Tuesday, January 20, 2009 

Are we about to become utterly fucked?

It's understandable that a lot of people are getting terribly excited about someone who isn't a Bush ascending to the presidency of the United States of America, but left behind has been a major lack of any real substantive comment on the latest bail out of the banks, or rather, as it's beginning to already look, the further throwing of money at a lost cause.

Even if you opposed the original bail out, few were so dismissive of Brown and Darling to claim that they didn't know what they were doing; quite the opposite in fact. While they may have been authoratitive then, they were left looking anything but yesterday morning. They're not helped by the fact that no one, including them, has any idea of just how much effectively providing insurance to the banks for their losses in exchange for them to return to lending is going to cost, for the simple reason that no one it seems, Brown and Darling included, still has any idea of just how much the banks have lost through the collapse of the sub-prime market. This is part of the reason why the City has took such fright and been getting out of Royal Bank of Scotland as quickly as it can - when a bank that is over 70% owned by the state is still not potentially revealing the true nature of its losses, already estimated at £28bn, the idea that RBS is in fact bankrupt and has only been propped up the taxpayer quickly gains traction.

To give an indication of just how quickly we might be moving from another bail-out to full nationalisation of most, if not all of the banks, John McFall, chairman of the Treasury select committee and regarded as close to Gordon Brown, is already calling for both RBS and Lloyds to be fully nationalised, in what could well be a softening up exercise. The implications of such a move should not be understated - taking RBS alone into the public sector would put more than a year's GDP onto the already massive and continually growing national debt. With this fast becoming an increasingly ominous prospect, there's already talk that this could result, inevitably, in a sovereign debt crisis, where the buyers of the debt refuse to take any more, leaving us to go cap in hand to the IMF and also probably the EU.

For the moment this is not yet a full-blown crisis - undoubtedly Ireland and the United States itself are in far more dire straits than we are - but the underlying cause remains the same. For all the talk from the government that this is an American problem imported here on the back of the collapse in the US housing market, it was the hubris of Brown in imagining that he had abolished bust while instituting a light-touch regulatory system which in fact turned out to be a no-touch regulatory system which allowed our own banks to get involved in the toxic loans in the first place. Undoubtedly, the main share of the blame should fall on the bankers themselves, especially the likes of "Sir" Fred Goodwin, who slashed jobs while devouring the likes of ABN Amaro in a truly disastrous predatory move. They were however encouraged by a government which had fallen completely for the mantra of neo-liberalism in the City whilst expanding the public sector too quickly. As ever, New Labour wanted results and it wanted them fast, and to be fair in certain areas it has shown - the NHS, despite the cynics, has been markedly improved. Less apparent are the advances in education, where the obsession with reform has created a gaggle of schools which to this blogger look nightmarish in their controlling tendencies, whilst failing to boost the results sufficiently to mitigate such policies.

The boast since the original bail out that the government had saved the banks has been accurate. Without the injection of funds, RBS and HBOS may well have gone bust, with all the implications that the letting of Lehman Brothers fail caused, not just here but around the world. The fear now must be that all the original bail out has succeeded in doing is postponing just that, with the state shortly to be forced to fully intervene. The jibes at the Tories that they are a do nothing party will look even hollower if it turns out that doing something was almost as bad as doing nothing. If the bank shares continue to fall tomorrow, things really might be about to get a whole lot worse.

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Wednesday, October 08, 2008 

They say, we pay.


In what is now a multimedia age, it's two newspaper front page headlines that still sum up a day's events: the Telegraph going with back from the brink, while the Guardian has staring into the abyss. If you believe both the politicians and the wider commentariat, all of whom seem to be in basic agreement that today's/yesterday's bailout was both on the whole a good package, and one to which there was, in the age old phrase now so hollow, no alternative, then what would have been considered hyperbole weeks ago is now wholly justified.

That very lack of dissent is what ought to worry us the most. Today's givens, or in Rumsfeldian, known knowns, are tomorrow's deepest regrets. It is even more telling that around the only two people who are objecting to the bailout as set out are on what would be considered the further reaches of both left and right: John McDonnell, who advocates a controlling stake in the banks that will apply for the immediate £50bn of funds being made available, and John Redwood, who appeared to oppose the sort of plan which has emerged on Monday but who now appears to have rowed back somewhat.

Perhaps a better example is in two more well-known economic thinkers. Reading Ruth Lea's whole-hearted welcome was enough for the alarm bells to really start ringing: her past is impeccable having both been chief UK economist at - who else - Lehman Brothers, and also director of the unashamedly Thatcherite Centre for Policy Studies. In much the same vein, Will Hutton, who's had a new lease of life thanks to the "credit crunch", sings the praises so profusely that you'd not be surprised to find he was sporting a huge erection while writing it; apparently the markets were too "shell-shocked" to assimilate the greatness of the Brown and Darling bailout, hence why the FTSE continued to drop like those who threw themselves off buildings in New York in 1929.

It would of course be ludicrous to judge the plan by how the market reacted to it, especially on a day on which the IMF produced a grim as it gets report on how the economy is likely to contract slightly next year, with most even thinking that at the moment is too optimistic. The Dow later plummeted after Paulson made clear that he believed institutions in the US would still fail despite their own bailout being passed and now slowly being put into place.

There are however more than legitimate reasons to be incredibly apprehensive about this plan, not least because unlike in America, our own legislators seem unlikely to even be offered a vote on whether it should be put into action or not. Partly this is because the problem is so urgent that something has to be done now, or so we're told, and it's also true that in the current, almost war-time consensus which has fallen upon both the media and the politicial classes it would be passed with hardly a single vote against, but that is besides the point. This is something far too serious, especially when it involves such vast sums which the taxpayer will be providing collatarel upon, to be decreed simply by a prime minister and his chancellor in agreement with the other very people who brought us into this mess.

This £50bn, or is it £500bn, is itself a hall of mirrors, as we don't have such sums in the coffers to instantly pay out. No, this money itself is to be borrowed, pumped into the banks in the form of the government taking a stake via preference shares. Of the four banks which are in the most relative trouble - HBOS, RBOS, Lloyds TSB and Barclays - three could be bought outright with that £50bn, while you could take a significant stake in the one left out. After all, as we're splashing money around, why not take control, wind down the businesses and put the deposits in one big bank? This is not to say that the government should be in the job of running banks when it can't so much as run its own departments properly, but could they really be any worse at just running them down than the current proprietors that got them into the situation today?

For taking this stake which will, if the plan works, in effect prop failing institutions up, with the eventual promise that there might be a profit in it for the taxpayer if they wait long enough and don't die in the mean time, the deals that the government has supposedly received in return are not worth the paper they aren't even written on. Banks will apparently have to cut to the bone their executive bonuses this year, shareholder dividends will similarly fall under the knife, while small businesses must be offered better rates than currently on their own borrowing. There is perhaps a tendency in such times to call for heads on sticks, as someone has already put it, but whilst there must be stability, surely those responsible at the executive level at these banks must at some point be shown the door, starting as Nils Pratley suggests with Sir Fred Goodwin. Again though, perhaps the reason why there has been far more carping from the Conservative side, with David Cameron demanding, almost Trot-like that no banker receive a bonus this Christmas, is that if the chief executives and others at the banks have to go, then surely also does this country's chief executive for his own role in the crisis. If they are to be treated as Justin suggests, like the benefit scroungers so demonised for their weekly pittance, then Brown and Darling and the rest of them should all be exposed to such penury and shame also.

Fundamentally, the current consensus cannot last, and nor should it. Despite the apparent undoubted Conservative part in the deregulation and the "age of irresponsibility", as well as how if they were in power they would be doing much the same, the resentment that today's payola will breed will likely be easily built on by Cameron and friends, even if they have been so woeful thus far. As we stumble into the recession, the bills will just keep mounting up, with the increases in welfare spending for those newly unemployed already starting to hit the Treasury. Make no mistake, despite everything that has happened, the poorest in society, the sick, the elderly, all will be hit the hardest as those very same bills are aimed to be kept by down by a government that has just bailed out the very richest with our own inheritance. Already the ridiculous one-off cases like the Afghan single mother supposedly living in a "mansion" for which the taxpayer pays out £170,000 a year are being highlighted, with the one direct aim of hitting the welfare state as a whole. How bitterly and cynical typical that it is one of the richest men in the world, with some of the most comparatively better off individuals in the country in tow that are doing such sniping now, and this is only likely to be the start of it.

New Labour could have prevented this. It was always going to win the 97 election, and it could have done so without the support of Rupert Murdoch, of the City, of the CBI, and everyone else that has directly contributed to the current crash. It could have properly regulated the City, rather than ticking boxes and slapping backs; it could have restrained the buy now pay later culture; and it could have condemned the bonuses which are now being criticised far earlier. None of the above though deserve the blame except for Labour themselves. We must not let them forget it, and we must fight to ensure that those blameless in all of this are not the ones held responsible any more than they already are.

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Tuesday, October 07, 2008 

As the spiral continues downwards, are Labour's chances actually improving?


The economic crisis, which it can almost certainly now be justifiably called, has just entered a new and latest phase, quite plausibly the critical stage. After Darling's statement to the House on Monday went down in the City like a lead balloon, apparently leading to swift pleading overnight and today that something had to be done to stop the precipitous decline in the shares of HBOS, RBOS, Lloyds TSB and Barclays, even while the latter two of those organisations said they didn't need any handouts, by most accounts before the FTSE opens tomorrow morning up to £50bn will be used to take stakes in all of the mentioned institutions, with potentially more to follow if the fallout is is even more serious than now thought.

How much of this has been planned in advance and how much has been developed ad hoc is open to question, with Simon Jenkins in particular railing against the "dithering". The government's plan may well have been to deal with problems as they developed, but the biggest drop in the FTSE's history on Monday, followed by continuing to decline bank shares seems to have forced their hand fully now. However much criticism can be directed at the government for letting the banking crisis develop, through the "light touch" regulation to the promotion of easy credit, few can envy either Brown or Darling being at the very centre of a storm which is potentially far more serious than the withdrawal from the ERM was in 1992.

The mentioning of Black Wednesday is key because this could also now help further determine who the victors of the next election will be. If the "plan", such as it currently is succeeds, gets the banks lending again and restores liquidity, then it is still not too late for Labour's reputation to be if not restored, then vastly improved. For sure, there is going to be a recession, and Brown's abolition of boom and bust is going to do an awful lot of damage. If however the electorate gives the credit to the government for making the worst of a bad situation, and the recent polls have suggested that most actually have been favourable, if grudgingly of Brown and Darling's performance thus far, it could still with pushing by Labour prompt doubt in what the Tories would have done and how they would have coped. For all Cameron's claiming of being a "man with a plan", their contribution to the economic arguments has been pitiful. On Newsnight again tonight the best they could offer was Kenneth Clarke, whilst Vince Cable for the Lib Dems was again in evidence.

It might well be that the general public has had enough of Labour, end of, as the 10 to 12 point deficits in the polls even after the boost from the Labour conference suggest. While it looks increasingly bleak financially, Labour's chances will probably now depend on what happens over the next few weeks.

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Monday, September 22, 2008 

A declaration.

I support this message.

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Friday, September 19, 2008 

Taken from the bleakness to come.

The week began with the bankruptcy of Lehman Brothers, and the commentariat decreed that this showed that the Fed was no longer prepared to bail out anyone who came running begging for mercy. The week ends with what might be the biggest dead cat bounce that the FTSE has ever seen, leaping nearly 9% in one day, all on the back of the Fed announcing a plan which will to all intents and purposes involve the nationalising of all the losses and bad debt that has led to this week's banking crisis. Dsquared in the comments on Blood and Treasure probably sums it all up:

What a fucking unbelievable day. I haven't seen a man eat his own head yet, but I have now, officially, been present on the trading floor during a melt-up.

Despite all the hyperbole which is floating around like the effluent in a festival toilet, this week's financial meltdown and then the melt-up probably is the once-in-however many decades event which so many have suggested it is. It is not however, necessarily, the end of an epoch, or even a turning point, as Larry Elliot believes it might be. No, it seems to be something quite different: this isn't the end of the neoliberal consensus which has undoubtedly directly led us towards this huge default, it's probably just the very beginning of it.

To go with a cliché, all the chickens have came home to roost. The deluded dream of the everyone a home owner society, coupled with the complete abandonment of anything even resembling financial regulation and the evisceration of the manufacturing sector, all of which you can blame both the Conservatives and Labour equally for, has reached the nadir which many that have long been derided as Cassandras always said it would. Some have been left to go to the wall, but the vast majority have all instead been either taken over or taken under the wing of the state, the same state which those in charge demanded to get out of their boardrooms and to inexorably lower the burden of.

For what we have now clearly came to is not socialism for the poor, but socialism for the uber-rich, all of whom are incredibly likely to get off scot-free, or even more amazingly, even with golden goodbyes for their part in the crisis. The irony of it all is also completely overbearing; a Republican government in the United States that cut taxes for the super-rich and which continues to believe in the smallest of small states has probably just involved itself in the biggest nationalisation project of all time. Things have of course over here not yet reached such a catastrophe, but the takeover by Lloyds TSB of HBOS is a similar example of all the usual rules being broken; conspiracy theorists might even reason that some of those involved in the short-selling of what the vast majority concluded to be a solvent and viable business just might have something to gain from a bank which will now own 1 in 3 branches on the high street.

It then has to be asked: who exactly is going to pay for all of this? It certainly doesn't seem to be those that got us into this mess in the first place, unless we blame the humble taxpayer for going along with everything that was offered him in good faith. We see Gordon Brown claiming that he is now going to clean up the City, but who on earth honestly believes it? This after all is the man that has helped deliver us here, a leading member of the party that accepted all the cheques courtesy of numerous businessmen now involved up to their arm-pits in this crash, that promised to abolish boom and bust and has succeeding in abolishing boom while nationalising the bust, all for his fair-weather friends in the City that howled and squealed and got everything they asked for but still complained that levels of corporation tax were slightly higher than in Ireland.

As others have noted, this ought to be the greatest opportunity for the left potentially for decades. If Keynesianism ended in 1976, then surely Friedmanism has now been left similarly low in 2008. The Labour party, the party that ought to be the one to lead us out of this mess, instead signed up completely and utterly to neoliberalism, declared that there was no alternative and set about emasculating the welfare state, and if anything, it's only likely to continue at a far faster pace now. After all, how else is the government going to pay for all those shortly going to be claiming jobseeker's allowance if it doesn't cut to the bone those that are genuinely sick? As for your pension, well, might as well forget that. All the more reason to accelerate the privatisation of the health service and close down those failing schools so that our friends in the business and voluntary community can re-open them as academies.

We can all point to those that should share the blame. What might really come to matter is that we force them to take it. Some, as stated, will see an opportunity; I see only the bleakness to come.

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