replaced by another. The same will be true of Bradford & Bingley. The nationalisations were not to safeguard jobs or workers’ conditions or people’s savings but the British financial system upon which profits heavily depend.

If the left is to make headway right now, it must start getting its ideas about public ownership out into the media, into union members’ heads and onto people’s radar screens.

The left needs to start off with what public ownership is and what it is not. This would make it clear the left was not calling for a return to the age of nationalisation, where civil servants ran the industries in an undemocratic and unaccountable ways. Jobs were not safeguarded and services were often poor. It would also make it clear the left was not calling for a situation of a command economy, where the centre dictated what was produced without consulting the consumers and the localities.

The lessons of history are that while coordination and planning are needed, there should be decentralised structures that allow participation and that the process is one of bottom-up democracy, not top-down diktat.

One model of public ownership, for say, transport would be that the boards of management consist of a third of seats allocated to representatives from the travelling public, a third from the workforce and a third from the local authorities. Here, there would be a balance between producer and consumer interests.

The issues to be resolved would include whether the unions would be the only representatives of the workforce, whether businesses would be entitled to seats and whether local authorities are closely connected enough to be the genuine representatives of the public at large.

Another model would be that all members of the board of management would be elected directly by citizens and those wishing to be board members stand on platforms of representing workers’, business and passengers’ interests and so on.

These are all issues which can be explored in more depth later once the debate has been won on the need for this version of public ownership. The key thing here is that the primary purpose of these services (including financial services) being in public ownership would be that they are run on the basis of social need and not private profit.

What this means is that the constitution or articles of association of these organisations would be changed from the objective of pursuing private shareholder interests to providing services. The organisations would not then have to be concerned with chasing profits, market value, market share or being taken over by a rival.

The banks would then operate under this system by creating social justice and social inclusion by keeping open wide branch networks (with one in each community), practice safe lending, work by the principles of ethical investment and return surplus back into their operations to increase service provision.

The way in which the left can do this is by questioning each and every action of the governments by saying “Whose interests are being served by this?”, “Whose money is being used for this?” and “If public money is being used, where is the public control?”

There is a role for left MPs like John McDonnell in laying bills before parliament to put organisations into public ownership instead of allowing this Labour government to remain the bankers’ friend by doling out hand outs to them.

The unions need to use their influence inside and outside parliament to support these moves. Rather than being overly fixated on windfall taxes and curbing bonuses, they could tackle the underlying causes – rather than just the symptoms – by supporting social ownership. The odd call for public ownership of the utilities needs to be made writ large.

Batting for bankers

tim — Sun, 28 Sep 2008 21:32:12 +0000

Gordon Brown’s plan to “nationalise” Bradford & Bingley is simply a smaller-scale replica of the Bush administration’s bail-out of a banking sector bleeding to death from self-inflicted wounds.

The Prime Minister is batting for the bankers, intervening, with our cash, to ensure a resurgence of banking activity and private profits.

As with Northern Rock, over which government dithered for six months, transfixed by fear over the N word, Mr Brown is not opting for nationalisation to extend democratic control of the economy.

He plans to land us with £41 billion of shaky B&B mortgages, which no other bank is prepared to take off its hands, while selling the 200 high street B&B offices and savings business to other institutions.

This is in addition to the £20 billion plus interest that the government still has invested in Northern Rock.

These huge figures dwarf the costs associated with such proposals as a decent state pension, free prescriptions, abolition of student fees, provision of student grants, renationalisation of rail and utilities, which have all been rejected by new Labour on cost grounds.

As with imperialist wars, for which Mr Brown decreed that “whatever is necessary” would be found, new Labour has infinite funds to bail out the private sector and nothing but soft soap for measures to defend working-class living standards.

While working people are expected to tighten their belts, accepting below-inflation pay rises and job losses – 20,000 of which are likely in Britain’s financial sector alone – the reckless profiteers in banking boardrooms are cosseted by cash hand-outs.

The PM played to the gallery at Labour Party conference, insisting on greater corporate responsibility and a curb on excessive pay-outs, which seduced some trade unionists into believing that a change of direction was in the offing.

Don’t be fooled. The details of his B&B nationalisation plan illustrate where his priorities lie.

He and Chancellor Alistair Darling claim that their ministerial experience means that they are best fitted to see us through this latest crisis of capitalism, but they reject the view that it has arisen largely as a result of their obsessions with reliance on market forces and minimal regulation.

The B&B collapse also marks the utter failure of building society demutualisation, with every single society that opted for conversion to a bank and engaged in a voracious profits campaign, based on borrowing cheaply on world markets to fund buy-to-let and overambitious 125 per cent mortgages, going belly up to be swallowed up by bigger banks or rescued by the government.

In contrast, Nationwide, which has remained a mutual, has thrived and been in a position to help smaller societies facing difficulty.
Surely a reality check is called for by government leaders rather than a suicidal steady-as-she-sinks complacency.

The government’s neoliberal strategy is a disaster. It has failed and there has to be a change of direction or the boardroom excesses of recent years will return to haunt us, as will today’s attempts to resolve the crisis at the expense of working people.

B&B should certainly be nationalised as an entity, prime assets as well as bouncing cheques, and this, together with Northern Rock, should form a national bank to offer probity and stability in contrast to the reckless greedfest of the private sector.