It’s not a sudden crisis. It’s a decline that’s been going on for decades. Instead of producing wealth, Britain has been living on credit…
What’s happened to the financial markets?
WORKERS, OCTOBER 2008 ISSUE
The unravelling of financial markets that has been taking place now for the past twelve months should not be seen as a crisis but as a continuum of absolute decline, a trend first identified by our party in 1976. The current contradictory mess has one central feature, namely that Britain produces little new wealth and has been accessing international capital to create domestic credit.
This credit has then been used to finance a number of things ranging from asset-stripping mergers and acquisitions to financing inflated mortgages, often to cover pre-fabricated “new build” housing that has been invariably built (thrown up) in little over a week.
Sadly an integral part of the credit process has been a belief by large sections of the working class that it is somehow acceptable for Britain to sustain itself through fictitious capital rather than creating wealth through production – an outlook that has been described as a country pretending that it is a hedge fund.
There is now of course a huge question mark against the ongoing viability of many British financial companies. For example, just before the HBOS problem two of the top twenty mutual building societies had to be quietly merged with the Nationwide as a result of their terrible debt exposure. This event was little reported and has since been lost amongst the latest headlines ranging from AIG, Merrill Lynch, Lehman Brothers, HBOS et al.
Rumbled
The problem with all of these companies, apart from AIG, has been that they have been generating loans without in any way matching this with deposits. AIG, on the other hand, has been the American insurer that has been underpinning these loans in the event of default but was rumbled last week as not having sufficient funds to cover its insured exposure.
The days of banks lending to third parties and being covered by customers’ deposits began to change during the 1980s and has all but disappeared under Labour’s economic miracle where saving has been covertly discouraged in favour of the buy now pay later mentality. To give some idea of what has to be faced, it has been estimated that British banks have to find at least £40 billion each year between 2008 and 2010 just to fund their international repayment obligations.
Those who have been shouting about the “short selling” of shares such as HBOS, thus bringing down a sound financial institution, miss the point spectacularly. Short sellers were simply saying that the position of HBOS was untenable and that as a result the share price would go through the floor. HBOS was exposed because it had a £198 billion funding gap – the difference between customer deposits and customer loans. It was not the short sellers in the market who created this gap but the bunch of lightweight clowns calling themselves directors who put the company in this position.
Another point of interest is that the Bank of Scotland is part of HBOS and concerns are currently being expressed over whether the Bank of Scotland will lose its right to print Scottish banknotes with the wording “Bank of Scotland promise to pay here to the bearer on demand”. Well, with the Bank owing £198 billion elsewhere it does stretch the credibility of such a promise and puts any pretence of pseudo independence into perspective.
Certainly to address Britain’s problems a national rather than a narrow Scottish regional perspective will have to be adopted. The Scottish nationalists cannot therefore hide this fact by saying that a bunch of London based ‘shorters’ prevented HBOS remaining an independent bank. Certainly the current Scottish financial sector’s uncertainty is the same as London’s and is due to a dependence on wholesale funding.
We as a Party are about changing the philosophy of the British working class. All of the unravelling nonsense currently taking place has long been identified as a likelihood within our analysis of absolute decline, which we have painstakingly developed over the past thirty years. What is certain is that unless the class changes its outlook it will be further punished by finance capital only too keen to pass the buck for its own failings by getting British workers to accept a massive drop in living standards. The forthcoming fight for wages will be key.