Today Shadow Chancellor George Osborne set out the Tory response to the economic crisis with a speech at the London School of Economics.
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, 31 October 2008
Friday, 24 October 2008
The Real Story of UK Inequality
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
LEAP calls for emergency programme to tackle repossessions
As repossessions look likely to increase to 50,000 homes this year, LEAP has called on the Government to enact an emergency 'people's programme' to give people the 'right to stay'.
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."
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
Northern Rock and repossessions
Yesterday, I was interviewed by BBC News 24 about Northern Rock's repossession rate, which is around two and a half times the rate of other banks.
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 . . .
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
Unemployment in the crisis
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."
Time to cut the losses
In the last week, stock markets the world over have been showing the classic signs of bipolar disorder, but in the most concentrated form. Euphoric, manic, hysterical highs followed by the deepest depression. Much of it, say some of the commentators, is internally generated, the result of speculators feeding off each other’s panic.
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
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
NAPO calls for ASBOs for reckless bankers
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
The state we are in
That capitalism today requires incredible, almost unimaginable levels of financial support and assistance from the state just to keep the system on life support in intensive care, is beyond dispute. What is also apparent is that both the state and the cap-in-hand former masters of the universe who run capitalism have fatally wounded the case for their own continuance.
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!
Paul Feldman
AWTW Communications editor
15 October 2008
reposted from www.aworldtowin.net
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!
Paul Feldman
AWTW Communications editor
15 October 2008
reposted from www.aworldtowin.net
The revisionists have already started
At LEAP's excellent rally on Monday evening it was pointed out that, although the general consensus seems to be that market economics have failed, the revisionists would get to work on the story pdq. In Wednesday's FT: "As the markets breathed a sigh of relief, some were starting to ask whether a large-scale injection of govbernment capital was really necessary." (Financial Times Wednesday October 15th). And on Thursday the banks are trying to wriggle out of the conditions imposed by the government, so they can continue to pay their shareholders dividends.
They never learn.
They never learn.
Wednesday, 15 October 2008
Northern Rock seizes 11 homes a week
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."
Is the Government's bank the most ruthless repossessor?
It was announced today that Northern Rock - the bank fully nationalised by the Government - has massively increased the number of homes it has repossessed in the last quarter.
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."
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
Brown's Bankers Bailout: Questions and answers
Gordon Brown is being feted as the “master of the universe”. Stock markets yesterday were delirious with joy, making record-breaking, stratospheric leaps yesterday as governments around the world bailed out the banks. Right-wing Tory newspapers joined in unalloyed praise for the bankers’ government.
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
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
Turning a crisis into an opportunity
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.
Monday, 13 October 2008
Bank Bailout should not be at the expense of Public Services!
Speaking at a meeting in the House of Commons on the financial crisis this evening, Mark Serwotka, general secretary of the Public and Commercial Services Union (PCS), will warn that the bailout for banks shouldn’t come at the expense of public services, the public who rely on them, or the hardworking people who deliver them.
Speaking at this evening’s, Left Economics Advisory Panel (LEAP) emergency rally, he will say:
"The thought of New Labour nationalising banks would have seemed absurd even a few weeks ago. Now up to £500 billion is being made available to prop up the banking system in these unstable economic times.
"We should look at the conditions attached to the massive injection of taxpayer’s money into the banking system. There should be controls on top pay, and restrictions on repossessions, with future profits from the banks going to the public purse. The trend of offshoring to avoid taxation must be brought to a rapid halt too.
"The arguments for more free markets, less regulation, and more privatisation have now been found wanting and hollow. No one trusts the smooth tongued financiers anymore. Although, amazingly, New Labour still seems keen to bring them into government roles, such as David Freud, formerly at merchant banker UBS Warburg, now advising the DWP on welfare reform.
"The money provided by the state is mostly for institutions. The protection for savers will help only a minority of working people: 60% of households with income of less than £500 per week have no more than £1500 saved and half of them have nothing. If you consider lone parents, 88% have no more than £1500 put away.
"The commitment of so much cash to banks will inevitably mean pressure on other areas including welfare, jobs and pay."
"This year nearly half of those working for the Department for Work and Pensions, who help people back into work and who deliver pensions and benefits, will get no pay rise at all this year and just 1% next year.
"The government pay freeze will not only exacerbate poverty, it will hold down saving and retail spending.
"And James Purnell’s planned attacks on lone parents, long term unemployed and those with disabilities, contained in the welfare reform green paper, cannot hope to help them into work when thousands are losing their jobs. They will simply make them poorer too.
"It’s not only the banks that need refinancing. It is time to recognise that those at the base of society will be the ones that have to pull us out of crisis. When PCS members take up the fight for better pay, they are part of a struggle for a better society, which is not subject to disasters caused by the unregulated greed of the City."
The Left Economics Advisory Panel (Leap) emergency rally, ‘Who pays for the credit crunch?’ starts at 7.30pm in Committee Room 10, the House of Commons. Chaired by John McDonnell MP, speakers include: Brian Caton (POA) - Jeremy Dear (NUJ), Kelvin Hopkins MP, Prem Sikka (Prof. of Accountancy, University of Essex).
Sunday, 12 October 2008
LEAP meeting - Monday night
LEAP is hosting an emergency summit 'Who Pays for the Credit Crunch?' on Monday 13th October at 7:30pm in Cm Rm 6 of the House of Commons. Everyone is welcome, come along.
Speakers include Brian Caton (POA), Jeremy Dear (NUJ), Kelvin Hopkins MP, John McDonnell MP (Chair), Mark Serwotka (PCS), Prem Sikka (Professor of Accountancy, University of Essex), Graham Turner (author of 'The Credit Crunch').
Download the flyer for the LEAP summit. Read and debate A People's Programme for the Crisis.
What others said about the People's Programme:"It is excellent and very clear"
- Tony Benn
"I support this programme because it is now becoming patently clear that the deregulatory agenda put in place by Thatcher and Reagan has left the world's financial system in tatters and bereft of solutions. This is an historic opportunity for the Left and for clear thinking people to promote policies based on equity, democracy and sustainability. These policies need to come from the Labour Party to both reshape the political direction of the UK and protect those people severely threatened by a downturn that is not of their making."
- Peter Cressey, Reader in Sociology, University of Bath
"The characterisation of the government's actions as 'socialism for the rich' just about sums up why we need the A People's Programme for the Crisis: ordinary people did not create this crisis and should not pay for it and its consequences. Capitalists did and should."
- Prof. Gregor Gall, Professor of Industrial Relations, University of Hertfordshire
"Few politicians seem able to grasp the significance of what is happening at present. John McDonnell does. He is ahead of the pack in understanding the public mood at present: this programme is not just what people want, it's what they know they need."
- Richard Murphy, Tax Research LLP
"The crisis can't be solved by a cosy discussion between the people responsible for creating it - financiers, regulators and the political elite. There has to be informed debate at every level of society. This People's Programme brings real economy issues like jobs and housing into the equation. It's just what's needed to map a democratic way forward"
- Cllr Gordon Nardell
Saturday, 11 October 2008
Freeze student fees - on a wing and a prayer
Under New Labour grants were abolished and tuition fees of £1,000 were introduced, followed shortly by top-up fees of up to £3,000.
Every year since, the minimum (£1,000) and maximum fees (£3,000) are uprated in line with inflation so that students who recently began their courses for 2008/09 will be incurring debts of somewhere between £1,255 to £3,145 in debt (with interest accumulating from day one) every year for the next three years. They will then repay this debt through an extra 9% deduction from their earnings.
This year a group of Labour MPs - who opposed tuition fees and top-up fees - have sought to stop the annual uprating for 2009/10. In the House of Commons, they have tabled a 'prayer' - which if enough MPs support will force MPs to vote on whether to increase student debt, at a time when taxpayers' money is being used to write-off dodgy bank debt.
If your MP has not already signed the prayer (EDM 2210), please lobby them to do so.
John McDonnell MP, who tabled the motion, said "As our economy unravels due to unsustainable debt, it seems obscene to be increasing the millstone around the necks of young people."
For more comment from John and more information on the prayer, see the LRC press release
Every year since, the minimum (£1,000) and maximum fees (£3,000) are uprated in line with inflation so that students who recently began their courses for 2008/09 will be incurring debts of somewhere between £1,255 to £3,145 in debt (with interest accumulating from day one) every year for the next three years. They will then repay this debt through an extra 9% deduction from their earnings.
This year a group of Labour MPs - who opposed tuition fees and top-up fees - have sought to stop the annual uprating for 2009/10. In the House of Commons, they have tabled a 'prayer' - which if enough MPs support will force MPs to vote on whether to increase student debt, at a time when taxpayers' money is being used to write-off dodgy bank debt.
If your MP has not already signed the prayer (EDM 2210), please lobby them to do so.
John McDonnell MP, who tabled the motion, said "As our economy unravels due to unsustainable debt, it seems obscene to be increasing the millstone around the necks of young people."
For more comment from John and more information on the prayer, see the LRC press release
Friday, 10 October 2008
From fantasy finance to global crash
When corporations at the heart of American capitalism, Ford and General Motors, find themselves close to bankruptcy, there is no surer sign that financial mayhem is turning into economic disaster for the masses who actually work for a living rather than speculate with other people’s money and lives.
As Wall Street crashed (again) yesterday, the car giants found themselves in the eye of the storm, their shares valued at next to nothing. Sales have slumped as lending to consumers dries up. Both Detroit corporations had their credit ratings reduced to “junk”, making it impossible for them to borrow. Bankruptcy looms as the unthinkable becomes reality.In Britain, the trade deficit between imports and exports is the biggest since the end of the 17th century. Paul Dales, UK economist at Capital Economics, said the data supported other evidence suggesting that Britain entered a recession in the past three months. Exports orders have fallen rapidly as the global economy goes into reverse.
So as finance ministers from the major economies began to gather for an emergency session in Washington, we had this admission from Alistair Darling yesterday: “The world economy is changing. Sticking with the solutions of the past is not an option. Now, more than ever, we need new ideas.” But this is the man who has been a willing, even fervent promoter of the no-alternative school which holds that global capitalism is the only game in town.
So all of their energy, as well as our savings, taxes, pensions, livelihoods, and council services, are devoted to the task of ensuring that the system survives. The “new idea” is that politicians pledge to work together to do “whatever it takes” to restore “stability”. The plan is that the bankers cash in and the rest of us take the pain. In that, all the major bourgeois parties are agreed in an outbreak of “bipartisanship”, which meant the House of Commons devoted an entire 19 minutes to the crisis yesterday. Democracy? It's a luxury at a time of national crisis.
Certainly there can be no effective action to prevent the descent into an unprecedented slump. And the market speculators know it, selling shares not just in banks but in retailers and manufacturers. The souring of relations between Britain and Iceland, with the government using anti-terror laws to freeze accounts, shows how the breakdown of the global financial system turns friends into enemies overnight.
We at A World to Win are not alone in pointing out that following the 1929 Crash, it took a decade and a half of the Great Depression and the destruction of surplus productive capacity and tens of millions of human beings in a world war. Only then could the 1944 Bretton Woods agreement establish the basis for restarting the process of profit making and capital accumulation.The post-war period of growth induced by a controlled expansion of the money supply began to suffer a series of worsening setbacks and shocks from the end of the 1960s. Control had given way to uncontrolled inflation and the Bretton Woods arrangements broke down in 1971. This left the world prey to three and a half decades of naked credit-led growth. This produced global corporations and subservient governments which encouraged gross over-consumption.
It had to end. More and worse financial shocks reverberated around the world throughout the 1990s. The bursting of the dot com bubble in 2000 was the writing on the wall. When the outpouring of commodities bought on credit overwhelmed the consumers’ ability to service their debts by 2004, the game was already up. (NB Chancellor Darling).
Darling says that “All forecasters, including the International Monetary Fund, have been surprised by the profound impact of this shock.” Not us, chum. We wrote about it in 2004 in our book A World to Win. And we continued to study it until, at the end of 2007, we published A House of Cards, with its prophetic sub-title, from fantasy finance to global crash.
But Darling is right about one thing, sticking to “solutions of the past” won’t do the trick. A revolutionary break with the past is needed in opposition to international plans for bailing out bankers while ordinary people suffer. We’ll be discussing our solutions on Saturday week, October 18, at the Stand Up for Your Rights festival. http://www.aworldtowin.net/about/standup.html
And, we can promise you, we won’t be talking about how to save the present financial and economic system.
As Wall Street crashed (again) yesterday, the car giants found themselves in the eye of the storm, their shares valued at next to nothing. Sales have slumped as lending to consumers dries up. Both Detroit corporations had their credit ratings reduced to “junk”, making it impossible for them to borrow. Bankruptcy looms as the unthinkable becomes reality.In Britain, the trade deficit between imports and exports is the biggest since the end of the 17th century. Paul Dales, UK economist at Capital Economics, said the data supported other evidence suggesting that Britain entered a recession in the past three months. Exports orders have fallen rapidly as the global economy goes into reverse.
So as finance ministers from the major economies began to gather for an emergency session in Washington, we had this admission from Alistair Darling yesterday: “The world economy is changing. Sticking with the solutions of the past is not an option. Now, more than ever, we need new ideas.” But this is the man who has been a willing, even fervent promoter of the no-alternative school which holds that global capitalism is the only game in town.
So all of their energy, as well as our savings, taxes, pensions, livelihoods, and council services, are devoted to the task of ensuring that the system survives. The “new idea” is that politicians pledge to work together to do “whatever it takes” to restore “stability”. The plan is that the bankers cash in and the rest of us take the pain. In that, all the major bourgeois parties are agreed in an outbreak of “bipartisanship”, which meant the House of Commons devoted an entire 19 minutes to the crisis yesterday. Democracy? It's a luxury at a time of national crisis.
Certainly there can be no effective action to prevent the descent into an unprecedented slump. And the market speculators know it, selling shares not just in banks but in retailers and manufacturers. The souring of relations between Britain and Iceland, with the government using anti-terror laws to freeze accounts, shows how the breakdown of the global financial system turns friends into enemies overnight.
We at A World to Win are not alone in pointing out that following the 1929 Crash, it took a decade and a half of the Great Depression and the destruction of surplus productive capacity and tens of millions of human beings in a world war. Only then could the 1944 Bretton Woods agreement establish the basis for restarting the process of profit making and capital accumulation.The post-war period of growth induced by a controlled expansion of the money supply began to suffer a series of worsening setbacks and shocks from the end of the 1960s. Control had given way to uncontrolled inflation and the Bretton Woods arrangements broke down in 1971. This left the world prey to three and a half decades of naked credit-led growth. This produced global corporations and subservient governments which encouraged gross over-consumption.
It had to end. More and worse financial shocks reverberated around the world throughout the 1990s. The bursting of the dot com bubble in 2000 was the writing on the wall. When the outpouring of commodities bought on credit overwhelmed the consumers’ ability to service their debts by 2004, the game was already up. (NB Chancellor Darling).
Darling says that “All forecasters, including the International Monetary Fund, have been surprised by the profound impact of this shock.” Not us, chum. We wrote about it in 2004 in our book A World to Win. And we continued to study it until, at the end of 2007, we published A House of Cards, with its prophetic sub-title, from fantasy finance to global crash.
But Darling is right about one thing, sticking to “solutions of the past” won’t do the trick. A revolutionary break with the past is needed in opposition to international plans for bailing out bankers while ordinary people suffer. We’ll be discussing our solutions on Saturday week, October 18, at the Stand Up for Your Rights festival. http://www.aworldtowin.net/about/standup.html
And, we can promise you, we won’t be talking about how to save the present financial and economic system.
Thursday, 9 October 2008
Markets are stupid
Now is the time to be saying loudly, clearly and as often as we can that markets are not, never were, and never will be, efficient nor rational. One look at the present mess belies that central claim of markets and their proponents, that markets are efficient at allocating resources. We have been told ad nauseam that things must be "left up to the market". It is time to debunk this central myth of market economics.
The "rational" thing for investors to do just now would be to hold their nerve and not sell. If everyone did so the market would not fall. But that would require the co-operation of others and market operations, with their unequal, often winner-takes-all structures lead to competition not co-operation. That barrier to co-operation is in the mind.
Social psychologists have known for 40 years that the structure of a situation can determine people's attitudes, how they see others and their willingness to co-operate. Too many economic actors have been brought up on prisoners' dilemmas, game theory, and the belief that everyone should pursue their own individual self-interest (because that is how the market operates most efficiently and produce social good in this best of all possible worlds). Worse still, these economic actors assume everyone else thinks as they do and will be have selfishly, and so the chance of getting a co-operative effort started is reduced even further.
We have known from the start that banks needed to start lending to one another again, and that the same banks will suffer if the banking system fails (and the banks themselves seem to have understood this), yet they stubbornly declined to do so. They believed "we just can't until conditions change" but conditions never were going to change for as long as they took this attitude. This is what social scientists call a social trap. The better-known tragedy of the commons (whereby individuals selfishly take more than is sustainable from the common pot until that pot is used up) is a social trap, things people fall into because they do not realise what is going on or cannot see overall outcomes.
In a true market there are just individual decisions and we only realise there is a problem after it is happened because no one is looking out for society as a whole.
Then there are social fences - things that require an effort or cost, for example, trusting others, but no one is prepared to take the first step. "Someone will always default" is the objection, which becomes a self-fulfilling prophecy. How people behave depends on how they think others will behave. If everyone has the selfish, individualist mindset, then they assume others will default and want to get there first.
Judged even by the goals of economic actors (rather than society as a whole) the market is incapable of producing rational outcomes even when its own life depends on it. Judged by society's goals it fails further still and it does so because it is the perfect breeding ground for social traps, because it prevents co-operation and because society's values cannot be represented in monetary exchanges directed by selfish individualism and the profit motive. The idea that the common good will somehow magically arise from the unco-ordinated actions of selfish actors is a myth.
The "rational" thing for investors to do just now would be to hold their nerve and not sell. If everyone did so the market would not fall. But that would require the co-operation of others and market operations, with their unequal, often winner-takes-all structures lead to competition not co-operation. That barrier to co-operation is in the mind.
Social psychologists have known for 40 years that the structure of a situation can determine people's attitudes, how they see others and their willingness to co-operate. Too many economic actors have been brought up on prisoners' dilemmas, game theory, and the belief that everyone should pursue their own individual self-interest (because that is how the market operates most efficiently and produce social good in this best of all possible worlds). Worse still, these economic actors assume everyone else thinks as they do and will be have selfishly, and so the chance of getting a co-operative effort started is reduced even further.
We have known from the start that banks needed to start lending to one another again, and that the same banks will suffer if the banking system fails (and the banks themselves seem to have understood this), yet they stubbornly declined to do so. They believed "we just can't until conditions change" but conditions never were going to change for as long as they took this attitude. This is what social scientists call a social trap. The better-known tragedy of the commons (whereby individuals selfishly take more than is sustainable from the common pot until that pot is used up) is a social trap, things people fall into because they do not realise what is going on or cannot see overall outcomes.
In a true market there are just individual decisions and we only realise there is a problem after it is happened because no one is looking out for society as a whole.
Then there are social fences - things that require an effort or cost, for example, trusting others, but no one is prepared to take the first step. "Someone will always default" is the objection, which becomes a self-fulfilling prophecy. How people behave depends on how they think others will behave. If everyone has the selfish, individualist mindset, then they assume others will default and want to get there first.
Judged even by the goals of economic actors (rather than society as a whole) the market is incapable of producing rational outcomes even when its own life depends on it. Judged by society's goals it fails further still and it does so because it is the perfect breeding ground for social traps, because it prevents co-operation and because society's values cannot be represented in monetary exchanges directed by selfish individualism and the profit motive. The idea that the common good will somehow magically arise from the unco-ordinated actions of selfish actors is a myth.
Bold? Not bold enough
Richard Murphy. (This article first appeared on Guardian Comment is Free)
In the single biggest spend by any chancellor of the exchequer ever, Alistair Darling has committed up to £500bn to saving the UK's banks from a crisis of their own making. This level of commitment is essential – yet Alistair Darling's plan is fundamentally flawed.
In the single biggest spend by any chancellor of the exchequer ever, Alistair Darling has committed up to £500bn to saving the UK's banks from a crisis of their own making. This level of commitment is essential – yet Alistair Darling's plan is fundamentally flawed.
Listening to Darling speak, it would be easy to think the investment he is making is in a modest portfolio of shares for his personal pension fund from which he hopes to make a little dividend income and a long-term capital gain. It isn't. It's enough to have purchased Lloyds TSBH, RBS, Barclays and HBOS outright last night.
That means the investment is enough to let him demand a paradigm shift in the way in which British financial services are managed forever. It's a shift most commentators realise is needed. Anglo-Saxon capitalism has failed. Our "light touch" regulation has been a disaster. The directors of our banks have been reckless. The shareholders – in effect, our pension funds – have lost enormously, and so, now, will all taxpayers. The investment in equity alone is almost half of NHS annual spending. There will be no government spending programme, whether it be health, education, law and order or the environment that will not be adversely affected by this commitment of funds for years to come.
Despite that, Alistair Darling is asking for almost nothing in exchange, just some modest pay caps and restraint on dividends: dividends the banks will not be able to pay in any case, since they are, for all practical purposes, bust right now.
As a result, Darling is missing the chance to take control of our banks: to demand they repatriate profits to the UK from those locations where they have hidden them offshore and out of his clutches in years gone by. He is not sacking those most responsible for creating the mess when he should. He is not forcing the banks to close down their massive speculative activities and to turn instead to investing in the real capacity of the UK to make a living for itself. He's not requiring that immediate action be taken to protect investors or mortgage holders who are in trouble: the people who will be paying for this bail-out. He's not asking the banks to float off their profitable activities to pay back his cash at the first possible opportunity as any commercial investor would. He's not putting his people in charge to ensure that these banks comply with the requirements of regulation, disclosure and accountability henceforth. Unbelievably, he's simply gifting more taxpayers' money than has ever been spent in a single day to those who have proven their unlimited capacity to lose it.
This will be a disaster for us all – and all because he and the Treasury are still frightened of bankers. It's a fear they need to be put behind them. These people are fallible. So is the system they have promoted. It's time Darling placed his faith in the awkward squad: those who have stood outside the system and criticised it, even when all around said it was delivering wealth. It is they who saw through the illusion. It is they who should now be sitting on the boards of these banks.
Now, it is the job of the House of Commons to make him change his mind about this. The House of Representatives demanded that Paulson be held to account. Can our MPs do the same for Darling? It is their democratic duty to do so.
Now, it is the job of the House of Commons to make him change his mind about this. The House of Representatives demanded that Paulson be held to account. Can our MPs do the same for Darling? It is their democratic duty to do so.
Wednesday, 8 October 2008
Reckless with our money - verdict on the bailout
John McDonnell, LEAP Chair (This article first appeared on Guardian Comment is Free)
The British government has announced a £50bn part-nationalisation scheme. As someone who has been calling for the nationalisation of the banking sector since this crisis began, I should be satisfied.
However, as more details of this package emerge left economists and Labour MPs are increasingly alarmed. The deal is incredibly reckless: the government will only take preference shares in the banks in exchange for a massive investment of taxpayers' cash. The only potential advantage for taxpayers is in dividend payments, if there are any, crucially though the government will have no controlling stake. This in effect is handing over taxpayers' money to the very people who led these banks to the brink of collapse.
If the government is injecting public money, it should also take the right to oversee board appointments, executive pay, and future business operations. The government argues that by taking preference shares, the taxpayer will have first call on dividends. However, the only banks that will come forward to use this £50bn facility will be those in trouble. The market capitalisation of these banks has only been sustained at all by the prospect of a government bail out. Many of these banks are actually bust. Therefore there will be no dividends, we are throwing good public money after bad.
The government should be ensuring the public is protected through cuts in consumer borrowing rates – ensuring that people do not default on their debt and mortgage payments; giving a no-repossession guarantee, providing people with a "right to stay" in their homes – by converting repossessions to social rentals; and securing the jobs of those workers now threatened with redundancy as their bosses' kamikaze capitalism unravels.
But to do that, we would have to take a controlling stake. We should have nationalised to stabilise, with control for the taxpayer to have scrutiny of the banks' accounts, representation on the boards, a pay cap for bank directors and the end of excessive bonuses.
This may prop up a failing system in the short term, but in the medium to long term this deal will have to be paid for and this can only come through either tax rises or (more likely) through public expenditure cuts. This will exacerbate the recession by reducing demand. So while the package might prop up the banks in the short term, it risks further damaging the entire economy in the long term.
This deal is like your neighbour going on a massive spending binge – throwing a party, buying a new car, going on holiday – and then sending you the bill. Taxpayers will end up paying doubly, once through loose subsidies to dodgy banks and the second time as the recession bites and they risk losing their jobs, homes and going further into debt.
At that point they will rightly be asking the government: "Where is the bailout for the British public?"
The British government has announced a £50bn part-nationalisation scheme. As someone who has been calling for the nationalisation of the banking sector since this crisis began, I should be satisfied.
However, as more details of this package emerge left economists and Labour MPs are increasingly alarmed. The deal is incredibly reckless: the government will only take preference shares in the banks in exchange for a massive investment of taxpayers' cash. The only potential advantage for taxpayers is in dividend payments, if there are any, crucially though the government will have no controlling stake. This in effect is handing over taxpayers' money to the very people who led these banks to the brink of collapse.
If the government is injecting public money, it should also take the right to oversee board appointments, executive pay, and future business operations. The government argues that by taking preference shares, the taxpayer will have first call on dividends. However, the only banks that will come forward to use this £50bn facility will be those in trouble. The market capitalisation of these banks has only been sustained at all by the prospect of a government bail out. Many of these banks are actually bust. Therefore there will be no dividends, we are throwing good public money after bad.
The government should be ensuring the public is protected through cuts in consumer borrowing rates – ensuring that people do not default on their debt and mortgage payments; giving a no-repossession guarantee, providing people with a "right to stay" in their homes – by converting repossessions to social rentals; and securing the jobs of those workers now threatened with redundancy as their bosses' kamikaze capitalism unravels.
But to do that, we would have to take a controlling stake. We should have nationalised to stabilise, with control for the taxpayer to have scrutiny of the banks' accounts, representation on the boards, a pay cap for bank directors and the end of excessive bonuses.
This may prop up a failing system in the short term, but in the medium to long term this deal will have to be paid for and this can only come through either tax rises or (more likely) through public expenditure cuts. This will exacerbate the recession by reducing demand. So while the package might prop up the banks in the short term, it risks further damaging the entire economy in the long term.
This deal is like your neighbour going on a massive spending binge – throwing a party, buying a new car, going on holiday – and then sending you the bill. Taxpayers will end up paying doubly, once through loose subsidies to dodgy banks and the second time as the recession bites and they risk losing their jobs, homes and going further into debt.
At that point they will rightly be asking the government: "Where is the bailout for the British public?"
The UK Bailout - who pays?
As the BBC is reporting, the Government has unveiled a £50bn rescue package for the banks.
John McDonnell MP, LEAP Chair, said:
"Yet again the taxpayer is being asked to pay for the mistakes of the bankers with next nothing in return. The Governments set to throw £50 billion of taxpayers' money at the banking sector's failures. I believe that the Government should nationalise to stabilise the banks. At a minimum the Government must place conditions on any bail out including
1) Full public and parliamentary scrutiny of the banks' accounts
2) Representation on the boards
3) No repossession of homes
4) A pay cap for bank directors and the end of bonus binges
5) Reduction of consumer interest rates on borrowing
"Without these conditions, the bail out is nothing but a subsidy by the taxpayer to the very people who have brought our economy to the brink of collapse."
View John McDonnell's letter in today's Guardian, plugging the People's Programme.
Come and debate the crisis at the LEAP Rally - Who Pays for the Credit Crunch? on Monday 13th October.
For more expert analysis see Richard Murphy's blog and the A World to Win blog.
John McDonnell MP, LEAP Chair, said:
"Yet again the taxpayer is being asked to pay for the mistakes of the bankers with next nothing in return. The Governments set to throw £50 billion of taxpayers' money at the banking sector's failures. I believe that the Government should nationalise to stabilise the banks. At a minimum the Government must place conditions on any bail out including
1) Full public and parliamentary scrutiny of the banks' accounts
2) Representation on the boards
3) No repossession of homes
4) A pay cap for bank directors and the end of bonus binges
5) Reduction of consumer interest rates on borrowing
"Without these conditions, the bail out is nothing but a subsidy by the taxpayer to the very people who have brought our economy to the brink of collapse."
View John McDonnell's letter in today's Guardian, plugging the People's Programme.
Come and debate the crisis at the LEAP Rally - Who Pays for the Credit Crunch? on Monday 13th October.
For more expert analysis see Richard Murphy's blog and the A World to Win blog.
Tuesday, 7 October 2008
LEAP Summit: Who Pays for the Credit Crunch?
'Who Pays for the Credit Crunch?'
Monday 13th October 08
7.30pm
Committee Room 10, House of Commons
7.30pm
Committee Room 10, House of Commons
Chair: John McDonnell MP
Speakers include: Brian Caton (POA), Jeremy Dear (NUJ), Kelvin Hopkins MP, Mark Serwotka (PCS), Prem Sikka (Prof. of Accountancy, University of Essex), Graham Turner (author of 'The Credit Crunch') plus others
John McDonnell, LEAP Chair, said
"My view is clear – the key question is who should pay for this crisis? Pouring taxpayers money into bailing out the banks by recapitalisation without nationalisation will mean that ordinary taxpayers pay for the crisis caused by the mistakes and greed of the bankers. Nationalisation to control the banks, prevent repossessions and halt company closures is the only way to provide the security needed."
See A People's Programme for the Crisis by LEAP - and have your say.
People's Programme underestimates crisis
The People’s Programme for the Crisis, distributed in the name of LEAP as the world’s stock markets went into free-fall, is in danger of underestimating the nature of the unprecedented economic, social and political conditions we are living through. The fear of outright financial collapse and economic slump is evident in every newspaper. Ruling political elites on both sides of the Atlantic are preparing for the worst while in public hoping for the best.
There were persistent reports that members of the House of Representatives were warned that failure to pass the $700 billion bail-out package could lead to martial law and the deployment of troops on the streets. In Germany, mindful of the consequences of economic collapse from history, the government legalised the domestic military operations of the Bundeswehr while it tried to rescue Hypo Real and other banks. In Britain, the consensus growing around New Labour smacks of coalition government.
The recall of Peter Mandelson, a key advocate and exponent of the neo-liberal agenda, and the inclusion of financier Paul Myners as minister for the City as part of the economic “war cabinet” strengthens the capitalist outlook of New Labour. One cabinet minister reportedly said: “British business will be thinking, actually, Peter Mandelson's a good person to be in charge of our interests in government."
For those in the labour movement who seriously want to confront the issues, the global credit crisis provides unparalleled opportunities to expose not just the failure of capitalism as an economic and financial system but also to expose New Labour. Ordinary people in financial difficulties as a result of losing their jobs, rising loan charges or lack of credit are left to their own devices. They are at the mercy of the very same banks that are being lined up for a massive government hand-out. Increasing numbers of people’s homes are being repossessed while the bankers form a queue for state aid.
The financial meltdown thus has the merit of clearing the air in a political sense. Who can deny now that the New Labour government is a corporate and bankers’ regime, which is deploying the power and resources of the capitalist state to try and save the system from itself? Where are the differences in outlook between New Labour and other capitalist parties like the Tories or Liberal Democrats? You can use a microscope if you want, but you won’t discover anything significant.
In these circumstances, there is absolutely no point in focusing protest and pressure on the New Labour government in the hope that it may somehow, in some miraculous, semi-religious fashion, undergo a conversion and become anti-capitalist. New Labour is what it is and has been since the Blair/Brown/Mandelson counter-revolution that began in the early 1990s.
Under these conditions, LEAP’s appeal to the New Labour government “to act urgently to protect the British people against the economic turmoil that was not of their making” is at best even-handedly misguided, and is in danger of lending credibility to the government at a time when it is rapidly losing the plot.
The policy proposals are themselves somewhat unrealistic, irrespective of who they are addressed to. Nationalising the banks is a challenging prospect given that Barclays PLC for example, ranked as the 25th largest company in the world, is a major global financial services provider operating in Europe, North America, the Middle East, Latin America, Australia, Asia and Africa.
Cutting interest rates can have little effect on the global crisis and risks a further inflationary surge to add to the close to 50% hike in electricity bills, and 15+% rise in grocery bills already experienced this year. Reducing the influence of the Bank of England is advocated at a time when it has already been greatly diminished by the globalisation of the financial system. Converting repossessions to social rentals is progressive but leaves the majority trapped into repaying vastly inflated mortgage debt. Strengthening rights and representation at work will not answer mass unemployment as long as the system of private ownership of global corporations is left in place.
A new line of attack is required. LEAP should seize the chance created by the crisis to campaign in the labour and trade union movement against the government, in the spirit that workers fought the Callaghan government in 1978-9, whose policies opened the door for Thatcherism (and later, Blairism).
Such a campaign could easily show how the crash of 2008 arises from a system based on the ruthless pursuit of profit and that alternatives are urgently needed from a practical point of view. Policies developed in opposition to a bankers’ bail-out would raise the possibility of reorganising the economy along not-for-profit lines. This could best be done by revisiting some well-established principles in the light of conditions transformed by corporate-driven globalisation.
They could, for example, incorporate new forms of democratic power. Democracy could and should be extended through co-operative forms of ownership and workplace control of major corporations, enterprises and services. Restoring the right to strike and freedom for trade unions along with new social rights in areas such as housing, education, transport and care would be essential. LEAP should use its connections to seize the initiative and urge supportive trade union leaders to adopt this strategy and mobilise their members around a programme of action.
As to who is to implement such a democratic socialist programme – given that New Labour can’t and won’t - this question of questions will need to be raised, discussed, debated and resolved in the course of building an independent movement to defend jobs and living standards at the expense of capitalism itself.
There were persistent reports that members of the House of Representatives were warned that failure to pass the $700 billion bail-out package could lead to martial law and the deployment of troops on the streets. In Germany, mindful of the consequences of economic collapse from history, the government legalised the domestic military operations of the Bundeswehr while it tried to rescue Hypo Real and other banks. In Britain, the consensus growing around New Labour smacks of coalition government.
The recall of Peter Mandelson, a key advocate and exponent of the neo-liberal agenda, and the inclusion of financier Paul Myners as minister for the City as part of the economic “war cabinet” strengthens the capitalist outlook of New Labour. One cabinet minister reportedly said: “British business will be thinking, actually, Peter Mandelson's a good person to be in charge of our interests in government."
For those in the labour movement who seriously want to confront the issues, the global credit crisis provides unparalleled opportunities to expose not just the failure of capitalism as an economic and financial system but also to expose New Labour. Ordinary people in financial difficulties as a result of losing their jobs, rising loan charges or lack of credit are left to their own devices. They are at the mercy of the very same banks that are being lined up for a massive government hand-out. Increasing numbers of people’s homes are being repossessed while the bankers form a queue for state aid.
The financial meltdown thus has the merit of clearing the air in a political sense. Who can deny now that the New Labour government is a corporate and bankers’ regime, which is deploying the power and resources of the capitalist state to try and save the system from itself? Where are the differences in outlook between New Labour and other capitalist parties like the Tories or Liberal Democrats? You can use a microscope if you want, but you won’t discover anything significant.
In these circumstances, there is absolutely no point in focusing protest and pressure on the New Labour government in the hope that it may somehow, in some miraculous, semi-religious fashion, undergo a conversion and become anti-capitalist. New Labour is what it is and has been since the Blair/Brown/Mandelson counter-revolution that began in the early 1990s.
Under these conditions, LEAP’s appeal to the New Labour government “to act urgently to protect the British people against the economic turmoil that was not of their making” is at best even-handedly misguided, and is in danger of lending credibility to the government at a time when it is rapidly losing the plot.
The policy proposals are themselves somewhat unrealistic, irrespective of who they are addressed to. Nationalising the banks is a challenging prospect given that Barclays PLC for example, ranked as the 25th largest company in the world, is a major global financial services provider operating in Europe, North America, the Middle East, Latin America, Australia, Asia and Africa.
Cutting interest rates can have little effect on the global crisis and risks a further inflationary surge to add to the close to 50% hike in electricity bills, and 15+% rise in grocery bills already experienced this year. Reducing the influence of the Bank of England is advocated at a time when it has already been greatly diminished by the globalisation of the financial system. Converting repossessions to social rentals is progressive but leaves the majority trapped into repaying vastly inflated mortgage debt. Strengthening rights and representation at work will not answer mass unemployment as long as the system of private ownership of global corporations is left in place.
A new line of attack is required. LEAP should seize the chance created by the crisis to campaign in the labour and trade union movement against the government, in the spirit that workers fought the Callaghan government in 1978-9, whose policies opened the door for Thatcherism (and later, Blairism).
Such a campaign could easily show how the crash of 2008 arises from a system based on the ruthless pursuit of profit and that alternatives are urgently needed from a practical point of view. Policies developed in opposition to a bankers’ bail-out would raise the possibility of reorganising the economy along not-for-profit lines. This could best be done by revisiting some well-established principles in the light of conditions transformed by corporate-driven globalisation.
They could, for example, incorporate new forms of democratic power. Democracy could and should be extended through co-operative forms of ownership and workplace control of major corporations, enterprises and services. Restoring the right to strike and freedom for trade unions along with new social rights in areas such as housing, education, transport and care would be essential. LEAP should use its connections to seize the initiative and urge supportive trade union leaders to adopt this strategy and mobilise their members around a programme of action.
As to who is to implement such a democratic socialist programme – given that New Labour can’t and won’t - this question of questions will need to be raised, discussed, debated and resolved in the course of building an independent movement to defend jobs and living standards at the expense of capitalism itself.
Monday, 6 October 2008
A People's Programme for the Crisis
The Government needs to act urgently to protect the British people against the economic turmoil that was not of their making, but is now resulting in them losing their jobs, and struggling to pay their rent or mortgage, and fuel bills. There should be no blank cheques to bail out the banks that contributed to this crisis.
We are calling upon the Government to implement a people's programme to protect our people from the crisis not just the bankers, including:
1) nationalising the banks and establishing democratic control over banking decisions, ensuring democratic representation on boards, ending the bonus binges, controlling executive pay and share holder rewards;
2) Cutting interest rates significantly and immediately, restoring democratic control over key economic decisionmaking by not only widening the remit of the Bank of England beyond ensuring price stability to advising on the wider economic health of the country but also reverting the bank's role to being one voice amongst many others to be taken into account;
3) Securing people a home by converting repossessions to social rentals so that people have a 'right to stay' in their homes and embarking on a massive council house-building programme;
4) Enhancing security in employment by ensuring people have a say over the future of the companies by strengthening rights and representation at work;
5) Bring fuel bills under control with price controls on the consumer price of gas and electricity, so that people are not being forced to choose between heating and eating this winter, with the threat of nationalisation if needed.
We call on all people to support these measures and to campaign to the Government for their implementation.
If you would like a speaker from LEAP at your union or CLP meeting, please email LEAP.
Thursday, 2 October 2008
Nationalisation - in whose interest?
Gregor Gall
(A version of this article first appeared in the Morning Star)
State intervention and nationalisation are both back with an incredible bang. Suddenly, TINA – there is no alternative – to the free market looks as hollow as Brown's promise to end the cycle of boom and bust. Indeed, state intervention has been used to back up the so-called free market. Taxpayers', not private, money has been ploughed into doing this.
It just goes to show that in this age of globalisation and neo-liberalism the state and market regulation are still very important to capitalism, particularly when it is facing financial and economic meltdown.
The downright annoying aspect is that the bailouts we've seen here and in the United States are nationalisations by the right 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 sure the senior management was changed when Northern Rock was nationalised but one set of capitalist managers was replaced by another set. The same will be true of Bradford and Bingley. The nationalisations were not to safeguard jobs or workers' conditions or people's savings but the financial system in Britain upon which capitalism and profits heavily depend.
If the left is to make headway right now, we must start getting our ideas about public and social ownership out into the media, into union members' heads and onto people's radar screens.
We need to start off with what public and social ownership are not. We're not calling for a return to the age of nationalisation, where civil servants ran the industries in undemocratic and unaccountable ways. Jobs were not safeguarded and services were often poor. We're also 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 we've learnt are that whilst coordination and planning are needed, we should have decentralised structures that allow participation and that the process is one of bottom up democracy not top down diktat.
One model of social ownership, for say, public transport (buses, railways, ferries) would be that the boards of management consists 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 here 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 we can explore in more depth later once we have won the debate on the need for public or social 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 government 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 in laying bills before Parliament to put organisations into social 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.
In New Zealand, after a period of brutal Thatcherism in the 1990s, the left-leaning coalition government has made moves to start to bring back some services (rail, air) and sectors (banking) of the economy back into state control. This may not be exactly what we are after but it does show that our calls are not going to be silent cries in the dark if we pitch them in the right way and loudly enough.
One good starting point is a new pamphlet just published by the Left Economic Advisory Panel which is part of the Labour Representation Committee headed by John McDonnell MP. It's called 'Building the new common sense: social ownership in the 21st century'. It has contributions from RMT general secretary, Bob Crow, and former Morning Star economics editor, Jerry Jones, amongst others. Copies can be bought for £3 either online at www.l-r-c.org.uk or by sending a cheque payable to 'Another World is Possible' to LEAP, PO Box 2378, London, E5 9QU.
Wednesday, 1 October 2008
Do what is needed, not 'what it takes'
John McDonnell MP, writing for Guardian Comment is Free on the financial crisis and what a Labour Government should do.
Careful thought has been given to the form of words to be used by the prime minister in reacting to the latest crisis of capitalism. There have been repeated assurances that the PM will "do what it takes". The Conservatives and Liberal Democrats have rallied round in almost patriotic fervour to support the government in doing "what it takes".
But "do what it takes" to do what?
Stabilise a system which has allowed homelessness in our country to double over the last decade? Bail out speculators whose obscene incomes and binge consumerism has created a society more unequal than at any time since the 1940s? Attempt to restore confidence in a system which has allowed 3 million of our children to continue living in poverty after 11 years of a Labour government?
And who is going to pay for enabling the prime minister with the support of the Cameron-Cable coalition to "do what it takes"? People are already paying for the crisis and are increasingly facing real hardship. The number of missed mortgage payments is up 50%, repossessions are up by 48%, unemployment has risen in each of the last seven months, electricity bills are up 18% and gas bills 28%, child poverty has increased in each of the last two years, and 20,000 pensioners are dying each winter from cold-related illnesses.
The government must do what is needed, not what it takes. What is needed first is an honest debate about how we got into this mess. The government has a duty to lead the debate on the fundamental causes of this crisis and the Labour party has a once-in-a-generation opportunity to lead the discussion of the profound changes needed in our society to transform an economic system that creates poverty, insecurity and inequality.
The seeds of this crisis were sown in the 1980s, when the belief in the unfettered free market moulded the attitudes of a generation of political leaders. Concreted into all governments' policy since has been that it is neither possible nor desirable for governments to seek to fetter finance capital nationally or globally, but labour costs must be constrained by privatisation, deregulation and restraining employment rights. In this market state, the provision of housing, energy, water, health, and education become less and less the essentials of life for which government stands as guarantor and more and more commodities for sale and opportunities for speculative profit-making. If prices soar and wages are held down, demand is reduced but debt can take up the slack to keep the boom going.
After three decades of the reign of the economic law of the jungle we can now reassert the basic principle that rational democratic government must control our destinies, not the irrational forces of the market motivated by rumour, speculation and profiteering. Market solutions to market failure will simply risk an unstable rerun of the same mistakes.
The government could take four simple steps to demonstrate decisively who is in control:
First, rather than reacting on a case-by-case basis as firms collapse, the government should act decisively by nationalising now all those financial institutions involved in home loans or at least taking a determining equity stake in these bodies. The current policy of bail-outs and nationalising the losses whilst privatising the profits of the banks means that ordinary people will eventually pay the cost of market failure. Repeated bail-outs caused Japan's government debt to soar from 65% to 175% of the country's GDP. In contrast, Sweden part-nationalised its banks in 1992 when their imprudence led them to the brink of collapse.
Second, to avert the prospect of the longest and deepest recession in living memory, the government must reassert democratic control of economic policy by overriding the Bank of England monetary policy committee (MPC) and cutting interest rates significantly. The remit of the MPC could be widened beyond ensuring price stability to advising on the wider economic health of the country but the bank's policy role should revert to being one voice amongst many others to be taken into account when democratic government not bankers determine our economic policy.
Third, the government must re-establish its role in the provision of secure housing, democratically accountable public services and affordable energy. The government programme needed is blindingly obvious – a massive social house-building programme, repossessions converted to social rentals, ending the privatisation mania, and control of fuel prices or re-nationalisation of energy companies.
Four, at a time of economic downturn, the government must ensure that people are secure in their jobs and that their pay reflects the cost of living – this means abolishing Brown's public sector pay cap, making the minimum wage a living wage, and restoring trade union rights.
If the role of democratic government is reasserted, the real debate can now start on what type of democratic government is needed.
Read more from John at www.johnmcdonnell.org.uk
Cutting interest rates a vital first step, says LEAP
On Thursday 9th October the Bank of England's Monetary Policy Committee will meet to discuss the whether to keep interest rates on hold at 5% or to cut them. The Left Economics Advisory Panel (LEAP) is calling for a significant cut. This follows a call from the TUC for "aggressive" rate cuts.
John McDonnell MP, LEAP Chair, said:
"To avert the prospect of the longest and deepest recession in living memory, the Government must reassert democratic control of economic policy by overriding the Bank of England Monetary Policy Committee (MPC) and cutting interest rates significantly, if it does not act to cut rates hard and fast.
"The remit of the MPC should be widened to advising on the wider economic health of the country, but the Bank’s policy role should revert to being one voice among many others to be taken into account when democratic Government, not bankers, determine our economic policy."
Graham Turner, economist and author of The Credit Crunch, said:
"Following the nationalisation of Bradford & Bingley, the case for an early and decisive rate cut in interest rates is overwhelming. The collapse of the Congress bailout and the persistent upward pressure on borrowing costs have also heightened the need for swift action from the MPC.
"Repeated liquidity injections are not the answer to the current banking crisis. The core problem is one of solvency, not liquidity. By failing to cut interest rates, the MPC has ensured the housing market will continue to slide into 2009, endangering more banks.
"And unemployment is set to rise sharply. Wages have not responded to the spike in headline inflation, as feared by some members of the MPC. With the honourable exception of David Blanchflower, the MPC has overstated the second-round effects from rising energy prices, exposing their lack of understanding over how globalisation has fundamentally changed the world economy.
"Furthermore, the sharp downturn in the Industrialised West has spilled over into emerging market economies, precipitating steep declines in commodity prices. Inflation will fall quickly next year, and could even be back within target by the mid-point of 2009. The Bank of England should not wait for confirmation of this swift reversal. It should act now in accordance with its mandate.
John McDonnell MP, LEAP Chair, said:
"To avert the prospect of the longest and deepest recession in living memory, the Government must reassert democratic control of economic policy by overriding the Bank of England Monetary Policy Committee (MPC) and cutting interest rates significantly, if it does not act to cut rates hard and fast.
"The remit of the MPC should be widened to advising on the wider economic health of the country, but the Bank’s policy role should revert to being one voice among many others to be taken into account when democratic Government, not bankers, determine our economic policy."
Graham Turner, economist and author of The Credit Crunch, said:
"Following the nationalisation of Bradford & Bingley, the case for an early and decisive rate cut in interest rates is overwhelming. The collapse of the Congress bailout and the persistent upward pressure on borrowing costs have also heightened the need for swift action from the MPC.
"Repeated liquidity injections are not the answer to the current banking crisis. The core problem is one of solvency, not liquidity. By failing to cut interest rates, the MPC has ensured the housing market will continue to slide into 2009, endangering more banks.
"And unemployment is set to rise sharply. Wages have not responded to the spike in headline inflation, as feared by some members of the MPC. With the honourable exception of David Blanchflower, the MPC has overstated the second-round effects from rising energy prices, exposing their lack of understanding over how globalisation has fundamentally changed the world economy.
"Furthermore, the sharp downturn in the Industrialised West has spilled over into emerging market economies, precipitating steep declines in commodity prices. Inflation will fall quickly next year, and could even be back within target by the mid-point of 2009. The Bank of England should not wait for confirmation of this swift reversal. It should act now in accordance with its mandate.
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