Thursday, 29 April 2010
One of the major credit rating agencies, Standard & Poors, describes itself as "a leader of financial-market intelligence", while another, Moody's, modestly says its "commitment and expertise contribute to stable, transparent and integrated financial markets, protecting the integrity of credit".
Cast your mind back however to the beginning of this crisis - when the 'credit crunch' euphemism was still being used. What happened? A large number of structured investment vehicles, special purpose vehicles and collateralised debt obligations were found to be worthless - bundled up packages of unrepayable sub-prime mortgages and the like.
Now why would banks have traded these disastrous investments? The answer lies in the credit rating agencies which rated these truly junk investments as AAA in many cases. And who pays credit rating agencies to give a rating? The selling bank. So if you're client comes to you, and pays you lots of money to give something it is trying to sell a rating, do you (a) please your client; or (b) give an honest assessment? The credit crunch answered that question, yet still the credit rating agencies deem themselves fit to tell the world what is a good investment or not.
Is the Greek economy really more risky than a bundle of sub-prime mortgages? No - though there are problems. And what about Spain, Portugal, Italy and the UK, all highly indebted? Let's look at the effect of downgrades or the threat of downgrades:
1) It makes the interest rate on loans higher
2) It deters investors from buying debt / making further loans
3) This forces further austerity measures
The immediate effect on Greece has been further calls from creditors for more 'reform' and 'austerity measures'. This means the market taking more control through privatisation and the Greek people paying with cuts to their services, pensions and benefits. Fearing it could be downgraded to 'junk' next, Portugal announced tougher austerity measures yetserday - held at gunpoint to pay for the crisis by the very people who caused the crisis.
This is the problem of the credit markets being almost entirely unregulated and totally in private hands. Gangster capitalism is thriving
Wednesday, 28 April 2010
Tuesday, 27 April 2010
Part-nationalised Lloyds Banking Group has announced that it was back in profit, with the government's shares now reported to be worth £2 billion more than the Treasury paid for them.
Lloyds, which is 41 per cent owned by the taxpayer, said "positive trends" in its business and wider economy helped it return to profit in the first quarter.
The group did not provide a profit figure, but news that it clawed out of the red marks a significant turnaround on the £6.3 billion losses reported for 2009 after the HBOS takeover and credit crunch left Lloyds with £24bn in bad debts.
The Guardian claimed that the taxpayer stood to gain a total paper profit of £10bn following surprise increases in share prices at Lloyds and the Royal Bank of Scotland, which is 84 per cent state-owned.
Left Economics Advisory Panel co-ordinator Andrew Fisher said that Lloyd's profit announcement had made the case for nationalising the lucrative banking system and using the gains to plug the massive deficit rather than slashing public services.
Speaking while on the campaign trail for west London Labour MP John McDonnell, he said: "If we had properly nationalised these bailed-out banks in the first place, any profits would have gone straight into the Exchequer rather than remain as paper profit."
Lloyds has come under fire for offering huge bonuses to chief executive Eric Daniels.
He stands to reap a potential £6.2 million in salary and options for 2010 if the bank meets a series of targets.
Saturday, 17 April 2010
by Louise Nousratpour
The competition watchdog has fined 10 retailers and two tobacco manufacturers £225 million for "unlawful practices" in pricing of cigarettes, cigars and rolling tobacco.
The fine - the largest total ever imposed by the Office of Fair Trading (OFT) - came after Imperial Tobacco and Gallaher struck "price-matching" arrangements with retailers in which the prices of their tobacco products were linked to those made by rivals.
The watchdog said that the agreements over price fixing between rival brands were "unlawful" because "they can lead to reduced competition and ultimately disadvantage consumers."
Left Economic Advisory Panel co-ordinator Andrew Fisher welcomed the OFT fines, which he said exposed "the lies in the rhetoric of big business. Far from the mythical free-market economy, big business seeks a monopolised stranglehold over consumers."
Mr Fisher added: "The value of the OFT has also been highlighted and it's no surprise that the favourite party of big business - the Tories - is calling for a 'bonfire of the quangos.' Both consumers and government revenues would be worse off without the OFT."
The retailers caught up in the case were Asda, the Co-operative Group, First Quench, Morrisons, One Stop Stores (formerly T&S Stores), Safeway, Sainsbury's, Shell, Somerfield and TM Retail - the owner of the McColls and Martins chains.
Safeway has since been bought by Morrisons, the Co-operative has acquired Somerfield and First Quench, which owned off-licence Threshers, went into administration last year.
Imperial Tobacco, whose tobacco brands include Lambert & Butler, received the biggest fine - £112.3m - but denied "categorically" that its pricing practices were anti-competitive or affected consumers.
The group plans to appeal.
Thursday, 15 April 2010
Unions had the power to reject neoliberalism and change party agendas. Instead, they support Labour as the least worst option
With around 7 million members, the biggest membership of any voluntary organisations, the trade unions could and should be making a much better fist of influencing the election's overall political agenda.
The need to protect members' interests is paramount after the deepest recession in living memory, the huge national debt to bail out the banks and businesses, and the clear intent of all three major parties to cut public services to pay off this debt.
And the unions have the resources to put action behind their words. Nearly all have funds to spend on political campaigning and they have hundreds of thousands of activists to knock on doors and make phone calls. But when it comes to where they line up on the big issues of the day, the vast majority miss the trick.
Fifteen unions are affiliated to Labour, representing 4.45 million workers (or 64% of all members). Of these, Unite, Unison and the GMB are by far the biggest.
These unions call for a vote for Labour to stop the Tories, with little in the way of positive enthusiasm for Labour. Of these, Unite is the most stridently and unambiguously pro-Labour while Unison is more guarded.
But rather than take the attitude of "better the devil you know", or supporting the party whose cuts will be least, the unions together could have influenced the entire political agenda by moving its centre of gravity far away from neoliberalism, the proverbial elephant in the room of this election.
Together, they could have said: "We reject 'the market knows best' where profits come before people", mobilised their members around this, and done so before now. If they had done this, the idea that markets can be regulated to protect the common good would already be part of the popular common sense. And, all the parties would have had to accommodate this. Only the PCS union with its "Make your vote count" campaign and the RMT through its support for No2EU and the Trade Unionists and Socialist Coalition have made any attempt to do this.
Instead most – one way or another – end up endorsing Labour as the least worst option. They think it has the better plans for growth (even though this is essentially from trickledown economics). Their bottom line is pretty much jobs at any price and forget about the type of jobs they are. This is the inevitable result when you give up trying to regulate the market – instead, you become beholden to it.
The tragedy is that Labour is still intent upon further privatisation and marketisation, behind all the guff about "a future fair for all". It is still far more business than worker-friendly. And that is truly self-defeating for the unions.
Tuesday, 13 April 2010
The Tories unveiled their manifesto yesterday. Peel away the 'back of the envelope' people power puff, and what remains? The same Tory policies we'd all expected:
Redistribution of wealth . . . to the rich:
- Raising the inheritance tax threshold to £1m will cost the Exchequer hundreds of millions in lost revenue from relatively wealthy people. It is a regressive tax cut that benefits only a wealthy few
- Likewise cutting the proposed rise in national insurance, described as ("Labour plans to raise the Employees’ National Insurance Contributions (NICs) for everyone earning over £20,000 by 1 per cent") neatly obscures the fact that there is also a 1% increase for employers, which the Tories will also cut. While, due to the ceiling at around £35,000, NI is a regressive tax - cutting employers' contributions is redistributing wealth to business
- The manifesto also promises "we will cut the headline rate of corporation tax to 25p". Bear in mind when John Major left office after 18 years of Tory rule it was 33%, and Labour has cut that to 28%. This is a massive redistribution of wealth to big business
- Raising the stamp duty threshold to £250,000 is a tax cut for those buying their own home, but the manifesto says nothing about the 1.8 million families on council house waiting lists
They also promise to cut the bulk of the deficit over a Parliament (i.e. going further than Labour). So, like Labour, it's cuts, cuts, cuts - but with some more redistribution to the rich and powerful sprinkled on top.
Lord Mandelson promised it would be a "pro-business" manifesto, and described it yesterday as a "Blair-plus" manifesto. It certainly looked that way with promises to cut £6 billion of regulation on business by 2015 and keep business taxes "competitive".
Considering New Labour has already cut corporation tax from 33% to 28%, which over 13 years has cost the Exchequer £50 billion in lost revenue, it makes it galling that business is bleating about an extra 1% of national insurance.
The Manifesto refers to "the recession created by the financial crisis" but it seems to be mainly public sector workers who will be paying for it. The manifesto refers to "tough choices" (i.e. cuts) on public services, and commits to £15bn efficiency savings (i.e. cuts) in 2010-11, and a further £11bn by 2012-13.
There will also be a 1% cap on public sector pay in 2011-12 and 2012-13. Bearing in mind inflation is currently 3.5%, public sector workers are being promised a real terms pay cut for another two years.
The manifesto also promises a £20 billion programme of asset sales (i.e. privatisation) by 2020.
There will also be more outsourcing in the running of services, with "greater support for third-sector organisations in competing for public-sector contracts" and "if the local school is underperforming it will be taken over" (hinting at more City Academies).
There is of course the same rhetoric about protecting frontline services, but the "tougher than Thatcher" cuts that Darling talked about, and the scale of cuts to halve the deficit, are still hidden it seems . . .
There were however some good things in the manifesto: the National Minimum Wage will rise at least in line with average earnings in the future, which is very welcome given that the last 3 years it has risen below inflation.
Also the Government will implement the living wage (£7.60 per hour) across all government departments - which will be good news for National Gallery workers who have recently been on strike.
The manifesto also promises to keep the Royal Mail in the public sector, re-link pensions to earnings, and double paternity leave to four weeks.
The only mention of the tax gap comes under section on 'global future': "Further action will be taken to strengthen developing countries’ tax systems, reduce tax evasion, improve reporting, and crack down on tax havens."
Tax evasion, avoidance and non-collection costs over £120bn here in UK – now that really could tackle the deficit and be 'fair for all'
Thursday, 8 April 2010
Uncertainty grips the markets
The value of the pound fell in response to the official launch of the election campaign as foreign exchange markets reacted to the distinct possibility that it could produce weeks of wrangling over which leader or leaders and which party or parties are left in charge of the British economy.
It’s not that dealers are consciously “sending a message” to the electorate or even the candidates, though that is how their actions are translated into news reports for public consumption and interpreted by the contending parties. Market traders are directing their attention to the single-minded pursuit of profit.
It is their perception of the actual and likely trajectory of political change that affects and responds to actual and predicted movements in the relative price of currencies on international markets. The same logic determines the price at which government bonds change hands, and the interest rates attached to them.
As the period of profit derived from the growth of globalising corporations waned in the 1990s, world economic expansion became increasingly dependent on credit to fund both the production and consumption sides of the equation.
This coincided with the coming to power in Britain of New Labour. Gordon Brown was its Chancellor for most of the period, single-mindedly working to build relationships with the heads of the global financial institutions by turning the City of London into the world’s most attractive place for them to do business.
And the business was credit. Britain became a central hub for financial transactions. As time passed, the balloons of fantasy finance needed to keep the global capitalist economy from shrinking were inflated to unsustainable pressure.
When all that collapsed, Brown was to the fore, leading the world in shoring it up again through the invention and deployment of new, ever more fantastic sources of credit. Britain’s personal, corporate and government combined debt in relation to its annual output exploded, surpassing every other country.
But now it is payback time. Investors who bought government bonds with credit given to them by those very same governments want to see some return on “their” capital. The concern is that the debts have grown so high that they can’t be serviced, let alone repaid. Just like the default on sub-prime mortgages that triggered the collapse in 2007. Only on a much grander scale.
Payback will require governments to inflict unprecedented pain on their electorates. Investors, speculators and market traders will only put their money into places where governments show the greatest determination to extract the value needed to service their debts. An indeterminate election on May 6 is not what the markets want and it shows itself in currency gyrations.
Even where there seems to be agreement to slash state budgets, popular resistance is throwing governments off balance. The Greek government is already wavering in its determination to impose the recently-agreed austerity programme on its restive population. Iceland is in a political limbo following the overwhelming rejection of the terms of the repayment of its debts to the British and Dutch governments.
The conflict between the masters of the global economy and their political pawns on the one side and the mass of the population on the other is certain to mount. Strikes are growing in frequency and intensity throughout Europe, whatever legal obstacles are put in their way by the state.
Britain’s general election will not settle any of these questions because they reflect the deep divisions and insoluble contradictions at the heart of capitalism itself. New systems of democracy that put people in ownership and control of society’s resources are posed as the only practical way out of this impasse.
7 April 2010
Tuesday, 6 April 2010
With the General Election to be called for 6th May, the dividing lines are becoming increasingly clear.
Business is clearly backing the Tories to deliver the attacks it wants. The traditional Tory allies are backing their people again, with an attack on the moderate increase in National Insurance over the bank hoiday weekend. It was the usual suspects: the BCC, CBI and a ragtag of non-dom, billionaire executives who avoid tax as if as of right, and then complain about the tax burden.
Just as the Sun decided it would back the Tories, when they were leagues ahead in the opinion polls, big business likes to back winners.
As LEAP has pointed out, New Labour has embraced the neoliberal economic orthodoxy in its 13 years. Even now, it is not talking about making the rich pay.
However, Labour has increased the top rate of tax to 50% and is proposing to raise NI (a progressive tax). The fact that the Tories are unashamedly lining up with the bosses against even these moderate measures - and with the Murdoch press - has not served them well in the latest opinion poll in today's Guardian, with their lead reduced to just 4 points.
Does this show that Tory support for big business is damaging them (down to 37%)? If so, it should tell New Labour that being Labour might be popular. If Labour is to win it needs a decisive break and to start putting people before its rapidly deserting wealthy friends.
Thursday, 1 April 2010
“It’s a no-brainer,” said energy and climate change minister Ed Miliband. “The planet is under threat – people are facing actual death as a result of climate change, human society will not be able to survive the disruption and misery – what else can we do but act, and act now.”
Miliband promised to make Britain an example for the world, including working for a new climate change agreement that focused on justice not only between countries, but within them as well. He admitted that the “energy” part of his brief had for too long relied on the fossil fuel, nuclear and power marketing corporations to deliver the reliable and sustainable supply people need.
“It hasn’t worked, though, has it? They have taken the profits and failed even to build enough storage for gas to get us through a cold winter. They don’t care if the price goes up – they just pass it on to the consumer. The time has come to take things into our own hands.”
As well as promising to take the energy generation and supply industry back into public ownership in short order, Miliband announced support for a new generation of local energy initiatives including:
* Combined heat and power plants (CHP) to provide electricity, heating and cooling. This will enable waste heat from one building to be used in another that needs it, rather than going to waste.
* Anaerobic digesters transforming the community’s waste, to create bio-gas to fuel the CHPs.
* Combining decentralised CHP with solar thermal panels for providing hot water and photovoltaic arrays, plus using the storage capacity of the ground itself to make the whole community a clean, de-carbonised power station.
* Rural and coastal communities forming community owned not-for-profit energy generating co-operatives to benefit directly from the harnessing of wind, wave or tidal power from within their communities for exporting to urban communities.
* Formation of not-for-profit co-operatives of architects, construction workers, suppliers and product makers, creating all new buildings with energy efficiency as the main driver, not pushed to the margins.
* A crash programme of insulating all existing homes, and firms to achieve agreed standards of insulation and energy efficiency for offices and factories. The firms would participate fully in the energy strategy for their district.
Commenting on the proposals Conservative shadow environment secretary Peter Ainsworth said: “Nationalisation? That’s a bit old hat isn’t it? We’re going to put the energy corporations into the hands of the workers, and establish energy trusts where consumers and suppliers can work together to create a sustainable energy future.”
As he spoke, Miliband was seen to be holding a small, buff-coloured book. When asked what he was reading, he told reporters: “The most revolutionary concept of a sustainable future I’ve ever read. Trust me, you ain’t seen nothing yet.”
A World to Win
April 1, 2010
Monday night's Channel 4 debate between Alistair Darling, Vincent Cable and George Osborne was portrayed as an X Factor competition with the threesome all allowed to give their own broadly similar analysis to the situation facing this country.
An instant opinion poll after the event awarded a 36 per cent victory to Professor of Hindsight Cable with Darling and Osborne tying for second place on 32 per cent.
Rather surprising this, in view of Osborne's peculiar decision to announce that the Conservative government would remove the National Insurance increase and would thus offer up £5.6 billion of "efficiency savings."
Apparently the Tories think they are marching into power on the slogan of efficiency savings, but I would recommend that every public worker be seriously concerned about this because it sounds to me and many more like cuts by another name.
Where all three agreed was that there has to be a repayment of the £167bn deficit and the question was more on the timetable for repayment rather than the principles behind it or of the sort of economy that we should have in the future.
The Tories, as we well know, are a party representing the interests of the very rich and the purpose of Labour ought to be to represent the organised working class and radical people of this country.
For all his analysis of the way the banking crisis came about, Cable essentially offers broadly market solutions to the problem and claims the Lib Dems are neither representatives of the Tory rich or militant "trade unions." Interestingly, the Lib Dems equate a similarity of power and interest between the incredibly rich backers of the Tory Party and trade unions who represent people in work.
This would suggest a complete lack of understanding of the role or rights of trade unions in our society.
The three big industrial disputes at the present time - the BA cabin staff strike, the civil servants' dispute over severance pay arrangements, and the rail workers' defence of signal and safety workers' jobs and conditions.
Even if successful none of these disputes will make any member of any union better off, but they will save jobs and protect conditions.
And all of these actions are defensive. If anyone has any doubts as to what happens when the bankers are allowed to impose a solution on the economic crisis, they only have to look at the latest twists and turns in Greece.
The once highly popular PASOK government in Athens is seeking to obey the diktats of the world's bankers and the European Bank, thus creating more unemployment and a deeper recession.
In turn this will further increase the jobless rate in one of Europe's poorer countries.
The alliance of the European leaders enforcing these measures on Greece and now on Portugal are the result of the creation of an independent central bank dedicated to "market stability," not social justice.
The Morning Star reported the publication for discussion of the People's Agenda by the Labour Representation Committee, which boldly poses the question in whose interests our economy has to be run.
The pamphlet stresses that despite the increases in pensions, welfare benefits and child allowances the low taxation rate among the richest means that inequality in Britain is probably the highest in Europe.
In its proposals for an incoming government, the point is strongly made that contracting out of public services, marketising education and league tables for schools have forced public services to focus more on cost-cutting than quality.
The pamphlet quite rightly calls for a massive house-building programme and while the government's recognition of the role of council housing in the past two years is welcome - as is the change in local authority finance - a massive problem of those living in overcrowded accommodation remains.
This results in underachieving children and many who have no chance of council housing being forced to live in very expensive private rented accommodation.
It is time to control this absurd market and prevent the exploitation of the vulnerable through extortionate rents.
The People's Agenda also makes demands for a decent minimum wage, the repeal of anti-trade union laws and the public ownership of crucial industries.
After the election the incoming government will inherit an unprecedented opportunity in the public ownership of most of the banking system.
This should be brought under public control and not left in the hands of a holding company whose sole function is to dispose of the shares at the first opportunity.
Labour was founded by the trade unions and socialists in Britain at the start of the 20th century and its very survival depends on the support of that same coalition.
To win the election, this coalition must be mobilised. Afterwards, the crisis of free market and bankers' Britain must be dealt with by ending the obscenity of inequality and replacing it with the goal of equal opportunities and social justice.