The Great Bank Robbery
by Raphie de Santos
AS the poor South starves, even running out of essential food stuffs such as rice and wheat, because of demand from the increasingly enriched Chinese population, capitalism is calling on the workers of the West and East to bail them out of their latest global financial crisis.
Capitalist banks are asking their shareholders for billions of US dollars to cover the losses they have made against the sub-prime products that they have on their balance sheets.
But also, to protect themselves against potential further losses from other derivative contracts that they acting as guarantor for.
These derivative contracts are with the increasingly shaky hedge funds (offshore unregulated leveraged investment companies); pension funds, insurance companies, fund management companies and other investment banks.
In addition as the recession starts to bite banks that have exposure to consumer debt through credit cards, loans and mortgages and will increasingly have to write off part of these debts as consumers start to fail to make payments.
The Royal Bank of Scotland (RBS) is the latest victim of the sub-prime crisis and so far the losses declared by the major global banks amount to over (US)$300billion.
Many analysts, now including the International Monetary Fund are predicting that this could reach (US)$1000billion.
The remarkable fact is the total public debt that the poor South countries owe to the international banks in 2006 was (US)$182billion.
This is almost half the of the losses that these banks have suffered with the subprime crisis and less than the (US)$220 billion of our money the UK government used to prop up money markets in nationalising Northern Rock.
So when we demand that the debt to the poor South be written off it is not such an unreasonable request!
The global banks basically went on an orgy of greed and failed to properly access and recognise the risks of the subprime crisis. But who is going to pay for it?
We find that it is the ordinary people in the West.
Citicorp the second biggest sub-prime loser has cut 13,000 jobs so far and plans to cut a further 9000 after it recently announced a further (US)$12billion of losses last week.
Our own Royal Bank of Scotland is set to announce a further (US)$12billion of sub-prime losses.
Can this money just disappear? No, the banks have to replace it for two reasons.
One, by regulation they must have a certain amount of money (called tier one capital) as safeguard against the products that they are guaranteeing.
Two, they must have a cushion against further losses from sub-prime products, loans and other derivative products.
The most worrying exposure is to something called credit insurance, which they have sold in the financial markets as a guarantee against companies going bankrupt. It is estimated that there is (US)$26,000billion (26trillion) of this insurance outstanding.
In a recession, companies go bankrupt at a rate of between 5 and 10 per cent.
If we enter a deep recession, this could reach 10 per cent, and 50 per cent of value of the company is recoverable, meaning that the banks would have to pay out about (US)$1,300billion in insurance payments.
How do they find the money they need. One way is by a so called rights issue.
RBS needs (US)$24billion to fill its black hole!
That is just over 14 per cent of the total debt that the poor South owes the global banks!
Who is going to pay for this rights issue? The shareholders who the majority happen to be you and me.
Through our pensions funds, insurance policies, endowment policies and ISAs we own RBS.
But the people who manage it on our behalf will decide if they should give our money to bail out a bank that through its speculative greed has lost billions of dollars and will likely make thousands of it workers redundant in Scotland.
A bank that cannot find the heart to find a few hundred million US dollars to relive the debt of the poorest people on the planet.
That is the insanity a global financial and economic system that haggles over a few dollars here and there for the poorest citizens of the planet.
But at the same time can lose multiples of the amounts, on a reckless gamble, that could forever lift the burden of debt of the most desperate people in the world.
It’s time this system was replaced with a rational one that puts people before profits and speculation.
Major Sub-Prime losses so far declared
UBS: $38billion
Citigroup: $36billion
Merrill Lynch: $31billion
Morgan Stanley $12billion
Deutsche Bank: $7billion
Credit Suisse: $6billion
HSBC: $3billion
Bank of America: $3billion
Barclays: £3billion
JP Morgan Chase: $3billion
RBS: $3billion
Goldman Sachs $3billion
Freddie Mac: $2billion
IKB: $2.6billion
HBOS $450million