The Coming Financial Collapse
MarkiBrown | 08.10.2008 16:28 | Analysis | Globalisation | Social Struggles
Love him or loathe him, you've got to love this comment Gorgeous George made in the House of Commons after the Chancellor's statement today. This is an article about the global debt crisis, the financial bubble and the coming financial catastrophe which today's measures by the government have merely delayed for another day.
See also: The coming financial collapse, interview with Martin Summers, Former East European projects officer for the New Economics Foundation talks about present day money matters as we slide down a slippery slope:
http://www.youtube.com/watch?v=GLnryKeQ16A
See also: The coming financial collapse, interview with Martin Summers, Former East European projects officer for the New Economics Foundation talks about present day money matters as we slide down a slippery slope:
http://www.youtube.com/watch?v=GLnryKeQ16A
Labour MP John McDonnell is one of the few public figures who has questioned the wisdom of today's action by the government. While politicians of every hue have been eager to present a united front in the face of the crisis the left wing MP is not convinced, despite being someone, who in his own words, "has been calling for the nationalisation of the banking sector since this crisis began". He is reported as saying "This deal is like your neighbour going on a massive spending binge – throwing a party, buying a new car, going on holiday – and then sending you the bill. Taxpayers will end up paying doubly, once through loose subsidies to dodgy banks and the second time as the recession bites and they risk losing their jobs, homes and going further into debt."
George Galloway was more supportive of the government's handling of the situation. In response to Alistair Darling's statement to the House of Commons this afternoon:
"Liberals seemed like Labour and the Conservatives are communists"
... (& also paraphrasing Blair's speech to the Commons after 911) ..."while the kaleidoscope is in flux, let us re-order this world around us" - meant to be in refernce to the part-nationalisation of the banking system (it's actually a loan).
Galloway, the Respect MP, further commented that the taxpayer should have a seat in the boardroom of these financial institutions, echoing the sentiments of Chris Mullin who warned that "these habits within the city" may reoccur (Mullin mentioned how previous bailouts had occurred in the past, and yet history repeated itself). Darling replied to Mullin that much stiffer regulation is now being put in place. The fact does remain, however, that when Darling has guaranteed that the savings of 96% of depositers will be secured, what he is not explictly saying (but what those in-the-know would be being made aware of by) is that 4% of depositers in the UK banking system own 45% of total bank desposits - many of them from overseas! Tough shit to them then.
It's clear that the Brown-Darling deal is making the best of a bad situation (they have invested a stake of public debt into the system with conditions attached; Paul Mason, Newsnight's economics editor, suggests on his blog that the time taken for the government to reach a deal may have been due to resistance from banks may have been less than enthusiastic about the conditions on lending). Mc-Donnell's fears are justified, and he reflects the quiet, indignant anger which most people feel towards these reckless gambling city spivs and the culture within the city which has openly encouraged them and this pattern of behaviour.
When the world economy is teetering on the brink with sub-prime, sold to people with no income or savings - so-called Ninja mortgages (No-Income, No-Job Assets) - have been re-leveredged into share capital across the world, you know that all this is just buying time before the whole thing collapses. The world system is built upon a collossal pyramid of public (national) and private debt. When oil prices start rising again and the underlying value of the economy is found wanting, all it will take is one further financial problem to send the whole system crashing as speculators and stock exchange traders are left reeling. They say we are entering a storm; we've not reached the eye of that storm yet.
Like most nation states stuck within the neoliberal system, they are completly reliant upon deriving wealth from international financial markets. The conventional explanation is that there comes a time when those markets suffer downturns; what is never discussed is the overwhelming level of indebtedness which the whole world system and world economic growth is predicated upon (the US national debt is now over $11 trillion; it's military superiority merely a result of it's ability to owe itself vast sums of money bailed out by banks in Asia and the Middle East savings their deposist there).
This is why the wealthiest nations and corporations are actually the most indebted (the United States is the most indebted nation on Earth: its combined national, private and commercial debt to the banking institutions is above $25 trillion - of which it's GDP - 14800 billion which is 0.0148 trillion - is a mere fraction - just 0.0037%!). Allied to these ever-widening distortions, there prevails the hypocrisy of the USA who allowed it's national debt to increase from $235 billion in 1960 to it's current level whilst at the same time, the “truly indebted” countries of the South are frogmarched through the macroeconomic straightjacket of restrictive fiscal (deficit) policy through Structural Adjustment Programmes by the Bretton Woods institutions. This extent of enduring a high national debt is also a trend similarly replicated in other leading industrialised economies such as Germany and Japan. Rather like the hypocrisy of the supposed free trade regime, which opens developing country, markets which the rich nations resist adherence to themselves, all-in-all this amounts to a fully-evolved stage of imperialism.
What about the UK. Larry Elliot and Dan Atkinson write in their new book 'The Gods that Failed' that in October 2007 there was: "£1,200 billion outstanding on mortgage debt and £222 billion oustanding on unsecured consumer credit, giving a grand total, in round numbers, of £1.4 trillion. In other words, using an admittedly imperfect statistic of 46 million for the adult population in the UK gives an average mortgage debt per adult of £26,086 and average consumer credit debt of just under £5,000. Seven years earlier, in Oct 2000, the figures looked like this: on mortgages, £525 billion was outstanding (£11,413 per head) and on consumer credit £125 billion (£2,717 per head), giving a grand total, in round figures, of £650 billion. The increase, in other words, has been of the order of 115% in 7 years. During these same 7 years, earnings rose on average less than 30%."
Within the UK, capitalism as a system is a precise arrangement configuring state infrastructure largely in support of the financial growth of those sectors of the economy accruing most value, with a banking system largely aloof from social and environmental obligations, acting as the unlimited supplier of credit for economic activity - analogous to an unlimited supplier of fuel for the driving engine of economic growth, which the accelerator-pedal of speculation and venture capital has been driving forward. What exists, however, is a speculative bubble, which is predicated on these huge amounts of debt, which by the 1990s reached unprecedented and unsustainable levels.
Yet it is this process of debt which propels the world economy! Poorer nations with international debt, which grew at excessive rates with interest during the 1980s, have been forced into a situation of neocolonial “selling off the family silver” in terms of concentrating on the sale of cheap commodities and minerals, and exploiting their own natural resource capital such as fish stocks and depletion of rainforests.
Meanwhile, the state cannibalises itself by selling off its public institutions in return for maintenance of economic solvency as long term public spending exceeds revenue over time in the absence of the state‘s retreat from further utilising it’s ability to create public credit in deference to private banks ability to create unlimited loan capital, ……(to do so without regulating credit controls on banks would be inflationary). This situation prevalent within the modern free-market economy where credit is largely privatised and overwhelmingly wrapped up in mortgages. Not only that debt increase exponentially year-on-year, since money creation is based on a loan-spiral predicated on the fractional reserve system - which is where many times the amount of money is loaned out than actually exists in deposits ('reserve requirements') – a system based on usury (interest) which is largely accepted by most economists as the necessary means of providing the means for speculative investment to generate wealth creation and spread economic activity. The increase in money supply which is in step with the increase in economic growth is the result of the loan spiral of loan built upon loan effect of the banking system. Elliot & Atkinson: "For 25 years after the 2nd World War, this magical power was stricly controlled by the state. Since 1971, these controls were progressively dismantled." The money supply and it's accompanying debt escalated after reserve ratios were abandoned in 1981 when new rules meant that the only legal requirement for banks was for them to lodge 0.5% of their total assets at the Bank of England, in the form of notes and coinage! The huge growth of international financial capital and the growth of international debt alongside it soared thereafter. The huge economic crash has been expected ever since.
The longer the economic growth spurt of world capitalism lasts, the deeper will be the economic crash that will inevitably follow.
See also: The coming financial collapse, interview with Martin Summers, the Former East European projects officer for the New Economics Foundation talks about present day money matters as we slide down a slippery slope:
http://www.youtube.com/watch?v=GLnryKeQ16A
Solutions:
LETS & Complementary Currencies Regional Links:
http://www.letslinkuk.net/regions/uk-map.htm
Radical Routes
www.radicalroutes.org.uk
Credit Unions in the UK:
http://uk.local.yahoo.com/United_Kingdom/Credit_Unions/uk100000168-s-23424975.html
Ecovillage Network
www.evnuk.org.uk/
Assists individuals, projects, and organisations in developing environmentally, socially and economically sustainable settlements.
305 members registered on this site. The eco-village PeopleFinder helps put you or your project in touch with the people or places you are looking for. ...
www.peoplefinder.org.uk/
Christian Council for Monetary Justice:
http://www.ccmj.org/
All you need to know about Islamic Finance in the UK:
http://www.islamicmortgages.co.uk/index.php?id=267
Under Shariah Islamic law, the governing of making money from money, such as charging interest, is usury and therefore not permitted
PROSPERITY, a monthly Money Reform journal based in Glasgow, Scotland, which is dedicated to spreading understanding about the nature of our debt-based money system, and campaigning for publicly-created debt-free money:
http://www.prosperityuk.com/
George Galloway was more supportive of the government's handling of the situation. In response to Alistair Darling's statement to the House of Commons this afternoon:
"Liberals seemed like Labour and the Conservatives are communists"
... (& also paraphrasing Blair's speech to the Commons after 911) ..."while the kaleidoscope is in flux, let us re-order this world around us" - meant to be in refernce to the part-nationalisation of the banking system (it's actually a loan).
Galloway, the Respect MP, further commented that the taxpayer should have a seat in the boardroom of these financial institutions, echoing the sentiments of Chris Mullin who warned that "these habits within the city" may reoccur (Mullin mentioned how previous bailouts had occurred in the past, and yet history repeated itself). Darling replied to Mullin that much stiffer regulation is now being put in place. The fact does remain, however, that when Darling has guaranteed that the savings of 96% of depositers will be secured, what he is not explictly saying (but what those in-the-know would be being made aware of by) is that 4% of depositers in the UK banking system own 45% of total bank desposits - many of them from overseas! Tough shit to them then.
It's clear that the Brown-Darling deal is making the best of a bad situation (they have invested a stake of public debt into the system with conditions attached; Paul Mason, Newsnight's economics editor, suggests on his blog that the time taken for the government to reach a deal may have been due to resistance from banks may have been less than enthusiastic about the conditions on lending). Mc-Donnell's fears are justified, and he reflects the quiet, indignant anger which most people feel towards these reckless gambling city spivs and the culture within the city which has openly encouraged them and this pattern of behaviour.
When the world economy is teetering on the brink with sub-prime, sold to people with no income or savings - so-called Ninja mortgages (No-Income, No-Job Assets) - have been re-leveredged into share capital across the world, you know that all this is just buying time before the whole thing collapses. The world system is built upon a collossal pyramid of public (national) and private debt. When oil prices start rising again and the underlying value of the economy is found wanting, all it will take is one further financial problem to send the whole system crashing as speculators and stock exchange traders are left reeling. They say we are entering a storm; we've not reached the eye of that storm yet.
Like most nation states stuck within the neoliberal system, they are completly reliant upon deriving wealth from international financial markets. The conventional explanation is that there comes a time when those markets suffer downturns; what is never discussed is the overwhelming level of indebtedness which the whole world system and world economic growth is predicated upon (the US national debt is now over $11 trillion; it's military superiority merely a result of it's ability to owe itself vast sums of money bailed out by banks in Asia and the Middle East savings their deposist there).
This is why the wealthiest nations and corporations are actually the most indebted (the United States is the most indebted nation on Earth: its combined national, private and commercial debt to the banking institutions is above $25 trillion - of which it's GDP - 14800 billion which is 0.0148 trillion - is a mere fraction - just 0.0037%!). Allied to these ever-widening distortions, there prevails the hypocrisy of the USA who allowed it's national debt to increase from $235 billion in 1960 to it's current level whilst at the same time, the “truly indebted” countries of the South are frogmarched through the macroeconomic straightjacket of restrictive fiscal (deficit) policy through Structural Adjustment Programmes by the Bretton Woods institutions. This extent of enduring a high national debt is also a trend similarly replicated in other leading industrialised economies such as Germany and Japan. Rather like the hypocrisy of the supposed free trade regime, which opens developing country, markets which the rich nations resist adherence to themselves, all-in-all this amounts to a fully-evolved stage of imperialism.
What about the UK. Larry Elliot and Dan Atkinson write in their new book 'The Gods that Failed' that in October 2007 there was: "£1,200 billion outstanding on mortgage debt and £222 billion oustanding on unsecured consumer credit, giving a grand total, in round numbers, of £1.4 trillion. In other words, using an admittedly imperfect statistic of 46 million for the adult population in the UK gives an average mortgage debt per adult of £26,086 and average consumer credit debt of just under £5,000. Seven years earlier, in Oct 2000, the figures looked like this: on mortgages, £525 billion was outstanding (£11,413 per head) and on consumer credit £125 billion (£2,717 per head), giving a grand total, in round figures, of £650 billion. The increase, in other words, has been of the order of 115% in 7 years. During these same 7 years, earnings rose on average less than 30%."
Within the UK, capitalism as a system is a precise arrangement configuring state infrastructure largely in support of the financial growth of those sectors of the economy accruing most value, with a banking system largely aloof from social and environmental obligations, acting as the unlimited supplier of credit for economic activity - analogous to an unlimited supplier of fuel for the driving engine of economic growth, which the accelerator-pedal of speculation and venture capital has been driving forward. What exists, however, is a speculative bubble, which is predicated on these huge amounts of debt, which by the 1990s reached unprecedented and unsustainable levels.
Yet it is this process of debt which propels the world economy! Poorer nations with international debt, which grew at excessive rates with interest during the 1980s, have been forced into a situation of neocolonial “selling off the family silver” in terms of concentrating on the sale of cheap commodities and minerals, and exploiting their own natural resource capital such as fish stocks and depletion of rainforests.
Meanwhile, the state cannibalises itself by selling off its public institutions in return for maintenance of economic solvency as long term public spending exceeds revenue over time in the absence of the state‘s retreat from further utilising it’s ability to create public credit in deference to private banks ability to create unlimited loan capital, ……(to do so without regulating credit controls on banks would be inflationary). This situation prevalent within the modern free-market economy where credit is largely privatised and overwhelmingly wrapped up in mortgages. Not only that debt increase exponentially year-on-year, since money creation is based on a loan-spiral predicated on the fractional reserve system - which is where many times the amount of money is loaned out than actually exists in deposits ('reserve requirements') – a system based on usury (interest) which is largely accepted by most economists as the necessary means of providing the means for speculative investment to generate wealth creation and spread economic activity. The increase in money supply which is in step with the increase in economic growth is the result of the loan spiral of loan built upon loan effect of the banking system. Elliot & Atkinson: "For 25 years after the 2nd World War, this magical power was stricly controlled by the state. Since 1971, these controls were progressively dismantled." The money supply and it's accompanying debt escalated after reserve ratios were abandoned in 1981 when new rules meant that the only legal requirement for banks was for them to lodge 0.5% of their total assets at the Bank of England, in the form of notes and coinage! The huge growth of international financial capital and the growth of international debt alongside it soared thereafter. The huge economic crash has been expected ever since.
The longer the economic growth spurt of world capitalism lasts, the deeper will be the economic crash that will inevitably follow.
See also: The coming financial collapse, interview with Martin Summers, the Former East European projects officer for the New Economics Foundation talks about present day money matters as we slide down a slippery slope:
http://www.youtube.com/watch?v=GLnryKeQ16A Solutions:
LETS & Complementary Currencies Regional Links:
http://www.letslinkuk.net/regions/uk-map.htm Radical Routes
www.radicalroutes.org.uk
Credit Unions in the UK:
http://uk.local.yahoo.com/United_Kingdom/Credit_Unions/uk100000168-s-23424975.html Ecovillage Network
www.evnuk.org.uk/
Assists individuals, projects, and organisations in developing environmentally, socially and economically sustainable settlements.
305 members registered on this site. The eco-village PeopleFinder helps put you or your project in touch with the people or places you are looking for. ...
www.peoplefinder.org.uk/
Christian Council for Monetary Justice:
http://www.ccmj.org/ All you need to know about Islamic Finance in the UK:
http://www.islamicmortgages.co.uk/index.php?id=267 Under Shariah Islamic law, the governing of making money from money, such as charging interest, is usury and therefore not permitted
PROSPERITY, a monthly Money Reform journal based in Glasgow, Scotland, which is dedicated to spreading understanding about the nature of our debt-based money system, and campaigning for publicly-created debt-free money:
http://www.prosperityuk.com/
MarkiBrown
Comments
Hide the following 7 comments
day anyone listens to galloway speeches for the truth in the east end are over
08.10.2008 17:23
galloway watch
.....and
08.10.2008 19:34
please explain, we would love to hear specifics for a change.
no broard brush strokes of "redistribution", no I would like to hear your manifesto, with exacting specifs based on THIS country, right now and if you got in right NOW!
cant wait to see it.
Harry purvis
bailout based on dodgy mortgage-backed securities is receipe for disaster
09.10.2008 11:08
As an economist in the US Larry Bates says at the start of the documentary "The Money Masters" (a broadly thoroughly excellent though, in-places, dodgy history of money): "there is going to be a crash of unprecendented proportions", which he follows with, "as with any previous banking crisis, money will not disappear, it will be merely transferred. A small amount of people are going to make a large amount of money".
marki
Anarchist economic solutions
09.10.2008 13:04
Specifically concerning the banking crisis: The government is spending several thousand pounds per UK resident to buy preference shares in banks. However, they do not plan to give individuals any say in how the banks are run. Even building societies, which in theory are democratically controlled by their customers, have little true democracy left. The millions of customers of the Grameen Bank in Bangladesh hold membership shares too, but they are also organised into local groups as part of their "peer-group" banking model, which gives them a more effective voice. Grameen Bank is the only bank to win a Nobel prize and has a much lower bad debt rate than the banks Gordon Brown is bailing out - however, it is hierarchically organised, which is not acceptable in an anarchist model. Non-hierarchical models of peer-group finance also exist, such as credit unions (which if well-run also have low bad debt rates) and Radical Routes (which has been lending since 1991 with no bad debts), but these are designed for much smaller numbers of members than Grameen.
So, one possible route towards democratising finance might start by giving people voting rights for the shares which Gordon Brown has bought on their behalf, and organise local customers' committees using a mixture of the Grameen and credit union/Radical Routes models. This could be a first step in probably quite a long process of turning the banks from failed capitalist institutions brought to their knees by globalised gambling in obscure financial instruments, to democratically-run providers of services for the public good.
n. r. key
Cornerhouse Publications
09.10.2008 15:47
2) 'Taking it Private: Consequences of the Global Growth of Private Equity'
Even without really understanding the current 'financial 9/11', one can
pick up a sense of fear, panic and uncertainty.
Blame for the crisis is attributed to 'greed and fear' . . . or
insufficient regulation . . . or too high bonuses paid to financial whizz
kids . . . or irresponsible lenders pushing cheap loans . . . or
irresponsible individuals accepting them . . . and so on.
But the crisis also needs a deeper structural analysis of how financial
markets have changed over the past 2-3 decades -- because it is these
changes that lie behind the current financial meltdown, particularly those
changes associated wtih the evolution of 'new financial instruments' and
'vehicles' such as derivatives and private equity.
And because the neoliberal edifice has been so spectacularly shaken in
these past few onths, the crisis also provides an opportunity for the
public to redefine what constitutes 'the public interest' and to reassert
its claims over how finance should be managed and allocated and in whose
interest.
For the past couple of years, The Corner House and its colleagues have
been trying to understand the impacts of the new finance on the ground --
for instance, on communities affected by mining or plantations -- and to
analyse what difference it might make to solidarity strategies with
affected communities: Is capital just capital, whether it comes from hedge
funds, private equity, banks or the state? Or does the very structure of
this new finance create new challenges?
Our work on this is still unfolding, but with the financial landscape
changing by the day, we thought we should share with you now our analysis
to date.
So we have posted on our website two papers:
-one exploring the 'shadow banking system'
-the other private equity.
Because events are still unfolding so rapidly, however, we are posting
them as 'works in progress' that we aim to update as soon as we can.
Within the next few weeks, we hope to post other papers on sovereign
wealth funds, hedge funds, and the liberalisation of the banking and
financial system that enabled the crisis to happen.
We hope you find them the papers useful. Your comments and feedback are
always welcome.
best wishes from all at The Corner House
1)
'A (Crumbling) Wall of Money:
Financial Bricolage, Derivatives and Power'
by Nicholas Hildyard
The current financial crisis is closely linked to the emergence of a
'shadow banking system' that financial entrepreneurs have created over the
past 30 years. Their goal in doing so was not only to make huge profits,
largely for themselves, but also to circumvent regulation and to offload
risk onto others throughout the financial system.
This system relied on thte creative use of 'new financial instruments' --
in particular what are called derivatives -- that allowed financiers to
generate easy credit by taking high risk bets while offloading the risks
on to others.
The 'wall of money' they created fuelled a boom in corporate mergers and
acquisitions across the United States and Europe (see also private equity
paper). It provided huge sums for companies involved in mining, biofuels,
private health care, water supply, infrastructure and forestry to expand
their activities.
When the 'bets' began to go wrong, however, the pyramid of deals began
tumbling down -- the bankers have certainly suffered but it is the public
that will continue to carry the costs for many years to come.
This paper explores and summarises:
-how the shadow banking system was constructed and why;
-the history of the derivatives, 'hedges' and speculation that underpinned
this new finance;
-how derivatives are being used to get around banking, accounting, trading
and public finance rules;
-the negative impacts on the ground even before the current crisis;
-recommendations put forward in the past few months on how to fix a broken
system; and
-how best to seize the moment to pursue a different system that has a
genuine public interest at its centre.
2)
'Taking it Private:
Consequences of the Global Growth of Private Equity'
by Kavaljit Singh
Private equity is now an integral component of the world's financial
system. It was behind many of the multi-billion buyout deals, and mergers
and acquisitions that swept across the US and Europe. Its activities have
created a new type of corporate conglomerate that has reshaped the way
business is conducted.
As a new form of corporate ownership, private equity poses new challenges
to labour unions, NGOs and community groups; it has a significant and
distinctive influence on taxation policy, corporate governance, labour
rights and public services, and thus deeply affects society, human rights
and the environment alike.
These challenges are especially clear in Asia, which has become more
attractive for private equity firms since the 'credit crunch' diminished
the scope for huge deals in Europe and North America.
This paper looks at the global growth of private equity and its social,
environmental and political impacts, using India as a case study of its
growing importance in Southern countries.
It concludes with an outline of private equity's vulnerabilities that may
provide opportunities for public concerns to be addressed.
Avocada
THIS what?
09.10.2008 19:21
We might as well argue for veganism based on THIS butcher's shop or world peace based on THIS bomb. The best you can say is that abolishing / destroying THESE things would be a small step towards the respective goals
Stoppyoldgit
Global Meltdown Derby
10.10.2008 10:31
from the superb London-based open mic poet Grassy Noel, listen to his Global Meltdown Derby commentary in the style of a horse-race sports commentator:
sporting life