What do Wall Street and The City have to do with me ?
Ken Ferguson writes on the financial crisis sweeping the globe
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.
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