I include below the full contents of a letter I sent to the Weekly Worker newspaper yesterday on the economic crisis. The paper's editor, Peter Manson, cut quite a lot for the published version (with heading "Crisis" at http://cpgb.org.uk/worker/737/letters.html) but kept the most important points. [Peter edits letters sent on Wednesdays; letters sent before then are edited by the letters editor (Steve Cooke) first.]

 

There is one serious point I got wrong (which I think is a common misconception), according to the BBC2 programme "Working Lunch" today - if you have a mortgage or loan with a bank that goes bust, you don't get it for free! I suppose capitalists had to come up with some sort of system that allows a bank to fail without such a favourable outcome for working and middle class people! The consequence of this seems to be that letting a bank collapse and using money from mortgage/loan-payers to help pay the compensation would seem to be an option (although I haven't investigated the procedure by which this happens). Therefore a Tory government could let a bank fail rather than nationalise it...

 

 

As chancellor, Gordon Brown claimed to have ended the cycle of boom and bust, which is of course impossible under capitalism. The New Labour government borrowed heavily to prolong the boom and we are now entering a severe recession. Big business and its New Labour allies are trying to make working class people pay for their crisis – escalating food and fuel prices and a housing slump, with big cuts in living standards unless we go on strike.

 

The credit crunch is mainly blamed on “subprime” mortgages in the USA , sold to people with a poor credit history and with high interest rates starting low. This caught many ordinary people out, since most US mortgages are at a fixed rate for the entire term, which (due to high inflation) could lead to many banks around the world that have lent the money for such “prime conforming” mortgages facing bankruptcy.

 

On Sunday, Lehman Brothers, the world’s fifth biggest investment bank, went bankrupt and Merrill Lynch, another huge US bank, was taken over. The repercussions are immense – RBS (Royal Bank of Scotland ), Barclays, Bradford & Bingley and especially HBOS (Halifax Bank of Scotland ) have suffered huge falls in their share values. HBOS has been saved from disaster with the probable takeover by Lloyds TSB and Barclays’ shares have risen again on news that it is to buy some of Lehman’s assets for what is probably a bargain $1.75 billion. The Bank of England is lending £20 billion more to banks, on top of £50 billion earlier in the year – gambling that they will stay solvent with taxpayers’ money. Meanwhile, banks don’t trust each other – the inter-bank lending rate LIBOR rose to 6.8% this week, compared with a Bank of England rate of 5% (if it reduced interest rates by 0.25% to limit the effect of the recession as some politicians and commentators are calling for, this would just help the banks at the expense of the rest of us and have very little effect on mortgage rates). Even more dramatically, the dollar overnight lending rate between US banks rose above 10% at one point, despite the official interest rate being 2%. The US Federal Reserve has just lent $85 billion to AIG, the largest insurance company in the world and sponsors of Manchester United, to save it from bankruptcy.

 

Big business used to make huge amounts of money very easily by gambling on the stock market, from the work carried out by working and middle class people. That era is over – for good! The FTSE 100 (measuring the share values of the 100 biggest UK companies) has fallen to its lowest level for over three years. Individual companies’ share values have fallen even more considerably - AIG’s market value fell in a year from $173.5bn to $12.8bn. Speculators are even having difficulty making money from commodities, that have risen considerably recently – oil that had nearly reached $150 a barrel has fallen below $100 – which the September 16 International Herald Tribune said was “on expectations of a global economic slowdown”.

 

At the time of the run on Northern Rock, savers were only promised compensation for the first £2,000 and 90% of the next £33,000. Now we are promised the full £35,000 (which the Tories are offering to help New Labour raise to £50,000 by cooperating with quick legislation) by the Financial Services Compensation Scheme (FSCS). I strongly recommend visiting its website (www.fscs.org.uk) if you want to know how a bank’s collapse would affect you. The website points out that levies from financial institutions only raise a maximum of £4.1 billion a year, which is chicken feed compared to the assets and liabilities of the big high street banks. The government would be forced to stump up any shortfall, presumably by increasing borrowing, if a major high street bank goes under – failure to do so would risk massive demonstrations and possibly even a general strike raising the prospect of a socialist revolution!

 

The Tories have previously suggested that they would not bail out a bank in trouble (in a Sunday Herald article) but in reality, they would also be forced to nationalise. Letting a big bank go under would give millions of ordinary people a free mortgage or loan!

 

If socialists get our act together, the economic crisis will lead to socialist revolutions in many countries of the world. A new more ethical capitalist world, where rich people are forced to pay their fair share of tax with the abolition of tax havens and loopholes (a measure that the Liberal Democrats have talked about at this week’s conference as well as nicking the Tories’ policy from the last election of promising tax cuts paid for by abolishing waste in the welfare state), may be on the cards. Bill Gates has talked about retiring and giving all his wealth away to charity. The Convention of the Left will be a marvellous opportunity for left-wingers inside and outside the Labour Party to prepare the ground for a revolutionary anti-capitalist party – which in the current economic climate could even win the next general election, if there’s not a revolution first!

 

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Steve Wallis (Glasgow, Scotland)
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For discussion of the credit crunch, go to
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