Friday, 19 December 2008
Chrysler has halted production at all 30 of its factories for a month or maybe longer. The closures affect 46,000 workers directly, but, should the temporary closure become permanent, repercussions throughout the industry and the rest of the economy will affect millions in America and worldwide.
GM has suspended work on its $370m engine factory in Michigan, dashing hopes that climate change offers a route to a profitable future. It was planning to build a new small car engine, working towards fuel-efficient and all-electric cars, but the market for cars has disappeared along with all of the other things people used to buy, as unemployment rockets upwards.
The demand collapse is trashing all car manufacturers. GM said it was shutting down 30% of its North American production. Also on Wednesday, Ford announced it was to extend the normal two-week Christmas shut-down at 10 of its North American plants for an extra week. The Canadian car parts sector, which employed 120,000 people in 2006, expects to see its profits tumble by two-thirds next year, and employment levels plunge 20% by 2010. Almost 600,000 jobs in Canada would be at risk from a collapse of Chrysler, Ford and General Motors. It’s no different in the UK where car sales are in meltdown and manufacturers are closing their factories well into the New Year and even longer.
Bourgeois economists and analysts have been brainstorming solutions now that everything tried in the last year has failed. Their problem is they can’t see beyond the constraints of the system which depends on capital expansion to generate profits. And right now there’s not much profit-making going on.
The fewer goods people buy, the less the profit made in production can be realised, and as prices begin to drop everything just gets worse. Even the oil-producing nations’ plan to cut production hasn’t prevented the price from falling below $40 a barrel from its peak of around $140 earlier in the year.
With a downward spiral of deflation beginning, governments and central banks are now prepared to consider just about anything that will make us buy the products they employ us to make. Interest rates are dropping towards zero, already a strange enough concept that opens the door to new possibilities.
The one which is perhaps at the same time both easiest and hardest to understand is looking the most popular just now. Instead of pouring taxpayers’ money into banks which just hold on to it to rebuild their reserves, costing each of us many thousands of pounds in the future, the new big idea is that governments and central banks start issuing new money – just printing notes, creating the stuff out of thin air and giving it direct to us in the hope that we’ll go out and start spending it.
Must be the Christmas spirit, you say? No they really mean it. The really, really wonderful thing is that with zero interest rates, the cash bonanza would be a no-interest giveaway. Trouble is – there’s always a catch – printing money devalues the currency and eventually leads to runaway inflation. Higher prices are, in any case, bound to follow the uncontrolled slide in sterling – unmatched in size since 1931, when Labour prime minister Ramsay MacDonald took the pound off the gold standard. Devaluation on this scale could also lead to a flight of capital from Britain and a collapse of the currency, some are warning.
Whichever way you look at it then, the capitalist economy is well and truly broken. In 1908, Henry Ford gave the world the Model T and the production line for cars. A century later, it’s time for a revolutionary new model.
reposted from A WORLD TO WIN www.aworldtowin.net
Wednesday, 17 December 2008
John McDonnell MP, LEAP Chair, said:
"Rising unemployment will have disastrous consequences, ravaging communities and destroy hope for individual lives.
"Today's figures show that Brown and Darling's package is not working. The banks are still not co-operating, and we should nationalise them now.
"Instead of attacking and stigmatising those out of work, we need a huge capital investment programme of public works to create jobs - including on rail, alternative energy and council housing."
Graham Turner said:
"The claimant count accelerated up sharply in November. The October figure was revised up from 36.5k to 51.8k. This has been a persistent pattern since the labour market started to deteriorate. The lack of staff in benefit offices due to ‘efficiency drives’ means not all the claimants are processed in time. And the backlog appears to be growing.
"The upward revision for October was the largest yet. That suggests November could be nudged up significantly, even though it was already the biggest rise since March 1991. And predictions of a rise in unemployment [on the ILO measure] to 3 million look more than realistic."
Download Graham's briefing on UK unemployment in full.
It's worth noting that since 2004, the DWP has sacked 30,000 staff in 'efficiency savings'. In November 2008, the Secretary of State James Purnell announced that DWP would be hiring an additional 6,000 staff to work in Jobcentre Plus . . . See PCS's take on today's unemployment figures
Tuesday, 9 December 2008
Andreas Paterson said...
A borrowing bombshell it may be, but really, is there any alternative in the here and now?
01 December 2008 21:21
Here's what A World to Win said on November 26th
The capitalist system is both broke and broken – and neither New Labour nor the Tories can fix it. Banks can’t and won’t lend, the housing market has collapsed, job losses are piling up (Woolworths finally collapsed this morning) and the state itself is being pawned in the hope that there’ll be money in the future to redeem the pledge.
And where will this money to repay the billions in government borrowing come from? From ordinary working people of course, in the shape of higher VAT purchase tax at 18.5%, increased national insurance contribution and cuts in spending in education and health.
As for the so-called increase in taxes for higher earnings, experts have shown they probably won’t raise an extra penny. At least this is the plan, which is based on an economic “recovery” in 2010 that exists only in the imagination of chancellor Darling and prime minister Brown. Yesterday the OECD (Organisation for Economic Cooperation and Development) forecast that the recession would hit the British economy hardest of all the major economies. The OECD’s latest economic outlook cites the housing market bubble and the banking crisis for their assessment.
Mervyn King, the governor of the Bank of England, warned that the recession would be “steep” unless commercial banks started lending again. But why aren’t the banks lending? After all, a bank that doesn’t lend can hardly call itself a bank. King did not answer this question when he was questioned by MPs. For the governor’s information, the banks are not lending because they consider borrowers too high a risk and, most importantly, their capital base is as firm as jelly, despite huge government bail-outs.
The reality, which is admittedly difficult to comprehend, is that there are no capitalist-style policy fixes for an economic and financial crisis that is both global in scope and extremely deep. So the choices are stark: either sit back and let the crisis takes its course (Tories); bankrupt the country (New Labour) in a desperate bid to revive the economy; or put capitalism out of its misery, which is the most difficult option but would be the most rewarding.
How could this done? How can working people be organised and mobilised to take power out of the hands of an undemocratic capitalist state that cannot control the monster it helped create and transnational corporations that drove the credit-fuelled consumer binge that is ultimately responsible for the financial crash?
First, we have to take our case to every corner of the land and say: the economic and financial system isn’t working and can’t be fixed and the consequences for ordinary people are unacceptable in every regard. Secondly, we must show that the existing political system is dominated by the interests of the very people who have wrecked the economy. On this basis, we can mobilise people around the proposal to create a new political democracy that will enable ordinary people to take direct control of economic and financial resources along the lines proposed in Unmasking the State and our Charter for Democracy.
In place of bail-outs for the banks, a real democratic government would re-establish the banking system on a co-operative, mutually-owned basis. It would outlaw fantasy finance activities such as derivatives and “securitisation” of debt and other forms of speculation that have contributed to the crash.
The economy would be reorganised too, developing production motivated by social and personal needs and not shareholders’ profits. These changes would allow for a substantial increase in workers’ income, alleviating the need to build up vast debts in order to buy goods and services. These are, of course, revolutionary proposals. But, as even chancellor Darling himself has admitted, we need extraordinary measures for extraordinary times!
AWTW communications editor
26 November 2008
Saturday, 6 December 2008
John McDonnell MP, LEAP Chair, said:
"The banks are deliberately snubbing the Prime Minister by refusing to pass on interest rate cuts.
"These banks have betrayed our country, brought about this economic crisis and recession by their obscene profiteering, and now are refusing to co-operate in even the slightest way in the Government’s attempts to protect people’s jobs and homes - despite the fact the entire system has been bailed out with public money.
"The only viable solution now is to bring the banks into public ownership and control. There is no other way and the Government should not delay."
Friday, 5 December 2008
Earlier this year, the TUC published a report The Missing Billions, penned by Richard Murphy, which showed that the Government lost at least £25bn of tax revenue through evasion.
As we all know, unemployment is rising steeply at the moment. So, here's the question: why at a time of rising unemployment and constrained Government budgets - and with HMRC not having the resources to collect the tax owed - would the Government throw 3,400 tax officials onto dole queues?
As Mark Serwotka, General Secretary of PCS - which represents staff in HMRC, said:
"Job cuts are already damaging the ability of HMRC to function and undermining public confidence in the department. Office closures and job cuts will do nothing to tackle the £21.5 billion worth of uncollected tax and £25 billion lost through tax evasion."
"As the recession deepens and people become more reliant on public services, the department and the government should stop adding to the growing number of unemployed and call a halt to the office closure and job cuts programme."
John McDonnell MP, Chair of the PCS Parliamentary Group, added:
"At a time like this, it is absurd to be laying off staff - especially those who help collect taxes". Indeed.
Tuesday, 2 December 2008
PCS has issued a statement 'Welfare for All' to support the campaign to keep a fair and just welfare state, and to oppose the government's welfare reform proposals - which the BBC reports today are about to get even worse.
Mark Serwotka said: "The government needs to pay heed to the growing chorus of opposition to its plans for welfare reform. The plans are regressive and will lead to the removal of the state safety net and the introduction of the free market, where the only motive is profit for the few and not help for the many. As recession bites these are the wrong proposals at the wrong time."
The welfare state is one of the UK's greatest achievements and supports us all especially vulnerable and unemployed people and their families.
In July the government published the green paper 'No one written off: reforming welfare to reward responsibility' announcing plans to change the current provision of support.
Many of the plans were unacceptable when they were first published and the worsening economic situation should lead to a fundamental rethink. However the government is pressing ahead despite the current global economic downturn which is leading to increasing levels of unemployment. As a result we have come together.
The government's proposals remove entitlements and fail to value the important work of parents and carers. Parents with young children, carers, sick, disabled, people with mental health problems and other vulnerable groups face tougher tests to qualify for benefits. If they fail they could be cut off with no support.
We are opposed to the abolition of Income Support which ends the principle that those in need deserve help. We are opposed to compulsory work for benefits. People should be paid the rate for the job or at the very least be paid the national minimum wage.
Jobseekers Allowance is shockingly low at less than £10 a day, if it had increased in line with earnings over the past 30 years the rate for a single person over the age of 25 would be more than £100 a week.
The government wants more of the welfare state to be handed over to the private sector. It is wrong to profit from the sick and unemployed. There is also the intention to share information with the police which raises real concerns about civil liberties.
We want voluntary skills training and life long learning opportunities for unemployed people. The government should focus on ensuring that there is more support to access jobs that have fair pay and decent conditions with a guarantee that when people cannot seek work they will not face poverty.
The government should introduce positive measures to challenge discriminatory attitudes held by employers, encourage flexible working practices and expand the provision of affordable childcare.
We want the government to rethink its plans. Support our campaign to help create a better welfare state and society.
See the PCS website for a full list of supporters, which includes LEAP.
Saturday, 29 November 2008
The three platform speeches from the session on the economic crisis are now uploaded (see panel on the left) - and I've embedded John McDonnell's speech below, but you can also watch the speeches of Icelandic MP Ogmundur Jonassen (leader of the VG Party), and Jeremy Dear (NUJ General Secretary).
The conference also passed three resolutions relating to the economic crisis.
Friday, 28 November 2008
The straightforward, short-term answer is that the government offers to borrow money from anyone who wants to lend it. In exchange, it offers “government bonds” or gilts, the original form of securities which, in the old days, were considered relatively low risk, because they were guaranteed by the state. And, so the theory went, governments can’t go bankrupt, because they control the issue of money – one of the many forms of credit.
In the longer term, there’s the question of paying the loans back, with interest. Governments raise the money to repay borrowing by taxing the creation of value, and value is created when people work, by the people who do the work.
But the historically unprecedented scale of the expansion of credit over the last 30 years has changed things out of all recognition. Now Martin Wolf, chief economics commentator at the Financial Times, says “the horrific numbers” in the pre-budget report might well lead to a questioning of the creditworthiness of the UK government.
“A creditworthy government”, Wolf says, can shift excess debt from the private sector on to the backs of taxpayers. An uncreditworthy government cannot. If the cost of debt becomes too high, the latter will be forced into default, either openly or via inflation. In the UK’s case, inflation would be triggered by a flight from sterling.”
In other words, if the government is unable to raise the money through taxes to repay the “horrific” level of borrowing it will be in default, be bankrupt, become a failed state. A bit like Zimbabwe. In fact, the markets are already beginning to consider this possibility. The cost of insuring against the British government defaulting on its gilts in the next five years surged this week.
Darling makes assumptions about the future trajectory of the economy that don’t impress anyone. Wolf says “…the Treasury surely remains too optimistic: despite the scale of the shock to the world economy and the financial system, it assumes an annual peak to trough decline in GDP of a mere 1 per cent; an economic recovery in the second half of next year; and then a return to trend growth at 2¾ per cent a year, despite the need to shift output into capital-intensive, export-oriented manufactures. This is not plausible.”
That’s putting it mildly. The effects of the crisis have already erupted onto the high streets with big names Woolworth’s and MFI in administration, Curry’s and PC World making big losses. In and around Llantrisant, the home of the Royal Mint in Wales, hundreds of jobs have been blown away in a few hours, in Bosch car components, Oreal and Budelpack cosmetics, Hoover, the Serious Food Company and Ferrari’s – a chain of bakery shops.
Yesterday, representatives from the building industry and car manufacturers got to the head of the queue of those trying to persuade the government to help them stave off bankruptcy. They went away empty-handed, apparently. The government’s tax income is destined to fall off sharply for years to come.
There’s a bit more to this excellent question.
Earlier attempts to raise impossible levels of taxes have produced social unrest and political change. In 1381, the most extreme and widespread insurrection in English history, the Peasant’s Revolt, was triggered by the poll tax. It was the beginning of the end for a society based on exploitation through landownership. Attempts by Charles I to raise money without recourse to Parliament contributed to the English Civil War and his execution in 1649. On March 31 1990, there were riots in London against the Community Charge, commonly known as the poll tax. Watch this space.
A WORLD TO WIN www.aworldtowin.net
Tuesday, 25 November 2008
The tax cuts unveiled by chancellor Alistair Darling on Monday were cheered by the Labour Party faithful. But one only has to cast a glance at the recent shocking turn of events in the US to see why these tax cuts will fail to rescue the economy.
The US Federal Reserve has slashed interest rates to around 0.5 percent. It can hardly go any lower. Yet the slide in the US housing market shows every sign of accelerating. Banks are losing so much money that they will not cut the cost of mortgages.
The most prescient indicator for the US housing market is a monthly survey by the National Association of Home Builders. Its November report shows housing demand falling faster than ever.
The weekly report from the Mortgage Bankers Association, another US organisation, reinforces the point. It shows that demand for mortgage loans has also tumbled since last month's stock market collapse.
The October crash on Wall Street was a belated response to downturn in the US housing market that started three years ago. But now the slide in share prices has in turn undermined confidence in the housing market.
It's a vicious circle that the Federal Reserve seems powerless to stop it. And it means that the losses on mortgage-backed bonds — losses that precipitated the failure of Bear Stearns and Lehman Brothers — are now multiplying.
These losses have now come close to bringing down Citigroup, one of the US's largest retail banking groups. The US administration had to step in with a $300 billion bailout to save it.
The biggest falls in these mortgage bonds are now being seen in the “triple A” sector of the market—supposedly the safest possible form of debt. This crisis has moved far beyond its roots in the subprime mortgage market and is migrating up the chain.
As unemployment rises, more homeowners are falling behind on their mortgage payments. Repossessions are already running at over three times the peak of the last housing recession in the early 1990s.
Corporate borrowing costs have also soared. Many companies are unable to borrow except at penal rates. This is making it difficult for them refinance their already onerous debt burdens.
General Motors now has to pay interest rates of over 50 percent to refinance existing loans and may soon collapse. One of the most vital cogs in the capital markets has utterly broken down.
Ben Bernanke, the hopelessly inadequate chief of the Federal Reserve, claimed last week that the liquidity crisis had eased. And the Libor rate — the rate that banks lend to each other at — has indeed fallen.
The problem is that ordinary companies cannot borrow at Libor rates. Many of them finance their balance sheets through the corporate bond market. And the collapse in stocks and mortgage bonds means that investors are too frightened to lend.
That is why corporate bond yields — which measure the borrowing costs for corporations—have risen. And as existing loans come up for renewal, companies will default—unless they can somehow slash costs.
That means job losses. And we should now be very worried. Monthly job losses in the US may reach 700,000 next year. That compares with to a September loss of 240,000. The current post-war record monthly loss is 602,000 jobs, set in December 1974.
The US unemployment rate could surpass the 1982 high of 10.8 percent by the end of next year. And it will carry on climbing, possibly reaching 15 percent or more by 2010.
The resulting social upheaval will pose a grave challenge for Barack Obama's incoming administration. But the paucity of his economic strategy should concern us too.
Obama's current plan is heavily influenced by Lawrence Summers, the former US treasury secretary. It amounts to little more than a rehash of the post-war "Keynesian" consensus that failed to resuscitate Japan's economy in the 1990s.
Increases in public spending or tax giveaways will not solve the core problem, which is how to stop borrowers from defaulting.
In 1932 the Federal Reserve drove interest rates down aggressively, which helped turn the tide. Corporate borrowing costs fell. It was still
not enough — but it was more proactive than the botched policies of today.
By the time the Obama camp realises the error of its ways, even the more radical policies of the 1930s may well be insufficient. Interest rate controls, unparalleled intervention and a state of emergency may eventually be the belated response to stem the slide into depression.
A deep and prolonged contraction in the US will hurt the rest of the world. Britain's top heavy financial sector will be hit even harder. The FTSE 100 stock index may slump to levels not seen since the early 1990s, tumbling 2,000 points.
Financial institutions will be forced to shed even more workers. The impact on consumer demand will be immense, leading to more layoffs across the manufacturing and service sectors. And that will utterly overwhelm the short term benefits of this week's tax cuts.
Graham Turner, Author of "The Credit Crunch", published by Pluto Press and available from Bookmarks for £12.99
At any other moment, the unprecedented scale of government borrowing, mostly aimed at stimulating consumption, would have seemed beyond imagination. But, even with £20 billion more now and £118 billion by end of next year, the best that Chancellor Darling said he could hope for was to lessen the severity of the downturn!
To put it bluntly, the emergency budget will not stop the avalanche of company failures, job and pension losses, personal bankruptcies and house repossessions. Initial reactions from the high streets and businesses to a 2.5% cut in VAT were dismissive and rightly so.
As Jeremy Warner, business editor of The Independent put it:
“The … reduction in VAT, which accounts for the bulk of the giveaway, will make no difference at all to low and moderately earning households, virtually all of whose disposable income is being eaten up by essentials unaffected by the VAT tax changes. Even on petrol, alcohol and cigarettes, the VAT concession is all clawed back again through a compensating rise in excise duty.”
The real problem that New Labour is incapable of tackling is that the global production overcapacity induced by 30 years of credit-led investment generated tsunamis of consumer goods which overwhelmed the market. Inevitably, consumers reached the limits of their ability to repay the debts they’d amassed under intense pressure to buy. Consumers eventually had to stop buying ever more products. Under capitalism, if people don’t buy, companies can’t sell. So the global corporations that were the result of the growth hysteria needed to sustain profits are tumbling one by one. And with the promise of future profits disappearing over the horizon, the whole house of cards is crashing to the ground. Neither Darling’s emergency measures, nor US President-elect Barack Obama’s massive stimulus package to be financed by very large deficit spending announced virtually simultaneously, can put Humpty back together again. The previous packages have failed and so must these. Remember those bank bail-outs that were supposed to get lending going again?
There is worse, far worse to come. In a research report published last week, the International Monetary Fund warned that the failure of a single major financial institution could result in losses to the derivatives market of $300-$400 billion. “What’s more, since such a failure would likely cause cascading failures of other institutions, the total global financial system losses could exceed $1,500 billion." That’s a big number by anyone’s standards.
Darling is predicting – gambling is a better word – that the record borrowing can be repaid in seven years through higher taxes derived from an economy that has returned to buoyant growth. This is delusional behaviour because a) there is a global recession in place and b) the future tax increases and public expenditure cuts needed to repay the borrowing will stop any hint of recovery dead.
The Financial Times was dismissive: “The UK consumer is now too stunned by the housing crash, stagnant wages and fears of unemployment to be coaxed into resuming the insane credit-fuelled binge of yesteryear. The government’s belief that output will contract by just 0.75-1.25 per cent next year will, therefore, prove too optimistic.”
What the paper doesn’t say is that restarting the economy after every previous crash has required the destruction of productive capacity – factories, offices, transport infrastructure, employees. It’s in the nature of the capitalist system. It’s what “boom” and “bust” means. But this time the scale and severity of the crash will be far greater than at any previous time in history. New Labour’s policies of promoting free-for-all, corporate driven globalisation and the fantasy financiers of the City have made certain of that.
A WORLD TO WIN
Monday, 24 November 2008
The key points of the Pre-Budget Statement were:
- reducing temporarily the VAT rate to 15% with effect from 1 December 2008 to 31 December 2009;
- introducing a new additional higher rate of income tax of 45% for those with incomes above £150,000 from April 2011;
- increasing the employee, employer and self-employed rates of national insurance contributions by 0.5 per cent from April 2011;
- increasing alcohol and tobacco duties, to offset the effects of the temporary reduction in VAT, maintaining these increases after December 2009 to support fiscal consolidation; and following a fall in pump prices of over 20 pence per litre from their summer peaks, a two pence per litre increase in fuel duty from 1 December 2008;
- an additional £5 billion value for money target for 2010-11 and setting assumptions for spending growth from 2011-12 onwards;
- making permanent the £600 increase in the income tax personal allowance announced in May 2008 with a further increase of £130;
- bringing forward April's increase in Child Benefit to January, increases of the Child Tax Credit and a payment of £60 to all pensioners equivalent to bringing forward the April increase in the basic state pension;
As PCS points out each tax compliance staff member has a tax yield of £640,000 after employment costs. Why does the Government keep reducing staffing at HMRC when £21.5bn goes uncollected and £25bn avoided? If the Government serious about clamping down on tax abuse, we should look forward to the Crown Dependency Review. Richard Murphy is optimistic and maybe the pressure from Obama has finally made the Government act.
The new 45p tax rate is welcome, but as John McDonnell said is "hardly revolutionary" and "not enough". Why not 50% on £100,000? However, taken with plans to increase National Insurance and removing personal allowances for high earners, it looks like the Government is keen to fight the next election on making the case for tax rises!
However, the urgent question is will the fiscal stimulus work? This is doubtful. Despite some minor redistributive moves, the package is nowhere near enough to tackle this recession. Compare the scale with the bailout of the banks (when £50bn was handed over), how much is this package? £20bn, and £12.5bn of it is wasted in VAT cuts.
As John McDonnell concludes, "This is an expensive package which is not particularly well-directed, and is unlikely to have sufficient impact. It certainly will not recession-proof those hardest hit."
However, as McDonnell adds, "The Tories' response is woeful - they have no answers. Their plan to 'let the recesssion to run its course' would be a disaster."
Our job is to keep the pressure up on the Government to ensure they do not row back from these moderately redistributive steps, and that the Crown Dependency Review results in a clampdown on tax havens. Then there are the welfare cuts to campaign against, council housing (still off the agenda) to campaign for (get to the DCH conference tomorrow if you can), and bank nationalisation too . . .
John McDonnell, LEAP Chair, said:
"The introduction of a higher rate of tax for high earners is long overdue but the Government's proposals are hardly a revolution, and delaying them until after the next election is pointless. The higher rate should be the start of creating a fair tax reform agenda, redistributing wealth from the super rich in order to take the low paid out of taxation altogether.
"The Government should also move immediately to tackle the large scale tax avoidance by the corporate sector, introducing legislation to outlaw tax havens, mirroring the Obama bill in Congress. The public revulsion over City bonuses and bank executive salaries has opened the way for radical tax reform. Government must seize the moment."
Listen to John's reaction from BBC Radio 4 Westminster Hour
Read Prem Sikka's article 'Rebalancing the Books' on Guardian Comment is Free
Update: Excellent piece by Richard Murphy on why VAT cuts won't work.
Update 2: John McDonnell on Comment is Free says "This is no time for fearful half measures"
Friday, 21 November 2008
The Government's policy towards the banks has been branded "a failure" today as more bad economic news floods the media - from falling stock markets to rising repossessions.
John McDonnell MP, LEAP Chair, said:
"Despite all Government attempts to stimulate the economy, all the evidence points to failure. The billions in bailouts have done little to increase lending, and we are witnessing a startling rise in home repossessions.
"The Government now needs to be more forthright and move towards the full nationalisation of the banking sector to be run in the interests of the British people.
"We can't afford any more dithering by the Bank of England. We need an immediate and substantial cut in interest rates. It is now time for the Government to take back control from the dithering Bank of England."
Tuesday, 18 November 2008
We are in the midst of the greatest destruction of capital since the 1930s, where the means of production are being wiped out on a vast scale in every country on every continent. There is a self-generated momentum to this process which waits for no one, including governments like New Labour. Yesterday Citibank announced another 50,000 job cuts and manufacturers like GKN have cut production by 20%.
As John Willman, business editor of the Financial Times acknowledges:
Nor is there much comfort in the hyperactivity of policymakers, recapitalising banks, bailing out insurers, cutting interest rates towards zero and turning on the public spending taps. This is pushing at a piece of string, with no certainty that enough will be moved at the far end to stem the decline. In the present mood of panic, much of any extra money pumped into the economy will be used to reduce debt or build up savings. A lot of the rest will be spent on imports that will benefit the economies of other countries, which may be less able to reciprocate.
The fact is that neither New Labour nor any other capitalist government has an answer to the first major world economic crisis for nearly 80 years. One of the reasons is that corporate-driven globalisation has created a beast that lives (and dies) beyond the reach of national states and governments. The transnational corporations and banks that are slashing jobs and production are not bound by borders or “national interest”. They form the interlocking aspects of a truly global economy that has supplanted the national-based economies that pre-dated the most recent period of capitalist globalisation.
Gone are the days when unemployment in Britain could be eased through better credit terms or higher wages. Decisions about jobs and production are, in most cases, being decided by global corporations like GlaxoSmithKline operating on a transnational scale with regard to only one thing – sustaining the bottom line and shareholder value on stock markets across the world through ruthless cost-cutting operations. The pharmaceutical conglomerate owes no allegiance whatsoever to the British state which, in turn, has no control over the corporation’s decisions.
Of course it’s possible to imagine some immediate decisions that could stem the jobs haemorrhage and keep people in their homes as a prelude to reorganising the economy on more rational lines. For example, it would make sense to take over the failing building developers and materials suppliers, along with available land, and use their resources to enable the 250,000 unemployed construction workers to return to work. They could build the new homes required to solve the housing crisis and these could be made available at a reasonable rent. Eliminating the needs of shareholders and the exorbitant price paid for land would mean that public investment would go a lot further than the same resources in private hands.
Empty offices and factories could be requisitioned and plans drawn up for the production of socially-useful services and products like solar panels or eco-friendly vehicles. Those without work could be paid the average wage to enable them to pay their bills and support their families until new jobs are available. Public transport (including the railways) could be made available at an affordable price so that no one is left isolated. Banks now wholly dependent on state finance could be taken into public ownership and run by boards of workers, consumers and elected officials as mutually-owned businesses.
Of course, the present capitalist state and proxy governments like New Labour have no intention of challenging the status quo in this way. Both the immediate and long-term answer to the present crisis lies, therefore, in creating a new political democracy that can act on behalf of the majority instead of the minority who have wrecked the economy and now threaten the futures of millions of people.
18 November 2008
Monday, 17 November 2008
This new set of Red Papers looks at 'the Economic Crisis' - no longer a credit crunch in the financial sector, but a full blown economic crisis, with global recession looming.
Contributions in this pamphlet include: Jerry Jones on the origins of the crisis, Graham Turner looking at the effect on pensions; Gerry Gold and Graham Turner looking at the revival and invocation of Keynesianian economics; Richard Murphy, Gordon Nardell and Jerry Jones looking at how to change the banking system; while Prem Sikka and John McDonnell look at how to change the system in the interests of people.
You can download the new Red Papers for free.
Sunday, 16 November 2008
John McDonnell MP
(This article first appeared on Guardian Comment is Free on Friday)
Barack Obama has decided not to attend the G20 summit convened by George Bush and the lack of involvement by India, China and the developing world in the G7 means that the best we can hope for is that this Saturday's talks are a preparatory session for a more inclusive and wider ranging summit in the New Year.
The timing is just not right to secure anything more than limited agreement on coordinating measures to mitigate the recession – and to set an agenda for the post-inaugural economic summit it is hoped the new president will convene.
Brown and Sarkozy will vie with each other over the weekend for the title of saviour of the global economy, but the reality is that until Obama is installed in the White House and unless China and India are engaged, little will change.
In the meantime, millions of workers worldwide will lose their jobs and homes as the recession bites. Many more people in the developing world will be pushed over the edge of poverty into destitution, with starvation putting many lives at risk. The demand for change, which elected the first black president of the US, has the potential to grow into a demand for change in the system that produces such insecurity and suffering.
Civil society now has a part to play in this transitional period between the G20 meeting and what appears to be the inevitable emergence of a new global institutional settlement that reflects the new world economic order.
Since the post-war world's economic institutions (the World Bank, IMF and WTO) were captured by neo-liberals in the 1970s, they have proved themselves a major part of the problem, not the solution to global economic instability. The same policies that have brought individual national economies to their knees are the policies that these institutions have spread across the globe. They have produced the global crisis.
The globalisation of unrestrained free market, rapacious capitalism by this economic institutional structure has produced inequality and insecurity in the west, desperate poverty in the developing world and a sequence of brutal wars causing immense human suffering. The plundering for profit of the world's natural resources has threatened the very sustainability of the planet.
A new democratically accountable architecture of global economic co-operation is now needed – new institutions pursuing new policies.
Civil society organisations could help set this transformation agenda to focus the minds of the politicians in the same way the popular demand for change after the experience of the 1930s depression created the Bretton Woods settlement. In our own lifetime the Jubilee 2000 campaign forced third world debt onto the global agenda.
An agenda of basic demands from any new global civil society coalition could include:
• A new structure of global economic governance inclusive of China and India and a wider representation of the developing world.
• The establishment of a democratically elected global assembly to scrutinise the policies and operation of the new global economic institution.
• The tackling of destabilising market speculation, through the introduction of a Tobin tax on international currency speculation.
• An end to trade policies and the imposition of trade agreements which are tied to deregulation, liberalisation and the privatisation of public services.
• An end to the policy of global collusion in the operation of tax havens that allow rich individuals and transnational corporations to avoid fair taxation.
• A renewed commitment to achieving the Millennium Development Goals, recognising the productive stimulus this would give the world economy in recession.
• An agreement that every nation signs up to the International Labour Organisation (ILO) conventions on international labour standards so that workers have the basic protections needed as recession sweeps the globe.
With this type of programme we could wrest the process of globalisation from the control of the corporations. The risk of the individual country recessions slipping into a worldwide depression provides the stimulus and the opportunity to create a new world economic order.
Friday, 14 November 2008
For outgoing US President George Bush, the oh-so-obvious answer is "sustained economic growth". He told a New York audience that "the answer is not to try to reinvent that system" but to "make the reforms we need, and move forward with the free-market principles that have delivered prosperity and hope to people around the world".
Others are into reinvention. Gordon Brown, who until recently thought globalised capitalism could not possibly be improved upon, is now for "creating a new global financial architecture" to replace the Bretton Woods monetary system (which actually collapsed 40 years ago!). The Germans want a "new balance between market and state" while the Canadian suggestion is that "dynamic new economic players ... must be full participants at the global table".
There’s another proposal aired by Bob Geldof. He is back banging the drum for Africa, which has been left out of the discussions. Bob wants to ensure that "900 million potential producers and consumers" are drawn into "the next round of globalisation". With the whole world diving into slump, Bob sees salvation for capitalism in Africa.
And on that he’s at one with Bush, who just yesterday received a major humanitarian award from Africare for his work in Africa. No really, it’s true.
According to Voice of America White House correspondent Paula Wolfson, Bush was honoured for his efforts throughout his administration to combat disease across the continent. Bush says America has an obligation to help the people of Africa. "It is in our national security interest that we defeat hopelessness. It is in our economic interest that we help economies grow."
The brutal truth is all these plans, pleas and proposals are non-starters. Why? Because they all look beyond the current disastrous disintegration of the global economy to a bright, newly refurbished, much more regulated, fairer, capitalist world. This is not how capitalist slumps work themselves out.
Fixing the real problem - an overhang of capacity as global production turns from recession to depression and slump - has only one solution as far as capitalism is concerned. In 1942 in the midst of the Second World War, economist Joseph Schumpeter, a critic of Keynes, but a big fan of credit-led investment, published his most famous work Capitalism, Socialism and Democracy. It was then, with the world at war, that he chose to develop his version of the concept of "creative destruction". That is already under way, with 10 million Americans already out of work and General Motors on the edge of bankruptcy.
Bush bemoaned the fact that critics were "equating the free enterprise system with greed, exploitation and failure" and objected to it. He is right to warn against the coming assault on the citadels of capitalism. There’ll be many demonstrations and protests against the G20 over the weekend and the election of Obama last week was itself a product of the anger millions of Americans who want action against bankers and corporations.
What is urgently needed is a concept of a society beyond the private ownership and control of capital, together with the leadership and organisation to make it a reality.
Can we do it? Yes we must!
A World to Win
Tuesday, 11 November 2008
The meeting was everything that a good meeting should be: participatory, comradely, well-chaired, wide-ranging yet focused, and with the right balance between theoretical discussion and planning for action.
There was also a varied range of constructive contributions about what is happening in the crisis and what we can do about it. The discussion ranged from the paucity of the minimum wage (and Ed Balls' recent comments about the London living wage), through the effect of tumbling shares on pensions, the attacks on jobs (including the disgraceful actions of the Tory council in Hammersmith & Fulham), and how in Germany the privatisation of rail has been put off, while in Argentina pension funds have been nationalised.
One suggestion I particularly liked was to create spoof posters of the grotesque DWP campaign on 'benefit thieves'. What about 'tax thieves - we're closing in' with pictures of Branson, Green, et al?
Another concrete idea was to picket or occupy banks that were repossessing people's homes - or acting as human shields in people's homes against bailiffs. Such actions need to be replicated across the country - and it's no surprise that the Poll Tax campaign was invoked.
Another major task - discussion of which peppered the meeting - was how to get our unions to start fighting. There was agreement that this needed grassroots mobilisation to push the bureaucracies into action . . . or out.
If you would like a speaker from LEAP at your meeting, email firstname.lastname@example.org.
Wednesday, 5 November 2008
Last night was a night of events and opportunities. LEAP hosted a meeting in the House of Commons, based around our publication Building the New Common Sense - social ownership for the 21st century. Speakers at the meeting 'The Economic Crisis - what role for social ownership?' included many of the contributors to the pamphlet: Gerry Gold, Rosamund Stock, Maria Exall and Professor Gregor Gall.
There was an excellent debate about the role of social ownership in the crisis - and a poignant warning from Gregor Gall, "an opportunity is only an opportunity if we have the resources to act. Otherwise it is just an event". While the crisis brings capitalism into sharp relief, and gives us the opportunity to explain its inherent weaknesses, the opportunity to change things relies on us mobilising around these issues and that requires resources.
One contributor to the pamphlet who could not make the meeting was LEAP Chair John McDonnell MP. John was locked in the House of Commons chamber attempting to convince a Labour government to repeal a few technical measures of Thatcher's anti-trade union laws. The amendments to the Employment Bill were derived from the Trade Union Freedom Bill which was passed as both TUC and Labour Party conference policy in 2005.
John forced the largest rebellion - 45 Labour MPs - since Gordon Brown became Prime Minister, but it also showed that even with every union in support and most actively campaigning in favour only 45 MPs from the party of Labour support strengthening trade union rights.
Over the pond, and the US was electing a Democrat President to great fanfare. This was an event - with great opportunities. However, it remains to be seen whether reality will match expectations.
LEAP's own Graham Turner said: "'Change We Need' was the popular slogan of the Obama campaign, and while it would be churlish to ignore the wider political significance of yesterday's election, there is a harsh reality. Unless the Democrats execute a major policy U-turn, there will be no change. A more expansionary fiscal policy, courtesy of a stronger grip on Congress, will not solve the crisis. It may make it worse. Paul Volcker is tipped by some to be the new Treasury Secretary, but that too provides real cause for concern. It is more of the same, ensuring that the US will slide towards a debt trap. Other candidates in the frame, including Lawrence Summers, offer little encouragement. Democrat policies to date have been contributing to the rise in mortgage rates, which has culminated in a plunge in mortgage demand. The point was underlined this morning by the steep decline in the MBA's purchase index to just 260.9, its lowest level since early January 2001. There is no chance of stabilising the housing market in 2009. Unemployment will soar. Choosing Volcker or Summers as the new Treasury Secretary will be a mistake. In the absence of a radical shift in monetary policy, Obama will not be the next Roosevelt."
Monday, 3 November 2008
Tuesday 4th November
Committee Room 5, House of Commons, London
Following the publication of the LEAP pamphlet Building the New Common Sense - social ownership for 21st century, LEAP leads a debate on what role for social ownership in the economic crisis.
Speakers include: Andrew Fisher (Chair), Gregor Gall, Gerry Gold, John McDonnell MP, Rosamund Stock
Also, you can download A Market Economy based on Common Ownership by Jerry Jones and download a copy of the presentation on social ownership Andrew Fisher gave to a meeting of the Commune. It is a much extended version of the preface to the new LEAP pamphlet, Building the new Common Sense - social ownership for the 21st century.
See you tomorrow – entry is free and everybody is welcome!
Friday, 31 October 2008
John McDonnell MP, LEAP Chair, said:
"Osborne's speech was just rehashed monetarism. It was a recipe for large scale unemployment with ordinary people shouldering the burden of this recession.
"Cutting corporation tax again would result in further cuts in public services, and his designs for yet more privatisation would be a disaster.
"Brown may not have fixed the roof while the sun was shining, but Osborne is knocking down the walls too."
Corporation tax has been cut by New Labour from 33% in 1997 to 28% today.
Friday, 24 October 2008
The Organisation for Economic Co-operation and Development (OECD) Growing Unequal? report published on 21st October 2008 found that "since 2000, income inequality and poverty have fallen faster in the UK than in any other OECD country" and the head of OECD's social policy division, describes it as "remarkable".
This conflicts with the report Poverty and inequality in the UK: 2008 by the Institute for Fiscal Studies (IFS) published in June this year, which found that in the UK "income inequality has risen for its second successive year and is now equal to its highest-ever level (at least since comparable records began in 1961)".
According to the OECD, the "the gap between rich and poor is still greater in the UK than in three quarters of OECD countries". It also states that "the wage gap has widened by 20% since 1985", and that "child poverty rates are still above the levels recorded in the mid-1980s".
Poverty and inequality is still yet to be tackled by New Labour. Even on the terms of the OECD report there is a real inequality problem which the Government needs to address. However, neither the IFS nor OECD reports look at wealth – which has been increasingly concentrated in the hands of the richest. Wealth inequality has risen massively in the last twenty years.
Unless there is a substantial shift in policy, this will be the first Labour government to leave office with society more unequal than when it came to power. Its legacy will also be the most unequal society in living memory.
Download the LEAP report: The Real Story of UK Inequality for a full evaluation of UK inequality, and policy solutions to reduce it.
Tuesday, 21 October 2008
John McDonnell MP, LEAP Chair, said:
"Having bailed out the banks and underwritten bank lending, the Government must now lay out conditions to all mortgage lenders. The Government must also re-establish the role of Local Authorities in offering mortgages for part-and full-ownership.
"Before any repossession takes place, the mortgage lender must have already offered:
1) rescheduling the mortgage debts with lower payments
2) a payment holiday to allow customers to reconfigure their finances
3) a part-ownership / part-rented deal
4) mortgage conversion into social rent
This is essential to prevent the rush into court to repossess and for bailiffs to be mobilised.
"To implement these policies, the Government cannot rely on exhortation alone. It must force this agenda through using its ownership of banks, places on the boards of banks, or by statutory legislation."
Saturday, 18 October 2008
LEAP first exposed the repossession rate of the first nationalised bank on Wednesday, and the Daily Telegraph ran the story.
Yesterday, LEAP was interviewed across the media, and today the Daily Mirror continues the story.
The question for LEAP is why is the Government allowing the first bank to be nationalised to be run in an aggressive business-as-usual way? Why not ask the Prime Minister that very question . . .
Friday, 17 October 2008
Yesterday we put out the press release below - which was picked up in today's Daily Mirror, with news of a leaked memo from the Department for Work and Pensions (DWP) showing how thousands more staff are needed to cope.
This is hardly surprising given the fact the Government has already cut 30,000 jobs, and closed 600 offices - and is still planning to cut a further 12,000 jobs and close 200 offices.
Unemployment figures underestimate real crisis, says Labour MP
Yet again, the unemployment figures released yesterday also revised up previous month's figures. This is because some job offices were unable to process claims in time, due to lack of staff.
The claimant count continues to get revised up for the prior month - in July, from 20k to 27.8k, and now also for August from 32.5k to 35.7k.
John McDonnell MP, LEAP Chair, said:
"The figures released yesterday underestimate the extent of UK unemployment because of the growing time-lag in processing claims. Dedicated staff in Jobcentre Plus are struggling to cope with rising unemployment because of the cuts imposed by Government.
"Many MPs are reporting an increase in the number of constituents experiencing delays in receiving jobseeker's allowance and crisis loans. These are some of the most vulnerable people in our communities and it is shameful that the Government is cutting resources and attacking welfare at a time of rising unemployment.
"There should be an immediate moratorium on the Government's plans for the further closure of 200 job centre offices and cuts of 12,000 staff by 2011."
But as everyone else knows, there are clear external causes. The soaring highs are the direct result of a renewed series of injections, by governments and central banks, of credit – the same stuff that the world’s financial system became addicted to and wholly dependent on during the “long boom”. It doesn’t help. Yesterday, the two largest Swiss banks UBS and Credit Suisse were obliged to seek new capital in a further attempt to prevent them turning into non-banks, ceasing to exist, becoming, as Monty Python had it, dead parrots. When the Swiss banks fall, there’s nowhere safe left for your money.
The stock market lows – a five-year retreat reached in the UK and back to the 1980s in Japan – are the result of an avalanche of indications that the recession is not only with us, but will last for years. Giant corporations are bankrupt, jobs falling off a cliff, house prices dropping like a stone. Even the price of oil has fallen back, as the speculators move their money elsewhere. China, which has powered the global economy, is cutting back and shutting down factories.
The Brown-led government, which has taken on the role of street-level pushers, are looking to raise the money that they are guaranteeing to the banks by issuing more debt to the investment markets. But there’s a limit to what can be raised. The rest will come from an assault on government spending, public services, the elimination of the legal guarantee for public sector pensions, and last but not least, any measures to deal with climate change – irrespective of Miliband the Younger’s pronouncement on an 80% emissions reduction by 2050.
Early signs of the brutal reality that will result came from the news that under Brown and Darling’s control, Northern Rock has been foreclosing, repossessing and evicting at double the rate of the rest of the industry, as detailed in Andrew's post on Wednesday. So much for the benefits of “nationalisation”.
Brown knows that the bankers’ bail-out won’t stop the rot, so he’s promoting a restructuring of the world’s economy, along the lines of the Bretton Woods arrangements that laid the basis for the post-war recovery and the boom years. The Financial Times says this is premature, adding:“Lest we forget, Mr Brown himself was in charge of the IMF’s ministerial steering committee for a large part of the past decade and yet signally failed to implement the ideas he is parading. During this time, it was repeatedly explained to him that every early warning system devised by the finest minds in international economics, including those at the fund, either predicts crises that never arrive or misses those that do.”
The paper of business is correct. The basis for restoring stability after a decade and a half of the Great Depression wasn’t Keynes’s proposals, but the massive destruction of surplus productive capacity and human lives during the second world war.
A much easier, less destructive way out of the mess would be to cut the losses, admit the capitalist system is bankrupt and make the transition to a new kind of economy altogether. One based on not-for-profit production, social ownership, self-management, planned production for need, distributed via an intelligent market informed by democratic processes and expressed preferences. That’s what we will be discussing tomorrow at the Stand Up for Your Rights festival. Be there!
adapted from www.aworldtowin.net
Bankers who helped spark the credit crunch should be given anti-social behaviour orders to stop them being "reckless" in the future, a trade union leader has said.
Speculators who acted "irresponsibly" could be banned from working just like teenage yobs are banned from loitering, it was suggested.
Harry Fletcher, deputy general secretary of Napo, the probation officers union, said guilty bankers could also be given "acceptable behaviour contracts" like errant children to make them promise not to do the same in the future.
And he said the Government could look to extract financial penalties from people whose "negligence" had in part forced a taxpayer bail-out of banks.
He said: "The Probation Service deals with over 240,000 offenders every year who have behaved recklessly and caused damage and harm to innocent victims.
"The behaviour of dealers and traders is exactly the same: some of them have caused alarm and distress and have behaved in a reckless way."
"The Government must therefore investigate whether there has been any wrongdoing under current laws and if not should consider as a matter of urgency new laws."
He said innocent people had lost their homes and jobs as a result of the crunch and bankers should not be given "impunity".
He called for financial regulators, the Financial Services Authority, or the Home Office to launch an urgent inquiry into what new measures were needed.
Thursday, 16 October 2008
What is the point of a state that is bankrupting the very same state in the interests of big business and the banks (the claim that this will help ordinary people is one of the great lies of the crisis) while unemployment soars? In Britain, the £3,000 billion bail-out of the banks brings a whole range of tottering institutions right into the heart of the state. The money to buy up shares in fairly useless companies is, of course, going to be borrowed at interest.
No one is rating highly the chances of getting this money back. The economy is sliding deeper into recession, as the dramatic rise in unemployment of 164,000 in September revealed today shows; the capacity of ordinary people and companies to repay debts/mortgages/loans to the banks is ebbing away fast. As the major shareholder in several banks, what will the state do? Using its powers of force and coercion, the state will defend its interests in ways which today seem inconceivable.Which brings us to the nature of the “state”. The takeover of the state by the banks over the last few weeks should leave no one in any doubt that this is a capitalist state as opposed to a state in capitalist society (which reformists like to characterise it as). The capitalist state is not a neutral body which can become anti-capitalist under popular pressure.
Today’s British state exists primarily to uphold capitalist private property and ownership and to defend an economic system driven by profit accrued through the exploitation of human labour. When Gordon Brown says he will do “what it takes” to prop up the banking system, he means just that. That’s what presiding over the capitalist state is all about.
So, where does this leave us in political terms? Popular anger is growing against the bail-outs. On the BBC news forum dedicated to Bush’s sudden U-turn on the banks, Trevor Tinker writes: “The governments of the world reigned in human rights after 9-11. A few well organized religious fanatics killed several thousand people and affected the lives of several thousand more. The financial terrorists (read financial engineers) who's actions have affected millions if not billions around the world vaporizing savings and pushing people to despair if not suicide with their insatiable greed remain unpunished. When will we see a global witch hunt against the financial terrorists?” There are many more comments along similar lines.
While the Financial Times story “Undertakers deliver last rites for US capitalism” is good for a laugh, it is unfortunately not quite the case. The body is still breathing – and inflicting great damage in terms of unemployment, repossessions, inflation as well as state bankruptcy.
To halt this process and create a sane economic and financial system will require real power – state power.
Establishing people’s power in place of corporate power leads directly to the creation of a truly democratic, transitional state in place of the existing capitalist state. Then, instead of bailing out bankers, society would be in a position to put people before profit. On Saturday, at our Stand Up for Your Rights festival, our new book, Unmasking the State – a rough guide to real democracy, will be on sale for the first time. It is a handy thing to have in these times!
AWTW Communications editor
15 October 2008
reposted from www.aworldtowin.net
They never learn.
Wednesday, 15 October 2008
From the Daily Telegraph
Northern Rock has become the most "ruthless and aggressive" repossessor of properties, a leading MP has claimed, after figures showing that the nationalised bank is seizing 11 homes a week.
By Harry Wallop, Consumer Affairs Editor
The bank, which was taken into state ownership in February this year, took back the keys from 4,201 home owners in the nine months to the end of September.
This is a far higher rate of repossessions than most other mortgage companies are implementing.
One in every 108 Northern Rock customers has had their homes take from them. This compares to a national average of one in every 250 customers having their homes taken from them, according to the Council of Mortgage Lenders.
Campaigners said that this was proof that Northern Rock was being a "ruthless and aggressive" and that it was an ominous sign that the Treasury would crack down on late-paying mortgage customers now that it had stakes in nearly half the entire country's mortgages.
In recent weeks it has taken control of Bradford & Bingley's mortgage book, as well as taking stakes in Royal Bank of Scotland, HBOS and Lloyds TSB. Along with Northern Rock it now partly controls 44 per cent of the UK's 11.7 million outstanding home loans.
Labour MP John McDonnell, who heads the think tank Left Economics Advisory Panel, said: "We fully nationalised Northern Rock, yet the Government's bank is becoming the most ruthless and aggressive repossessor under the cosh of Government pressure to repay the loans. The Government is in danger of being seen as protecting banks while ignoring people."
Experts pointed out that it was understandable that Northern Rock would have a higher repossession rate than the industry average, because the bank had been one of the most generous lenders, offering low rates to customers with often poor credit records – one of the reasons it got into trouble, and collapsed last year.
However, Adam Sampson, the chief executive of the housing charity Shelter, said: "It is very interesting to see how the Government is flexing its new found muscle, now that it owns, or part-owns, more than 40 per cent of the mortgage market.
"I have sat in meetings this week when ministers lectured mortgage lenders about their social responsibilities. It is ironic if ministers were now presiding over the most aggressive repossession policy in the market."
So far, the credit crisis and the deteriorating condition of the housing market has not hit too many home owners, with 18,900 houses repossessed in the first six months of this year – a modest rate of home seizures compared to the early 1990s, when nearly 40,000 homes were repossessed in a half-year.
However, experts warn that it will not be until next year that the crisis hits home, because it takes many months from the point when a home owner first gets into trouble with their payments and when the mortgage company finally seizes the home.
A spokesman for Northern Rock said that its rate of resposessions was because of market conditions. "It's regrettable when we have to repossess anyone, but the market is deteriorating – as it is for everyone. We only repossess a house as a last resort."
The Treasury insisted that any decision to seize a home was made by the individual banks, not by the Government.
"We have said we will operate all these mortgage books at an arm's length, and operate them as commercial organisations."
John McDonnell MP, LEAP Chair, said:
"We fully nationalised Northern Rock, yet the Government's bank is becoming the most ruthless repossessor under the cosh of Government pressure to repay the loans. The Government is in danger of being seen as protecting banks while ignoring people.
"The Government needs to come up fast with a "recession-proof" strategy of halting repossessions and converting mortgages into homes for social rent.
"With unemployment rising, the Government should be injecting resources to save people's jobs and that means large scale public investment in major housing, rail and renewable energy infrastructure schemes."
Tuesday, 14 October 2008
Q. Is the financial storm over then?
Er, no actually.
So far, sums approaching £2,000 billion (= £2 trillion) of taxpayers’ money has been committed by the governments of America, the UK and Europe to the bankers’ bail-out. Central banks are pouring “unlimited” amounts of US dollars into the global financial system in what will prove yet another failed attempt to prevent the mother of all meltdowns.
Q. How can we be so sure?
Yes, £2 trillion sounds a lot, but the collecting bucket is effectively bottomless. This unimaginably large sum of money is dwarfed by a series of other giant hot-air balloons of fantasy finance queuing to burst in the background whilst Brown’s Punch to the bankers’ Judy struts temporarily in the foreground.
Among the balloons is the market in credit default swaps (CDS), a way of trading in risk. It began life in the mid-1990s and, largely because it has always been unregulated, and appeared to offer the possibility of reducing, or at least sharing risk, it attracted a great deal of interest.
The simple version of the story goes that a swap enables an organisation making a loan to a customer to insure against the customer defaulting on payments by establishing a private contract with a third party, paying a kind of insurance premium. It can’t be called “insurance” because that would make it liable to regulation. You wouldn’t want to call it “protection” either. People might think you’re a gangster.
The market grew very fast. Most major organisations are now caught up with each other in a lacework of interconnected contracts.
Q. Ok, so how much are we talking about?
It’s difficult to be precise, because all the trading is in unregulated contracts hidden from public view. Nobody really knows. Data from the International Swaps and Derivatives Association (!) show that at the end of June, the CDS market had a notional value of $54 trillion. That's the same as the planet's 2007 GDP and nearly four times the value of all shares traded on the New York Stock Exchange. Other estimates puts the figure nearer $65 trillion.
Q. So what is the chance of this particular balloon bursting?
It already did. On Friday, Moneyweek put it like this:
"When one side of a trade defaults, it starts a chain reaction that raises the risk of others losing money. That's called 'counterparty risk', and is partly what has spooked investors into selling off assets and lenders into curbing credit. The collapse of Lehman Brothers has had a particularly big impact. Lehman wrote more than $700bn-worth of CDS. Now it's gone bust, investors who had taken out these CDS have been left without the insurance, so they're having to buy more, even though prices are now rising because of the general turmoil."
Initial results of the auction to determine the value of CDS on Lehman Brothers showed banks, hedge funds and other sellers of protection facing losses in the area of 90.25% of the insurance they sold.
The CDS market is only 10% of the global derivatives market, which covers all contracts taken out to minimise risk. This is the mysterious, unregulated world of futures, forwards, options and swaps. According to the Bank for International Settlements, the notional amounts outstanding at the end of 2007 totalled about $550 trillion on contracts privately traded between parties. As the global recession deepens, the number of parties unable to fulfil contracts will grow rapidly.
Q. Is the storm over?
It’s only just beginning to blow!
adapted and reposted from www.aworldtowin.net
John McDonnell MP, LEAP Chair (this article first appeared on Guardian Comment is Free)
The government has been consistently behind the curve on the banking crisis and the chancellor's statement this morning demonstrates that it is missing the chance of turning this crisis into the opportunity of a generation to lay the foundations for transforming our economy.
In his interviews so far today the chancellor has insisted on an arms-length role for government and on returning the banks to private control as soon as possible. At a time when many British taxpayers will be losing their jobs and homes they are being asked to subsidise the banks in the bad times, simply to allow them to return to the profiteering role which caused this crisis.
Taxpayers will want to know what they have got for their money. Under public pressure, the government has been forced into placing some limited and temporary constraints on executive pay and bonuses – and may appoint some non-executive directors. Not a lot for £500bn of public money. The government has drifted into majority or sizeable ownership of individual banks without any coherent strategy about how to use its shareholding.
Let us be clear, the banks which the government has taken into part-nationalisation would have collapsed entirely where it not for government intervention. The billions invested today surpass even the most generous estimates of the banks' worth.
The chancellor seems oblivious to the unprecedented potential the government now has to lay the foundations for transforming our economy. To give the taxpayers a return for their investment, the government should insist on an entirely restructured banking system and a new set of economic priorities for our financial institutions.
The taxpayer, through the government, should now be forcing through an agenda with control of the board: offering full transparency and stakeholder democracy for customers and the workforce. There should also be a no-redundancies guarantee for bank workers to match the no-loss guarantee to depositors.
A new lending strategy of these nationalised banks must prioritise tackling the worst effects of the recession. We need to promote employment through investment in major public works schemes to meet the UK's needs. We urgently need a major programme of investment in renewable energy generation to tackle climate change. Likewise we need a national programme of council house building to tackle existing housing need, and to provide a safety net for those struggling to pay rent and mortgage costs as the recession deepens.
Such infrastructure investment would also mean large-scale job creation to arrest the rising unemployment levels. This would be a rights-based bank system, guaranteeing:
• bank workers and customers the right to a say in how their bank is run;
• a right for the taxpayer to see investment that benefits their community;
• a right to a secure home.
These are the opportunities the government is missing on behalf of the British public.
The public will also not look kindly if the government continues to refuse to assist local councils affected by the Icelandic banking collapse. The damage to essential local services by a forced round of cuts would be immense.
As taxpayers are paying for this bail-out, it should be their interests that now become the focus of a programme of major structural reform in the banking sector.