The world economy, already in turmoil from the credit crunch, was swept further into an abyss by the thunderbolt news that the US congress had rejected` a ‘blank cheque’ $700 billion bailout of failing banks. US government leaders and treasury chiefs had dramatically warned of dire consequences if the package was not passed, so the congress vote was followed by US stocks going into freefall, with shock reverberations worldwide.
The capitalist economic gurus of the world reeled in astonishment and were unable to predict what it would mean and what would come next. “Panic grips world’s markets” headlined the Guardian; “World of pain” was on the front of the Mirror, “Sell! Sell! Sell!” screamed the Independent and “Blackest Monday” was the verdict of the Sun.
Banks are now viewed universally as unsafe and the entire global economy is tobogganing towards recession. Jeremy Warner, writing in the Independent, quoted the old saying: “It’s always darkest just before the dawn”, adding that “dawn has again been postponed”, and in a thinly veiled warning he quoted a perversion of the above old saying: “It is always darkest before it is completely black”.
The US congress members who rejected the package are in the main the ones who face difficulties being re-elected. Fearful of their own prospects, they were forced to reflect the outrage of ordinary American people at having their taxes handed to the greedy ‘Fraud Street’ fat cats – this was a major revolt of ‘Main Street’ against Wall Street.
The Wall Street ‘bank robbers’ have enriched themselves many times over at the expense of working class and middle class people. Yet they now expect those same people, who are struggling in many cases to buy food and keep a roof over their head, to keep them living in luxury and to rescue the economy from the consequences of their excesses. There is widespread abhorrence and aversion to wealthy wheeler-dealer financiers and their instruments: hedge funds, private equity, futures markets and so on.
The emergency rescue plan concocted by Treasury secretary Hank Paulson and backed by George Bush, was for the $700 billion to be used to buy ‘troubled assets’ from anyone at any price. If eventually implemented in some form, it will mean the American working people funding the largest corporate bailout in American history, with the money being dished out by the least trusted administration in US history to benefit the richest in society.
George Bush’s remnants of authority have now completely vanished as he has proved obviously impotent and incompetent in front of the financial hurricane that is rapidly descending. Previously damaged in the US and worldwide by his horrifying war on Iraq, the current economic turmoil is in many ways even more terrifying to ordinary people worldwide.
To push the huge $700 billion bailout package through the US congress, its promoters argued that the state would not end up losing the money; it would merely be investing it in sorting out the financial system, with returns gained at a later stage. But this was far from convincing. The American people could foresee an escalating state debt that would lead to further cuts in welfare and services, at the same time as facing growing unemployment and cuts in living standards as a result of the recession.
A few concessions were made in an attempt to make the package more palatable. These included a staggered release of the money, the setting up of an ‘oversight board’, and placing restrictions on executive pay in banks being assisted. But these crumbs were not enough to win over the rebel congress members.
Ironically, at present, it is not the Socialist that is at the forefront of implanting the word socialism in people’s minds; inadvertently it is right wing politicians who are raising the spectre of socialism in clumsy attempts to ward people away from it. For instance Texas congressman Jeb Hensarling condemned the Paulson rescue plan as “the road to socialism”. Financial Times commentator Chrystia Freeland pointed out that: “Socialism is probably stretching it”, but noted that it is part of “the end of a long era of US laisser-faire capitalism and the beginning of a period of government intervention and reregulation”.
The failure of the Paulson package does not reverse that trend. In the weeks before the congress rejected it, billions of dollars had already been committed to failed financial institutions, ending 25 years of bowing down to free markets and reduced government intervention and regulation. As stock markets crashed downwards in response to the congress vote, US government chiefs had no other choice than to start cobbling together a new package of public money to try to stave off economic meltdown.
On the same day as the shock rejection in the US congress, banks were being bailed out in seven countries of the world. In Europe, the financial institution Fortis was given £8.8 billion by the Belgian, Dutch and Luxembourg governments, action described as ‘partial nationalisation’ by the Financial Times. This is the largest bailout yet of a European financial institution in the current turmoil. Fortis is Belgium’s biggest private sector employer, it handles the bank accounts of half the population and has assets that are several times the size of Belgium’s gross domestic product.
In the UK, the nationalisation of Northern Rock bank has been followed by nationalisation of Bradford & Bingley bank (B&B), with the government taking on its £42 billion worth of toxic mortgages. Outrageously and almost unbelievably, the government has immediately ‘sold’ B&B’s £21 billion worth of savers’ deposits, 197 branches and 141 agency outlets, to Spanish company Santander, that has paid just £612 million to exploit these assets. The £21 billion of deposits handed over to Santander consists of around £4 billion cash in B&B’s accounts that it had not loaned out, plus around £17 billion of British taxpayers’ money in the form of loans and guarantees – money that may never come back. The nationalisations of Northern Rock and B&B have given every British taxpayer an extra burden equivalent to a £5,500 debt.
The global crisis of the major banks has led leading proponents of deregulation to completely change their tune. Many are now saying that voluntary regulation by private financial institutions does not work and so state regulation is necessary. Even the managing director of the International Monetary Fund has called for greater regulation of financial institutions and markets, a considerable departure from the ‘liberalisation’ enforcement carried out by the IMF for a long period of time.
Right wing French president Nicolas Sarkozy has called for a world summit to rebuild “regulated capitalism” and has condemned the “law of the jungle”, while German finance minister, Peer Steinbruck, said: “We must civilise financial markets”.
It is true that deregulation has a lot to answer for. At the Tory party conference, shadow chancellor George Osborne berated Gordon Brown for presiding over an economy based on debt, saying it is a credit financed variant of “casino capitalism”. But guilty as Brown clearly is, the Tories are equally blameworthy; the high debt levels of today go back to the 1980s era of Tory prime minister Margaret Thatcher and her deregulation of the finance markets along with Reagan and Clinton in the US. In the UK, past encouragement of ‘friendly’ mutually owned building societies to demutualise, becoming aggressive banks driving for shareholder profit, has played a large part in the downfall of companies like Northern Rock and Bradford & Bingley.
But the calls for regulation are like asking the bank robbers’ gangs to keep a check on the bank robbers. What is urgently needed is popular control of the major banks and finance houses, not ‘oversight’ by unelected quangos and elected capitalist politicians, whose allegiance is to big business. The books of major US banks have been opened up to the US congress, what about opening them up to all American people?
The same goes for Britain; let there be trade union and mass scrutiny of the books of banks like B&B, and the decisions be taken out of the hands of capitalist politicians, so that bank workers’ and other workers’ jobs can be saved and mortgage holders threatened with repossession can keep their homes.
If the trade union leaders were doing their job properly, they would spearhead the setting up of popular committees to examine the real state of affairs in collapsing companies, and also the taking of whatever action is necessary to safeguard workers’ interests. The multinational corporations that are forcing us to pay ever higher energy and food prices should also be subjected to mass scrutiny, through the creation of popular committees - if the trade union leaders do not act to organise such bodies, then others will have to step in to do so.
Major companies that increase the price of basic necessities and/or sack their employees should be immediately taken into full public ownership, with working class participation in controlling and managing them so that their anti-working class policies can be reversed. Compensation to shareholders should only be paid on the basis of proven need.
Such measures would form part of a transformation to a completely different way of organising society – that of genuine socialism. Capitalism is openly proving that it is a system with inbuilt crises. Whether it is deregulated or regulated, booms and slumps are inevitable. As well as the steps mentioned above, many others would be necessary, including working class control over the import and export of capital. Socialism would not only end economic cycles of boom and slump for ever, but would also open the door to a rapid elimination of poverty, and a lifting of the living standards of the entire population.