What does Wall Street have to do with me ?
by Ken Ferguson
Night after night the news is dominated by news of sliding
stock exchanges, plummeting share values and dire predictions of recession
and hard times to come.
One of the key ways by which capitalism maintains its dominance is by
simply throwing up a veil of mystification around its work.
For example the vast majority of people have little knowledge of or probably
interest in the workings of the FT index or the movements of stock markets
from New York to Tokyo.
Nevertheless we are all surrounded with the consequences of the apparently
obscure workings of those key components of the capitalist system.
That’s why almost everybody from high profile financiers to the
Left is predicting the real prospect of a recession with the resulting
cuts in living standards, job security, house repossessions and soaring
prices.
So what has happened to the economy which only a few short months ago was supposed to be Prime Minister Brown’s ace card?
Stripping away the jargon the answer comes down to two very everyday items—houses and cars.
The crisis sweeping the stock exchanges started off
in the so called “sub prime” housing loans market in the
US which lent money to low paid and other economically insecure people
and then lumped the loans in with more secure lending.
The idea was that by “bundling” good and dodgy loans together
that everything would be ok and purchasers of the loans would have a
steady income stream generated from the borrower’s repayments.
But the snag came when under pressure sub prime borrowers failed to make
their payments and rendered their loans more or less worthless.
However the real problem is that the duff loans were bundled in what
the dealers term Collaterised Debt Obligations with sound ones and the
banks are keeping quiet on just what amount of problem loans they have.
In turn this means that since nobody knows how sound
each bank is nobody is lending money but experts have estimated that
the duff loans have cost the banks more that $1,000 billion.
It is the resulting block on lending that has sparked the Northern Rock
crisis which has cost UK taxpayers £25 billion and looks like destroying
the economic reputation of the Brown regime.
It will also mean that lack of investment will imperil jobs and uncertain
house prices will force consumers to slash loan backed spending.
All this points to a recession in which unemployment is likely to rise
and living standards fall.
Bad as this is, the other factor, cars, needs to be
added to the pile. With oil at a record $100 a barrel the consequences
for a heavily oil dependent economy is severe.
It should be remembered that high oil prices helped create the last two
global recessions in the early 1990s and 1980s.
At the heart of it all is the fact--continually praised
by New Labour—that the UK is an economy dominated by finance with
an ever shrinking manufacturing base.
Behind the façade of highly slick computerised money making stands
the reality that we live in an economy with more in common with the workings
of Ladbrokes than one designed to meet human need.
In the short term their will no doubt be sharp battles ahead to defend
living standards, combat rising prices and defend jobs.
However as long ago as the 1860s Marx described the crisis ridden nature
of capitalism and despite all that has happened since the core truth
of this view has been demonstrated time and time again.
That’s why, while it fights to defend jobs, working
conditions and living standards and for houses and health the SSP also
demands a new economy.
Such an economy would start the task of harnessing the stupendous technological
and material resources which already exist to meet the needs of society
rather than the greed of the few.