You can't control what you don't own

If there's one lesson of the banking crisis and bailouts of 2007-09, it's that 'you can't control what you don't own'.

Today the government implores the banks to lend more to businesses and to constrain executive bonuses, but to little avail. Perhaps the irony is that we do still own large stakes in several banks. Indeed if it were not for the various guarantee schemes that underpinned UK banking, we would have ended up owning most of them as they fell like dominoes. However, the ownership model devised was arms-length, temporary, and was in reality the privatisation of public money rather than the nationalisation of private assets (or liabilities).

The New Labour government had introduced the market further into areas such as welfare, education and health, had part-privatised the London Underground, and more of the civil service than the governments of Thatcher and Major combined. But here it was facing the possibility that its golden child - the finance sector - was about to collapse.

In 2007, what struck LEAP was the lack of debate about public ownership. What really sent the message home clearly for me was this press release from Unite, the union that represents Northern Rock staff, from 20 November 2007. It sets out a six point 'Charter for Northern Rock' the sixth point is "To retain Northern Rock as a UK listed company".

I don't use this example to in anyway demean Unite, but simply to highlight how little issues of ownership and control were being discussed and debated in the labour movement.


Today, Southern Cross - which owns 753 care homes across the UK - remains on the verge of collapse. The 2011 GMB Congress asked 'If private equity and the private sector are places fit for the care of our elderly, our most vulnerable and our most dependant?' Indeed.

A new debate is starting up about media ownership in the wake of the News of the World hacking scandal. With energy and supermarket prices both rising above inflation to enable gratuitous profiteering, the demand for public ownership should be made.

Earlier this week it was also revealed that Virgin Trains received £40 million in public subsidy, and paid out nearly £35 million in dividends. The case for rail re-nationalisation is overwhelming.

It therefore seems an opportune time to publish free online for the first time LEAP's 2008 publication Building the new common sense: Social ownership for the 21st century (you can buy a hard copy here).

The pamphlet looks at different forms of public ownership from the Morrisonian post-war model to workers' co-operatives.

Download chapter by chapter

• Preface by Andrew Fisher
• The Case for Industrial and Economic Democracy by Gregor Gall
• Why we need a culture of social ownership by Rosamund Stock
• The economic case for worker-owned co-operatives by Jerry Jones
• Telecommunications of the future under public ownership by Maria Exall & Gary Heather
• Rail privatisation - a failed experiment by Bob Crow
• The Growing Case for Social Ownership by Gerry Gold
• The Campaign for Social Ownership in the 21st century by John McDonnell MP

The future of the Northern Rock: questions for the re-mutualisers

There's a new campaign being led by Labour MP Chuka Umunna to remutualise Northern Rock, with a letter supporting the proposal published in the Guardian and an EDM tabled in Parliament.

The proposal has cross-party support with two Conservative MPs co-signing the Guardian letter, along with a Liberal Democrat and even Unite General Secretary Len McCluskey.

As I argued in October 2008, there should be "a return for the public" for the huge loan bailout and subsequent nationalisation of Northern Rock.

I have to say I'm currently only lukewarm about the campaign. I'm instinctively sympathetic - my savings and current account are both with a mutual - but I'm just not clear on how re-mutualising Northern Rock would work, and if it would be fair to taxpayers who after all are the ones responsible for its continued existence.

Sadly, neither the letter, EDM nor campaign page answer these concerns - it just tells me mutuals are more accountable, democratic, and that it would be popular, none of which I would dispute.

The questions I have for the campaign are therefore:

• What is the benefit for the taxpayer? The taxpayer collectively saved Northern Rock so why should only current customers benefit?

• Which bits of Northern Rock are we talking about - it was split into good and bad over a year ago, and with differing results - and will the taxpayer be again left with the bad bit? Gerry Gold raised this here on LEAP blog

• Why not just keep Northern Rock in public ownership and use future profits to fund public services?

• Shouldn't former employees benefit too? Over 2000 have lost their jobs since 2008 - yet it was their taxes that paid to 'save' it as much as anyone else's. And would this be a building society model or would staff have a governance role too? If so, what?
  

• Also, what about a benefit for all those whose homes were repossessed early by the lender as it aggressively tried to repay the government loans it received?

For the time being my opinion remains that Northern Rock be publicly owned and publicly controlled. It's already the former, but we should be campaigning for the latter - it seems fairer than re-mutualisation.

Good bank, bad bank? Peoples bank!

The European Union (EU) is expected today to approve plans for the Northern Rock bank to be split in two – so-called “good” and “bad” banks. The Rock has been state-owned since the spring of 2008.

This was an early part of New Labour’s attempts to prevent a complete meltdown after customers queued to withdraw their deposits in 2007 when the default rate on sub-prime mortgages in the United States triggered the global credit collapse.

The idea is that the “good” or profitable business will be sold back to the private sector, whilst the “bad” part containing the “toxic” non-performing loans, including the 125% mortgages pressed onto people desperate for housing at any cost, will be retained in the public sector, to be serviced from taxation.

Once EU approval is in place, the principle is likely to be extended to the Royal Bank of Scotland and Lloyds. Supporters of the plan – and there are many from all the main parties – are keen to see wider competition. They want to open the field up to new entrants such as Tesco, Virgin and a range of foreign banks like National Australia Bank – already owner of the Clydesdale and Yorkshire.

The scheme has its roots in the 1930s’ rescue in the United States of a cascade of failing banks. Today’s proponents point to its success in Sweden after the country went through a property market collapse in 1991 which threatened the financial system.

But they choose to ignore the scale of today’s crisis which has engulfed the world’s much more highly-interconnected financial system so critical to the worldwide production and trading activities that underpin the globalised corporations.

The intertwined crises of collapsing consumer demand, shrinking global trade, declining manufacturing and inactive credit markets spell the end of the post-war era of a spiralling growth of commodity production fuelled by cheap labour and mountains of debt.

Plans to restore the financial system to profitability are necessary but not sufficient to restore the capitalist economy to the growth it so badly depends upon for survival.

Throughout its three and a half centuries, the capitalist system has alternated between periods of competitive growth fuelled by the credit that relied on the impossible dreams of ever-increasing profit and the crashes that followed when the interest payments ceased. As the dust clears it reveals the massive overcapacity that must be eliminated before a renewed period of growth can begin. That is the stage of the crisis that we are in now.

The looming impact of the changing climate provides the measure of the damage inflicted on the planet by half a century of profit-motivated credit-fuelled growth. The system of production for profit must be stopped, terminated, replaced. Its replacement can be democratically-determined sustainable production by communities working co-operatively to satisfy their needs and provide opportunities to fulfil individual and collective potential.

This new era will need a system of accounting for exchange and a means of measuring and redistributing the value generated in production to fund development. It won’t need a vast edifice of speculation. Stock and foreign exchange markets can be closed, gambling in the derivatives casino ended.

With democratic control over the finance system, decisions can be made about which debts can be cancelled and which renegotiated. The “good” and “bad” capitalist banks choice is no choice at all. In their place we want genuine people’s banks that protect savings and extend social investment.

It’ll need a social revolution to make these changes, but what’s the alternative?

Gerry Gold
Economics editor
reposted from A World to Win
http://www.aworldtowin.net/index.html

No more bailouts, nationalise now!

Today the Government announced a further 'bank rescue plan' - yet there are pigeon steps towards a more interventionist role: 'nationalised' Northern Rock to expand lending, rather than winding down and repaying its loans. The Government has also now taken a 70% stake in RBS.

These are however minor moves, and the bailout will again risk public money without adequate controls, and there is still no intention to restructure the banking system. LEAP put out the following press release in response:

No more bailouts, nationalise now!

As the Government announces yet another rescue plan for the banking sector, LEAP makes one simple demand: nationalise the banks now and use them to help resolve the crisis, rather than continue exacerbating it.

John McDonnell MP, LEAP Chair, said:

"Again we see the Government pouring public money down the bottomless drain of the banks.

"Anger is mounting about the dithering and delays as the Government skirts around the only solution: to nationalise the banks in order to develop and impose a new banking strategy in the long-term interests of the country - rather than restoring the opportunity for another round of speculation and profiteering."

Andrew Fisher, LEAP Co-ordinator, said:

"The Government cannot continue to bailout the banks, while the banks continue to turf people out of their homes and out of their jobs. Restoring people to their jobs and housing is a more urgent priority than restoring bank profitability."

"The only solution is nationalisation of the banks and the Government seems only to be edging at a snail's pace towards this realisation."

-Ends-

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 . . .

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

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."