Friday, 3 October 2008

This Greed Was Beyond Irresponsible

by Campsie Branch member, Bill Newman

Bill Newman spent most of his working life in banking, latterly as head of economics and then as Assistant General Manager of a City of London bank. For some 15 years he was also editor of and wrote for a journal on international monetary economics.

He has an interest in African matters, having been
responsible for economic and political reporting on sub-Saharan Africa for Westminster Bank and writing for some years for the Europa Yearbook on Somalia and Ethiopia.

was also on the Executive Committee and the Management Committee of the Banking, Insurance and Finance Union (BIFU) and a delegate to the TUC.

No. The headline above was not from the Morning Star, but was from that house newspaper for the rich and powerful, the Financial Times of 18 September. And how about these headlines from the Herald: Capitalism has proven Karl Marx right again and Bailing out banks is socialism for the rich. All this is true and reflects the intrinsic truth about capitalism, but you won't hear any MPs or MSPs accepting this or recognising that this profound crisis merely reflects the inevitable effect of uncontrolled capitalism, nor will they acknowledge that socialism is the answer to these periodic catastrophes. The press and politicians fulminate about the greed of financial traders and bankers and fail to recognise that it is this greed which is the rationale for capitalism. Without greed and exploitation, the whole structure of capitalism would collapse.

It may seem strange that apparently intelligent men could bring mighty financial edifices to their knees, but if you are earning stratospheric sums trading bits of paper to other overpaid traders, why worry that these pieces of paper might represent worthless or, at the very least, suspect commodities. Did no-one not bother to consider that sub-prime mortgages, for example, were, by their very nature highly risky loans and that by the time they had been packaged up with other dubious products, it was virtually impossible, once they had been traded time and time again on the financial merry-go-round, to tell what underlying value they represented. Some years ago when I worked in banking, I queried with the Bank's chief trader what the quantifiable risks in the derivatives he traded were. In reply he pointed out that the Bank made substantial profits from such trade and that all banks of any consequence were also engaged in this paper chase. In consequence, I raised my fears with the Bank's Board only to receive the same answer. In essence, the boom in these dubious trades was a classic case of pyramid selling, not unlike the South Sea Bubble, and only the greed of bankers blinded them to the escalating risks of these increasingly complex markets.

But do the travails of overpaid bankers affect the average citizen? Unfortunately they do and the coming months will show a massive decline in all economic activity as banks try to rebuild their balance sheets, refuse to extend credit and shed staff. It is impossible to believe, for example, the reassuring noises that Santander makes on employment in their subsidiaries in Britain. If Abbey, Alliance and Leicester and Bradford and Bingley are owned by the same company, is it credible to believe that these banks and their staff will not suffer from consolidation? Without access to credit, what is left of our manufacturing industry will shrink at an escalating rate, unemployment will soar and house price collapse will leave many with unsustainable negative equity.

So what is the response of our politicians? Inevitably, the bail-outs envisaged are bail-outs for the very people who got us into this fine mess, a fact that the American public has been quick to realise. Nor will the enormous sums involved remedy the sickness in the world economy. It is not surprising that our leading politicians seem to have no knowledge of Karl Marx who , as Ian Bell in the Herald pointed out, defined with precision the inevitable economic crises at the heart of capitalism. It is rather more surprising that they seem to have forgotten, if they ever knew, the lessons taught by Lord Keynes, so besotted have they become by the simplistic notions of the free market as propagated by American economists of the so-called Chicago School. It should surprise no-one, not even politicians, that the only UK bank to be trusted by the public at the moment is the only nationalised bank, Northern Rock; so successful that the Bank's deposit services have been curtailed! The lesson, which our politicians will not learn, is that publicly owned banks are secure and privately-owned banks are not. At the very least, it would help if the Government greatly expanded public expenditure, but the very reverse seems to be happening.

The answer to the pending economic crash, is socialism, and now should be an ideal opportunity to get this message across. Given the control of the media and the absence of sympathetic politicians, this will not be easy, but the public will be looking for real solutions and will not be fooled for ever by sticking plaster measures of Western governments. The Scottish Socialist Party offers a principled and practical solution to our economic ills and it is crucial that we get our message across.

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