Are we to continue as cannon fodder for the banks?
Most people do not believe what they are being told about the state of the economy in Britain, if recent polls are anything to go by. It’s hardly surprising given the different stories we are being sold and the variety of cures that are proposed. Blame has been laid at the door of a global recession from which there was no escape, too much personal credit, a US recession, bankers, bonuses, lack of regulation, politicians etc. But recessions don’t come out of thin air.
There has been a running battle between the two wings of British capitalism for over a century, between manufacturing and finance. Of course, manufacturing always needed the finance capitalists to lend for investment and to oil the wheels of burgeoning industry and commerce. The limited liability joint stock company helped break the bounds of small-scale production by pooling the riches of individuals into the massive investment needed for the Industrial Revolution. The banks provided essential credit, a secure deposit, a safe currency, the means of settling bills, and of exchanging currencies. That was how it was.
But some finance capitalists thought that money could be made by wizardry with money alone, without manufacture and commerce. Marx ridiculed these finance capitalists, pointing out that wealth is created only through labour and not through finance. But the finance capitalists seemed to have won the argument, building their castles in the air, making London a centre of finance capitalism and putting British manufacturing into decline. This led eventually to the development of “financial products”, the demutualisation of building societies and the creation of a so-called “finance industry”.
Packaging up the sub prime
A good example of how it works is the packaging up of sub prime mortgages into “financial products” – which led to the current economic crisis. Some years ago, the banks had difficulty in lending all the money they had access to, even by offering cheaper credit and mortgages. So they began lending to “sub prime” borrowers, mainly people who could not be expected to repay these mortgages. They then repackaged these debts as “collateralised loan obligations”, CLOs, to sell on. Never mind that the collateral (the houses mortgaged) was overvalued. Finance capital was trying to turn the base metal of sub prime into the gold of profit.
How did they do it? They would first set up a separate company that would borrow, say, £900 million at low interest rates from, typically, insurance companies and pension funds. They would add £100 million of their own money and then the company would buy £1 billion of sub prime mortgages from the original bank. The mortgages would bring in income of £80 million a year, which was more than the £54 million p.a. they would pay in interest to the insurance companies and the pension funds from which they borrowed the money. This meant a profit of £26 million a year, or 26 per cent on their own investment, which was a very good return. From these returns, the bankers paid themselves five figure salaries and multimillion pound bonuses. It was a short-term bonanza based on assets expected to crash in value sooner or later.
The CLO companies, which were not banks and therefore were not regulated, then sold on these repackaged mortgages to others keen to get in on the bonanza. From 2003 British financial institutions piled into this gravy train, too good to be true, through their US subsidiaries who put billions into CLOs. Because the CLOs were not part of a bank, these transactions were all off balance sheet. The credit rating agencies gave CLOs the highest ratings, AAA.
By 2005 there was £600 billion in these rivers of cash that flowed through Wall Street and the City of London, eventually peaking at £3 trillion – and all dependent on the least credit-worthy borrowers whose purchases had been made in a greatly inflated property market.
The rest is now history. As interest rates increased, mortgage holders defaulted and the bubble burst. CLOs lost value and collapsed, banks collapsed, pension funds and insurance companies lost billions overnight, banks would not lend to manufacturing industry or each other. Any business dependent on borrowing would collapse. The effects rippled out to unconnected industries.
This is simply one example of how finance capitalism works, just like defying gravity. And they were at it again. The same finance capitalists came up with another “moneymaking” scheme, the Credit Default Swap (CDS).
By mid 2007 there was $45 trillion invested in CDSs, more than twice the size of the US Stock Market at the time. This was finance capitalism still at the roulette table with another pyramid selling scheme, another wheeze. But this is exactly what finance capitalism is all about. It makes nothing, it contributes nothing socially and it is like a giant bloodsucker on the back of workers.
In 1997, the Bank of England controlled the banks and banking system. That year, Gordon Brown, then the new Chancellor of the Exchequer, took that control away and shared it among the Treasury, the Financial Services Authority and the Bank. No one body had any real control. Welcome to the world of “light touch regulation”.
This was the first action of a new Labour government that British people elected to end the days of Thatcher’s Tories who had devastated the country in the name of finance capitalism. Labour simply made it easier for them.
Labour’s bail-out
Not only did Labour make it easier for finance capitalism. When it collapsed, they used our money to bail them out and then told us that we would have to pay with job cuts, pay cuts and cuts in public services for the subsequent debt created .
Adding insult to injury, the government now intends to sell off the profitable section of nationalised Northern Rock and leave us with the toxic debts. If you ask why France and Germany have come out of recession before Britain, the answer is that they are not so dependent on finance capitalism and invest more in manufacturing.
That there is anger among British workers is an understatement. Anyone who can see and understand what has happened, and what will continue to happen, wants something done about it.
Brown and Darling call in vain on bankers not to take their bonuses, talk of a tax on transactions, talk of breaking up banks into proper banks and casino banks, but say they can do nothing without international agreement. Why? Because if we’re beastly to the bankers in Britain, they will leave.
So what? This gets to the nub of the problem. Do we want British workers to continue to be the cannon fodder for finance capitalism? This is the system that has robbed us of our pensions, our savings, our jobs, our pay and conditions, our sovereignty and in many cases our homes.
The answer has to be NO. A government that speaks for Britain would end the nation’s dependence on finance capitalism by taking unilateral national action against it. Outlaw casino banking and let them go to the US if they whinge. Make them repay our money first, whether by tax, sequestration or nationalisation. Create a banking system as a public service instead of milking cow for finance capital. Re-mutualise those banks that were Building Societies. Instruct the banks to invest in manufacturing and create a new industrial revolution.
For sure, a government that speaks for Britain would not be a Labour or a Tory one. There has never been a time when the case for workers taking matters into their own hands, taking control, has been so obvious. Who else is going to do it?