Stricken lender Northern Rock has attracted a buyer.

The Northern Rock bad debt crisis highlights serious internal problems of neoliberal capitalism. The banks, the bedrock and guardians of capitalism are wobbling because they cannot cover bad debts.

For many years banks could easily borrow from each to cover if it were needed, such as short-term cash flow issues; this has been the case for decades: they would borrow from the money markets which are central funds into which banks deposit excess cash, sometimes just for one day, and from which they earn interest. Banks can also draw from it if they require cash, and so pay interest. This has been going on for decades but only over the short term: days, week’s months and normally within a nation state.

Now, since the global neoliberal financial turn that began in Chile after a US supported coup in the 70´s , many banks and other financial and corporate entities, and institutions have increasingly south larger loans freely across l borders, as the neoliberal financial ¨revolution spread from Thatcher’s Britain, and Regan’s US around the world. The aspect of neoliberalism relevant here is that finance capital (money) was allowed to move around the world where as before it was mainly confined within nation states, or lent from one state or group of banks to other states.

So today,iIt makes no difference to the Northern Rock if it borrows from Lloyds, or a dodgy bank in the US – it’s all done by the click of a computer mouse. The key factor with banks is: the more risky the loan the higher the interest rate. The thin about Northern Rock is that gets most of the money it lends as mortgages from other banks; it then lends It as these mortgages at a higher interest rate.

As long as money can make more money in this way and the middle man can takes his cut, the system expands and creates more cash: so that know there is a massive amount of cash swilling about looking to be lend or invested to make a profit. This money cannot sit tight and do nothing because inflation will erode its worth; it must be invested and so economies must grow to facilitate and absorb all the investment and loans. If not there will be recession, and possible collapse, and worse of all the rich might lose some money. Normally in a recession, it´s the poor who pay, although in the 1960´s and seventies, social democratic states made the rich pay.

Neoliberalism was the answer by the rich and powerful to social democratic states that made the rich pay as well as the poor for the recessions they were largely responsible for. It was also the answer to the way social democratic states had taken away power from the traditional elites like the aristocracy and rich.

What has surfaced lately is a loans crisi. However, this crisis has been festering away for years, but given medicin by central banks and favourable government assistance and policy.

Because so many have defaulted on loans, for example mortgage holders in the US with bad credit ratings - who were given mortgages at relatively high interest rates which went on to rise further as central banks raised interest rates across the world - banks have become reluctant to lend more money to other banks with bad debts, or those without concrete assets to cover the loans. This process exacerbates the second problem, if the banks with large numbers of defaulting debtors go bust, other banks who have given them loans will also be affected. This problem has begun to ripple around the world.

The Central banks normally bail out bans heading to go down the tubes, because the knock on domino affect could trigger a massive collapse of the banking system. This is what they are doing now – they are lending money to these banks. This process in itself causes problems; one of them is inflation- the neoliberal financer’s biggest nightmare.

A second way to counter this rippling or domino effect of bad loans, which deters banks from lending and thus brings about recession is called a liquidity (of money) crisis – the central banks pump money into the system to keep the cess pool swilling around. Truth be told these central banks have only a vague idea, because the workings of capitalism are as complicated and as uncertain as quantum mechanics. And anyone who says they really understand really understands quantum mechanics or capitalism is bullshitting or deluded.

The result is that nobody really knows what’s going to happen. International finance and the problems it has caused locally mat right themselves or may not and the thing may go down the tubes. But you an be sure that poor people and poor countries will pay for it if the system recovers –that is how it’s always been. When the rich start to suffer then you know revolution is in it’s nascent stages. might recover or the



Put simply: the rich get low interest rates, and the poor high. For example, a poor third world country will have a huge interest rate slapped on its loans, despite the fact that nations are not permitted to go bankrupt, unlike business. The liability for a poor nations debt is put on future generations.


Wobbling banks are deep shit for capitalism, the deepest shit; hence neoliberal governments around the world are doing what they can to hold up the If the banks go down, the whole superstructure of capitalism tumbles. But don’t rush down to the Halifax just yet and withdrawer all your savings – so far it’s just a wobble – that would really exacerbate the problem exponentially.

The serious problem that has arisen over the last year is that banks have stopped borrowing to each other and to leveraged based entities which have few concrete assets. If I go to the Halifax and ask to borrow 1 million pounds, because I want to invest it in stock and shares; and say: well I can easy pay back the high interest you would ask on the loan by my profits. They’d say no to you. But they have been saying yes to shit loads of finance houses and new business exploiting the availability of huge amounts of cash swilling about out there that needs to be put to work to earn money for banks, and has rising exponentially since the trans – national neoliberal revolution.

The so called success of neoliberalism has been built on personal and corporate debt – borrowing to expand economies by creating new markets, and borrowing to fuel consumer demand. Debt has to a large extent greased the wheels of capitalism for a few decades.

Unsupportable debts of banks and recession would spell disaster for capitalism. If this happens, it’s the rich that should be made to pay and not the poor – but it would take a real substantive revolution to bring about that. That´s a lot of Rocks.


Yours as ever

Harold Hamlet