Friday, 31 October 2008


Campaigners in London plan to petition the British government today for a posthumous pardon for the hundreds of people executed for witchcraft between the 16th and 18th centuries.

Witchcraft has not been punishable by death for nearly 300 years.

They said Halloween is a good time to highlight the "grave miscarriage of justice" suffered by the men and women falsely accused of being witches.

Their petition asks Justice Minister Jack Straw to recommend that Queen Elizabeth issue a pardon.

"We felt that it was time that the sinister associations held by a minority of people regarding witches and Halloween were tackled head-on," said Emma Angel, head of Angels, a large costume supplier in London.

"We were gobsmacked to discover that though the law was changed hundreds of years ago and society had moved on, the victims were never officially pardoned."

Around 400 people were executed in England for alleged witchcraft, and many more in Scotland, the campaigners said.

In the 16th to 18th centuries leaders of money put pressure on the judiciary to blame someone for society's problems -- so they decided to blame witches !

Thursday, 30 October 2008

'Global in Nature'

The current financial crisis may be more far-reaching than even the 1929 crash, a Bank of England policymaker has warned.

Professor David Blanchflower a member of the Bank's Monetary Policy Committee (MPC), and has often been a lone voice in urging rate cuts.

"My view remains that interest rates do need to come down significantly - and quickly," Prof Blanchflower told an academic audience in Canterbury.

And Prof Blanchflower said international financial problems could turn out to have long-lasting repercussions.

"It is even possible that this event may turn out to be more significant than the 1929 crash which primarily involved bank failures in the United States," he said.

"The current difficulties in financial markets are more global in nature and more comparable to what happened in the First World War."

Wednesday, 29 October 2008

Capitalism in Crisis

Capitalism in crisis by Adam Buik (Part 2)

As the US Fed just said, banks make their profit out of the difference between the rate of interest at which they borrow and the (higher) rate at which they lend. The ultimate source of this profit is the surplus value, produced by workers in productive activity which capitalists who have invested borrowed capital in production have to share, in the form of interest payments, with those who have invested in financing.

In America the law divides banks into two categories: commercial banks (which can take deposits) and investment banks (which can’t). British banking legislation is less rigid.

The commercial banks (High Street or retail banks as they are called here) are banks that accept individual deposits. But they are not entirely dependent on them. They can also borrow money "wholesale", on the money market where various types of short term bills and bonds are traded, and then lend this out. Of course they have to ensure that the interest they pay on the money borrowed this way is less than what they are going to get when they re-lend it. Building societies are a sort of bank, but are much more dependant on deposits than the commercial banks.

As stated (but it’s worth repeating again and again), banks can only lend what's been deposited with them or what they themselves have borrowed. Somewhat less in fact as they have to keep some of what has been deposited with them as cash to deal with withdrawals. At one time in Britain this was 8 percent. But I'm going to assume (as this is still the official ratio in America) that it is 10 percent. What this means is that for every £100 deposited banks have to retain £10 as cash. The other £90 they can lend out.

Some people misunderstand a 10 percent cash ratio to mean that if £100 is deposited with a bank, the bank can then lend out £900. This is an understandable mistake but one which currency cranks erect into a theory, claiming that what banks do is create money out of thin air by a mere stroke of the pen and then charge interest on it. But no bank does or can do this. I repeat, they can only lend what has been deposited with them or what they themselves have borrowed.

The other main type of bank is what in America is called an investment bank and what in Britain used to be called a merchant bank. Two notorious examples would be Barings and Lehman brothers, both now defunct. While in Britain (though not in America) some of these take some deposits, most of their banking activity consists in borrowing money “wholesale” at one rate of interest and re-lending it at a higher rate. Actually, it's not money (cash) that they deal in but various paper IOUs (variously called bills, bonds, securities). In the past it was mainly trade bills on exported goods, hence the name “merchant bank”.

Since the 1990s investment banks - and indeed some of the commercial banks - have been involved in two other activities: “securitisation” and “derivatives”.

Securitisation involves converting a future stream of income into a capital sum and selling it as a “security”, or bond, yielding the stream of income as interest. This - and vice versa, converting a capital sum into a stream of income - is a calculation that insurance companies have long been doing. Marx called a capital sum calculated in this way “fictitious capital”, though a better term might be “imaginary” or “notional” capital since there’s nothing dishonest or dodgy about it. One example is the price of land, which is based on the expected future rents expressed as a capital sum. The stream of future income that banks began to turn into interest-bearing bonds were, for instance, mortgage repayments but also the interest payable on other loans. In fact, different interest streams from different loans came to be packaged together into a single bond.

"Derivatives" are so-called because they are “derived” from real assets. These are essentially bets on how the price of real assets such as commodities or shares or government bonds or currency is going to change over time. When this are not pure gambling, it can be considered a form of insurance against a company or a loan failing (by betting that this will happen). Big money can be made out of derivatives if you win the bet, but so can big losses if you get it wrong. To obviate this risk hedge funds have come into existence to, precisely, hedge the bets.

Because both securitisation and derivatives are unregulated (one reason why banks resorted to them so much), dealings in them have become known as “the shadow banking system” which is also based on making a profit between borrowing at one rate of interest and lending at a higher rate. Its value is always estimated in “trillions” whether of dollars, pounds or euros. (A “trillion”, incidentally, is only what we in Britain used to call a billion, or a million million; the English billion having shrunk from a million million to a mere thousand million.)

The money market is where the banks lend and borrow short term to and from each other, mainly in the form of short-term bills such as Treasury Bills (90-day IOUs issued by the government). The rates of interest prevailing there depend on supply and demand; the going rate is known in Britain as the London Inter-Bank Offered Rate (or LIBOR). Normally, it is influenced by the bank rate, going up and down with it. This is because, as we will see in a minute, the bank rate is the minimum rate at which banks can borrow from the Bank of England.

This brings us to the central bank, in Britain the Bank of England, in America the US Federal Reserve System. This is the government's banker, receiving taxes, paying out what the government spends, and borrowing and repaying what it borrows (the National Debt). A central bank does have capabilities and powers beyond those of the other banks, in particular it controls the amount of currency that is issued. When, from the end of the Napoleonic Wars to the outbreak of WWI, the currency was convertible into gold at a fixed amount, if the Bank of England wanted to issue currency above a certain amount they had to keep the same amount of gold in its vaults to cover it; the part not backed by gold was known as the "fiduciary issue". Now that all countries have an inconvertible paper currency all this has ended. Governments don’t keep gold back their currencies anymore, only some to settle some international payments,

The currency is no longer backed by gold but only by the government's ability to raise money by taxes. All the currency in circulation is in effect now "fiduciary", or “fiat money” as they call it in America. The Bank of England does have the power to "create" extra purchasing power by putting more money into circulation, “out of nothing” “by a stroke of the pen” as the currency cranks might put it. But, if they issue more money than would be required by the economy had there been a convertible currency, this doesn't last for long as it results in an inflation and so a depreciation of the currency, so total purchasing power is not in the end increased.

In Britain the government, via the Bank of England, doesn't actually print more money and then use it pay civil servants or for its other activities (as has been happening in Zimbabwe, for instance). It's done in a much more roundabout way. When the Bank of England wants to inject more cash into the economy it sells Treasury Bills on the money market while at the same time lending the banks the cash to buy them. The effect is the same as if they'd printed more money.

At one time the government used to try to control the lending of the other banks by varying the "cash ratio" (the percentage of deposits they were required to keep as cash) or by requiring the banks to deposit money with the Bank of England. These powers still exist, but these days the main way that the government and the Bank try to control the lending of the other banks is via variations in the Bank Rate. This is the minimum rate at which the Bank of England, as “lender of last resort” to the other banks, will lend to them. If it goes down banks can borrow money from the government more cheaply and so all other short term rates can go down too (but not always, as now it isn’t).

The "cash ratio" is not the only ratio that banks have to try to respect. There is also a "capital-to-assets" ratio. Because of the particular nature of the banking business, only a small proportion of the assets on a bank's balance sheet actually belong to the shareholders, are part of the bank's own capital. Most are what the bank has borrowed, either from depositors or from the money market. International monetary bodies such as the Bank of International Settlements in Basle and the IMF have laid down guidelines as to what percentage of a bank's assets its capital should be: it’s about 6-7 percent.

This places a limit on the amount a bank can borrow to re-lend. If a bank's capital-to-assets ratio falls below this figure it is regarded as technically insolvent. So, if this happens a bank has to increase its capital or reduce its borrowing (which will of course reduce its lending) or a combination of both. This rule is aimed, it should be noted, not at protecting depositors but at protecting shareholders since, if the bank does go bankrupt, then the shareholders stand to lose everything since any assets that the bank has have to go first to its creditors.

That's the principle but there is a practical problem: how to measure assets? Since some assets are more risky than others the various types are valued by their degree of riskiness. The more risky the higher the weighting they are given. So, we're talking about a capital-to-weighted-assets ratio. Then there is another problem. Do you value them at the value they had when they were acquired, their replacement value or their market value? Currently they are supposed to be valued at market value, i.e. what they would get if they were sold on the day. This is known as "mark-to-market" accounting and has consequences on banks' solvability when market values are fluctuating wildly.

Tuesday, 28 October 2008

'Tangential forces'

Strange, tangential and often unlikely events laid at the door of the credit crunch.

Horses are being abandoned as it costs so much to feed and house them - especially now the price of hay has shot up.

There may not be another Bond film for a while, says 007 actor Daniel Craig. "Economically the world is in quite a lot of trouble so who knows if we can afford to do another Bond movie anytime soon?"

The Queen will wear outfits she's worn before on a state visit to Slovenia and Slovakia.

And Coronation Street's Molly will wed in a dress bought for another actress as the wardrobe department cuts its coat.

England's cricketers taking part in the Twenty20 Stanford Super Series "swag-grab" - for which they are paid a king's ransom - are told not to enjoy the spoils too much.

Author Kathy Lette has given up taxis and instead walks - or jogs - all the way across London's picturesque Regents Park to get about.

Cobblers are getting more customers as shoe wearers try to make do and mend, rather than buy new shoes.

And prams are flying out of charity shops as soon as they are wheeled in.

Students may get lower degree marks because of working part-time to pay the bills.

Rather than drowning our sorrows, we are buying less

Monday, 27 October 2008

End of Incapacity Benefit

Incapacity benefit will be replaced with a new employment and support allowance today under the latest phase of the government's programme of benefit reform.

Under the new system, ill or disabled benefit claimants will have their capability assessed by an expert health professional within weeks.

The government said the changes reflect an end to "writing people off". Work and pensions secretary James Purnell said: "In the 1990s people were written off on incapacity benefit with no help to overcome their problems or support to get them into work.

"It is even more important during an economic downturn that we increase support for people not take it away.

"The introduction of employment and support allowance [ESA], which marks a significant landmark for the delivery of our welfare reforms, will offer the help and support disabled people and people with ill health are telling us they want in order for them to get back to work."

The Disability Alliance raised concerns that ESA rates were lower than incapacity benefit. "Jobcentre Plus must improve its decision-making standards, including consideration of medical evidence and the standard of medical examinations."

Reforms to the way single parents apply for child maintenance also come into force on Monday amid concerns that the changes could leave to fewer poor children receiving the benefit.

Under the arrangements single parents on benefits will have to decide whether to continue using the Child Support Agency, make their own arrangements, or do without child maintenance altogether.

Fiona Weir, chief executive of the One Parent Families/Gingerbread group, said: "We fear that many poor single parents on benefit will struggle to agree private child support arrangements and their children may end up doing without.

"This would be disastrous for the children affected and for the government's child poverty targets."

Capitalism in Crisis

Capitalism in crisis by Adam Buik (Part 1)

We are living in interesting times, historic times even. We could be witnessing a once in a lifetime event, a major capitalist crisis and slump. What is now happening is an old-fashioned credit crisis such as used to occur at regular intervals in the 19Th century. But also in 1907 and 1929. It’s all there in Marx’s description and analysis of them in Volume III of Marx’s Capital. There’s the same panic, the same bank collapses, the same dash for cash, and the same government intervention to make cash available even by breaking its own rules.

What the existence of a credit crisis shows is that money has been unwisely lent by banks. The loans have turned out to have been unwise because the borrowers have found themselves unable to repay them. If these defaults are widespread and important enough then the whole financial system can be affected. Which is what has happened today?

But how does it come about in the first place that at the same time a large number of borrowers become unable to repay loans?

In the 19Th century the loans that turned bad were made, for instance, typically to cotton manufacturers to export to India or China and proved unsound when more cotton goods were produced than could be absorbed by these markets. Panic set in when the trade bills issued to finance these exports couldn't be honored. In other words, it was caused by some economic event : overproduction in some sector of the real economy in relation to the market (paying demand) for its products, an overproduction brought about by the anarchic pursuit of profits that is built-in to the capitalist system.

This time the loans that turned bad were made, in America, to individuals to buy a house. This stimulated, and then sustained, a boom in housing construction. In the end, paying demand was unable to keep up with the supply of new houses for sale, as demonstrated by the fall in house prices and the increasing number of defaults. In other words, there was overproduction in the US housing sector.

These defaults have had an impact on the whole global financial system because of the way in which the original loans had been financed - or rather re-financed. They had been pooled by batches into bonds by US investment banks, and then pooled again with other loans, into other bonds, and sold by them to other banks and other financial institutions throughout the world, but mainly in America and Europe. So that when the borrowers of the original loans defaulted in large numbers this had an effect on global credit markets.

The Banking System

I know that as Marxists we are more interested in the events in the real economy that have precipitated the current crisis but, as on the surface it is a banking crisis (which is real enough in its own right), I want to begin by describing the institutional framework within which this banking crisis is taking place.

Most people don't like banks, seeing them as institutions that in some mysterious way create money and then charge interest on it, so getting money for nothing. Actually, banks are financial intermediaries which can only lend money to people and businesses out of money that has been deposited with them or which they have themselves borrowed. As the US Federal Reserve put it in one of their educational documents:

“Banks borrow funds from their depositors (those with savings) and in turn lend those funds to the banks’ borrowers (those in need of funds). Banks make money by charging borrowers more for a loan (a higher percentage interest rate) than is paid to depositors for use of their money.” ( P. 57)

The IMF has even coined a new verb to describe what banks do: they “intermediate”.

Banks are profit-seeking capitalist enterprises in which the owners have invested capital with a view to making a profit. A bank has to have its own capital to invest in the buildings and office equipment and in the wages and salaries of bank workers. The business of a bank is to borrow and re-lend money, basically to channel unused money to where it can be used, most of it going in the end to capitalist enterprises to use as capital to invest in trade and industry.

Sunday, 26 October 2008

Dark Places

In just 30 years we have seen one earth and three planets worth of damage to our environment. In that time a one third decline in the populations of 1,300 fish, bird and animal species has taken place. Almost every other day the media reports on the damage that is being done whether it be the melting ice in Antarctica or the adverse weather conditions here at home, a simple test always reminds me of the man made damage to our environment; step outside on any clear London evening and look up to the heavens, you will never see a sky full of stars as you did say 30 years ago because light pollution has blacked them out! Recent research has shown that light pollution is killing off the birds; it’s killing off moths, spiders, sparrows and amphibians supporting the case that light pollution is considered a real threat to the environment as well as to astronomers.
Stray light from our towns and cities is illuminating the sky over great distances and is eradicating our enjoyment of night skies. This stray light phenomenon is known as skyglow and although an awareness of the problem has been around for many years, the mechanism of skyglow, how it is created and what the key causative agents are, have not been fully appreciated. Sky Glow occurs from both natural and human-made sources. The natural component of sky glow has five sources: sunlight reflected off the moon and earth, faint air glow in the upper atmosphere (a permanent, low-grade aurora), sunlight reflected off interplanetary dust (zodiacal light), starlight scattered in the atmosphere, and background light from faint, unresolved stars and nebulae (celestial objects or diffuse masses of interstellar dust and gas that appear as hazy smudges of light). Natural sky glow is well quantified.I do apologise for ranting on about modern light pollution but all too often the environmentalists and so-called eco-socialists bang on about everything else and forget about this harmful phenomenon.

Much, much more needs to be done if we are to save the planet and mankind from its own destruction not just a heavy duty on large, expensive ‘gas-guzzling’ cars or a levy on the carer bag.

The Governments own chief scientific adviser has said that Global warming and climate change is a far greater threat to the world than international terrorism. The defining challenge of the 21st century will be to face that reality, the reality that humanity shares a common fate, and that common fate requires global co-operation, a fundamental simplicity that New Labour and many world leaders refuse to understand.

Friday, 24 October 2008

Households Exposed

Norwich Union has and withdrawn unemployment-only cover.

The move could mean tens of thousands of households are left exposed and unable to meet their mortgage payments if they are made redundant from their jobs.

It comes as exclusive research for revealed that premiums for this type of insurance have increased 17 per cent in the past year.

Norwich Union has disclosed it no longer offers unemployment-only cover available through its partnerships with Paymentshield and Select & Protect. And it refused to rule out extending this policy to other partnerships.

Norwich Union's cover pays out to workers who are made redundant and covers their mortgage payments for up to 12 months.

Unemployment is rising at its fastest rate for 17 years and is heading toward the two million mark, according to latest figures. The financial services and construction industries have been particularly badly hit by the credit crisis.

Research revealed the cost of unemployment cover has increased from £3.07 per £100 to £3.58 per £100.

A spokesman for Norwich Union confirmed the products had been withdrawn, saying: "We are responding to current market conditions and as an insurer we want to balance the risk of our portfolio."

'Mass unemployment'

European governments are facing calls for action to prevent a sharp rise in unemployment in the worst economic upheaval since the 1930s Great Depression.

The International Labour Organisation has forecast 20 million jobs worldwide will disappear by the end of next year, and economists expect job queues to lengthen across Europe.

Wednesday, 22 October 2008

'There's no god'

Good God!

The sides of some of London's red buses will soon carry ads asserting there is "probably no God," as nonbelievers fight what they say is the preferential treatment given to religion in British society. Organizers of a campaign to raise funds for the ads said Wednesday they received more than $113,000 in donations, almost seven times their target, in the hours since they launched the project on a charity Web site. Supporters include Oxford University biologist Richard Dawkins, who donated $9,000.
The money will be used to place posters on 30 buses carrying the slogan "There's probably no God. Now stop worrying and enjoy your life." The plan was to run the ads for four weeks starting in January, but so much money has been raised that the project may be expanded.
While most London buses carry posters for shops or Hollywood movies, Christian churches and Muslim groups have bought bus-side ad space in the past.
Dawkins, author of the best-selling atheist manifesto "The God Delusion," said that religion nonetheless held a privileged position in society.
"Religious organizations have an automatic tax-free charitable status," he said. "Bishops sit in the House of Lords automatically. Religious leaders get preferential treatment on all sorts of commissions.
"This campaign to put alternative slogans on London buses will make people think — and thinking is anathema to religion."

UK Recession

Economy Declines

The head of the Bank of England has said for the first time that the U.K. economy appears to be entering a recession, sending the pound to its lowest point in almost five years against the dollar Tuesday evening.

Underlining how the financial crisis is giving way to prevailing economic concerns, Bank of England Gov. Mervyn King also discussed how the government could more quickly reduce the stakes in some of the banks it will acquire as part of its £400 billion ($686.5 billion) bailout package. Such a move could pave the way for banks to resume dividend payments to shareholders, something the U.K. blocked as part of its bailout.

Mr. King, in a speech Tuesday evening, said "it now seems likely that the U.K. economy is entering a recession" and it will take a "long, slow haul" to bring economic growth back to more normal conditions. His comments sent sterling down 2.5% to $1.6697.

Mr. King said that after Lehman Brothers Holdings Inc. filed for bankruptcy in mid-September, just before the U.K. came up with its bank-bailout plan, "Not since the beginning of the first World War has our banking system been so close to collapse."

His comments came as the International Monetary Fund said all major European economies will enter recession in the coming months, though recent moves to ease the financial crisis will probably prevent a sharper downturn. For the euro zone, the U.K., Sweden and Denmark, the IMF stuck to its recent forecast for average economic growth of 1.3% this year and 0.2% next year.

The central-bank head said the government could reduce the stakes it buys in U.K. banks reasonably quickly by selling units in a fund containing the banks' shares.

Tuesday, 21 October 2008

John McCain

The spots on a leopard never change

The descendants of slaves who were owned by ancestors of John McCain say they will vote for Barack Obama.

Lillie McCain, 56, a psychology professor, traces her lineage from two of more than 120 black slaves held before the end of the Civil War at, the Mississippi plantation owned by the white McCains.

Explaining why she is not voting for McCain now, Lillie said: "Since we can't undo what has been done, the most effective thing is to figure out how to put things in perspective and go from there.

"To harbour anger and hostility is counterproductive. Obama has shown that throughout his campaign. All my family support Barack Obama for president despite the good relations we have with the McCains."

The senator's great-great-grandfather William Alexander McCain bought the plantation in 1851.

Lillie is descended from slaves there named Isom and Lettie.

After the 1861-1865 Civil War, they retained close ties with the white family, adopting their surname and living nearby on land rented from their former owners. Lettie McCain's headstone is in a graveyard on the plantation.

A cousin of the senator owns 1,500 acres of the original 2,000.

McCain's younger brother Joe and other white McCains have attended reunions organised by the African-American McCains.

Lillie said: "I remember the Klu Klux Klan burning down our church when I was a kid."

Senator McCain has called abuses of African-Americans "a dark and tragic chapter in American history" and said "cultivating the bond between the two families is important".

Monday, 20 October 2008

Baltic Dry Index

Look out for the unemployed pirates…
An economic indicator few have heard of (I hadn’t heard of it until Saturday) is the Baltic Dry Index (BDI). Wikipedia describes the BDI as:

The Baltic Dry Index is an index covering dry bulk shipping rates and managed by the Baltic Exchange in London.
Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. However, since the demand for shipping varies with the amount of cargo that is being traded in the market (supply and demand) and the supply of ships is much less elastic than the demand for them, the index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as cement, coal, iron ore, and grain.

Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as a good economic indicator of future economic growth and production, termed a leading economic indicator because it predicts future economic activity.

Currently, the BDI stands at just over 1,600 coming down from a high just shy of 12,000 in June of this year. That is a drop more then 85%, meaning that shipping has come to an almost complete standstill and with it the entire global economy.

Saturday, 18 October 2008

Thought for the day

This little pig went to market

"Like most of you, I have come from a family that values hard work and that brought me up to take responsibility and appreciate the importance of enterprise.
For generations my father's family worked the land as farmers and many Browns still do. So it's hardly surprising that I believe in markets, competition and rewarding creativity and effort."

Friday, 17 October 2008

USA 2008

The Great Depression

Food stamps are the symbol of poverty in the US. In the era of the credit crunch, a record 28 million Americans are now relying on them to survive – a sure sign the world's richest country faces economic crisis
Symbolic of the downturn until now has been the parades of houses seized in foreclosure all across the country, and myriad families separated from their homes. But now the crisis is starting to hit the country in its gut. Getting food on the table is a challenge many Americans are finding harder to meet. As a barometer of the country's economic health, food stamp usage may not be perfect, but can certainly tell a story.

Michigan has been in its own mini-recession for years as its collapsing industrial base, particularly in the car industry, has cast more and more out of work. Now, one in eight residents of the state is on food stamps, double the level in 2000.

Inevitably, comparisons with the Great Depression, when food stamps did not exist, are being made. Then, a quarter of the workforce was unemployed, compared with just 5 per cent today. By one estimate, 60 per cent of the populace lived in poverty in the depths of the Depression. The 30 per cent poverty experienced in some US inner cities and depressed rural areas today is showing signs it is capable of reaching that level.

Monday, 13 October 2008


Worst week for global markets since 1929

World stock markets plummeted Friday, ending a week that saw the biggest collapse in share values since 1929. The looming threat of a world depression provided the backdrop for a meeting of finance ministers from the G7 industrialized countries, who gathered in Washington for emergency talks with US Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke.

After a day of panic selling on markets from Asia to Europe and Latin America, and wild swings on the US stock market, the G7 issued a statement that pledged to place the resources of their respective countries at the disposal of the most powerful banks, but failed to outline any specific coordinated actions to stem the slide to economic disaster.

Paulson issued a statement and held a press conference following the meeting to announce that the US government would use the virtually unlimited authority granted it under the $700 billion Wall Street bailout passed one week before by the Democratic Congress to begin directly buying stock in banks and financial firms, an expansion of the government transfer of taxpayer funds to the most powerful sections of the financial aristocracy.

Major stock exchanges in Asia and Europe registered losses on Friday even greater than the 7.3 percent drop in Wall Street’s Dow Jones Industrial Average on Thursday. Japan’s Nikkei index fell 9.6 percent to its lowest level in five years. Since the start of the week, it has lost 24 percent of its value. Toyota shares dropped by 6.2 percent and a major Japanese insurance firm filed for bankruptcy.

Hong Kong’s Hang Seng Index plunged 7.2 percent. Australia’s S&P/ASX 200 index fell 8.3 percent and the broader All Ordinaries was down 8.2 percent. The Shanghai Composite Index declined 3.6 percent, leaving it 12.8 percent lower than it was a week earlier. The Indonesian stock exchange, which closed earlier in the week because of panic selling, remained suspended.

In Europe, the pan-European Dow Jones Stoxx 600 index fell 7.5 percent, which ranks among the worst one-day performances on record for the index.
London’s FTSE finished Friday down 8.9 percent. Since its last peak in June 2007, it has declined 43 percent. Friday marked the British index’s fifth consecutive losing day, during which it lost 20 percent of its value.
France’s CAC-40 index fell 6.8 percent and Germany’s DAX 30 plunged 7 percent. Trading in Italy, Russia and Austria was halted. The last of Iceland’s major banks collapsed and was taken over by the government, and all stock trading remained suspended.

Markets across Latin American were lower. The Mexican central bank was forced to auction off $6.4 billion in foreign reserves to prop up the peso.
The MSCI World Index—a measure of international share prices—was down 19 percent for the week, its worst performance since records began in 1970.
An indication that the financial crisis is now plunging the world economy into a major recession is the fact that, alongside bank stocks, shares in oil, metal and other basic resource firms fell sharply.

“What we are witnessing is mass selling on a global scale due to a combination of sheer panic and fear, combined with complete uncertainty over the future of the world’s major economies,” said Martin Slaney, head of derivatives at GFT.
In the US, most stocks ended lower after the wildest intra-day swing in history. For the first time in its 112-year existence, the Dow Jones Industrial Average gyrated in a range of more than 1,000 points.

The Dow fell 696 points in the first 15 minutes, falling below the 8,000 mark. Later in the day it was up by more than 320 points, but closed with a loss of 128 points, or 1.5 percent, ending at 8,451.
That marked the eighth straight losing session for the index, which gave up more than 1,870 points, or 18.2 percent, in the course of the week. The weekly loss outstripped the week that ended July 22, 1933, in the depths of the Great Depression, which registered a 17 percent drop—at a time when there were six trading days in a week.

Since its record high a year ago, the Dow has lost 40.3 percent, wiping out $8.4 trillion in stock values.
The Standard & Poor’s 500 Index sank by 10.7 points, falling below the 900 mark to 899. The S&P 500 is down 42.5 percent from its 2007 peak. The Nasdaq Composite Index finished the day with a slight gain of 4.4 points, but was down 15 percent for the week.

It was the worst week ever for Wall Street, with both the Dow and the S&P 500 recording their biggest weekly losses in point as well as percentage terms.
Most financial stocks rose, in the expectation that the G7 and Paulson would announce new bailout measures. However, Morgan Stanley, which is widely seen as the next likely bank failure, fell 22 percent, and Goldman Sachs lost 12 percent.
Ford Motor Company stock fell another 4.33 percent and ExxonMobil ended down 8.29 percent.
The Toronto stock exchange fell 535 points.
“There is a downward spiral of fear,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research.
The seize-up of credit markets showed no signs of lifting. Banks are hoarding their cash and refusing to lend to other banks, or charging usurious interest rates, because they have no confidence in the other banks’ solvency.
The three-month Libor rate, a key lending benchmark for inter-bank loans of US dollars, climbed to 4.82 percent, the highest in nearly ten months. The flight of capital to what is deemed the safe haven of US government debt deepened, resulting in a decline in the yields on one-month and three-month Treasury bills to nearly zero.
Hedge funds, whose previous outsized profits have turned to losses, are contributing to the panic sell-off of stocks. Many of these firms are facing redemption demands from clients as well as demands from their bank creditors for more collateral and larger margins on their borrowings, and are dumping stocks to raise cash.

Amid the market turmoil, the reality of the decay of American capitalism was summed up by the fact that General Motors felt compelled to announce that it was not contemplating filing for bankruptcy. After decades of plant closures, wage cuts and attacks on the benefits and pensions of auto workers, justified by the claim that they were necessary to restore the biggest US auto maker to profitability and enhance its competitive position, this one-time icon of American capitalism is teetering on the edge of collapse.
GM’s announcement underscores the new stage that has been reached in the economic crisis, which has moved far beyond the situation that existed even three weeks ago, when the Bush administration announced its bailout plan for the banks and insisted it was the only way to avert a market meltdown and severe recession. That supposed panacea—designed to cover the losses of the biggest banks and facilitate a further consolidation of financial power in their hands—has done nothing to stem the crisis. Nor could it, since it did not address the underlying rot in the industrial base of American capitalism.
Now, the crisis is rapidly engulfing the broader economy, heralding a wave of plant closures and cutbacks in every branch of economic life.

The Wall Street Journal reported Friday that the consensus of economists it surveyed was that the US gross domestic product would contract in the third and fourth quarters of this year, as well as in the first quarter of 2009. “This is the first time that survey forecasts for those periods have turned negative,” the newspaper wrote. “If those predictions bear out, it would mark the first time US GDP has contracted for three consecutive quarters in more than half a century.”
President Bush made another White House appearance Friday morning in a futile attempt to revive confidence in the financial markets. Aside from making clear that his administration had decided to begin buying equity stakes in order to inject more capital into US banks, he had nothing to add to his previous remarks on the crisis.
He declared that the “federal government has a comprehensive strategy” to resolve the crisis, without explaining the abject failure of his previous “strategy”—the $700 billion bailout package—to stem the financial panic.
Bush has come to symbolize the disarray not only in the financial markets, but also at the highest levels of government. Even as he spoke the Dow began falling, and was down more than 300 points minutes after he finished speaking.
Summing up the prevailing attitude toward Bush and other political leaders, Howard Silverblatt, senior index analyst at Standard & Poor’s, said, “People are scared. Nobody believes what is coming out of the mouths of politicians or chief executives.”
There is mounting evidence that more costly measures to prop up the banks are under consideration, including a government guarantee for hundreds of billions in bank debt and inter-bank loans and government insurance for all bank deposits.
All of the proposals to deal with the worst economic crisis since the Great Depression, whether from the Bush administration and the Democrats and Republicans in the US, or the governments of Europe and Asia, have one thing in common: They all proceed from the need to maintain and defend the interests of the financial aristocracy.
None of the measures address the social tsunami that is about to engulf the working class.
As for the multi-millionaires and billionaires who monopolize the economy and dominate the US government, they will remain as ruthlessly preoccupied with their personal enrichment as ever. As the New York Times reported on Friday, a sticking point in the government plan to purchase stock from the banks with taxpayer money is the existence of token provisions in the bailout bill imposing certain limitations on the pay of top executives. The Times wrote: “It is not clear, administration officials said, that the largest American banks would agree to this, particularly given the restrictions on executive pay.”
The events of Friday, culminating two weeks of mounting financial crisis and a flurry of measures by governments to prop up their banking systems at public expense, confront the working people of the world with the prospect of rapidly rising unemployment, poverty and social misery.

Friday, 10 October 2008

Fools Gold

“The Chancellor and the Prime Minister have performed admirably and impressively over the last couple of days…” George Galloway M.P. Parliament, 8th October 2008.

About a hundred years ago, John Ruskin told the story of a man who boarded a ship carrying his entire wealth in a large bag of gold coins. A terrible storm came up a few days into that voyage the alarm went off to abandon ship. Strapping the bag around his waist, the man went up on deck, jumped overboard, and promptly sank to the bottom of the sea. Asks Ruskin: “Now, as he was sinking, had he the gold? Or had the gold him?”

Thursday, 9 October 2008


Perhaps the most common claim with regard to the importance of money in our everyday life is the morally neutral if not comically exaggerated claim that ‘money makes the world go round’.

Hundreds of millions of pounds invested by British councils in Icelandic banks could be at risk from the country's financial crisis.

One authority alone - Kent County Council - has £50m deposited in troubled Landsbanki and its UK subsidiary Heritable, as well as Glitnir Bank.

More than 20 others are also thought to have exposure running into millions of pounds.

Transport for London said it has a £40m deposit with Kaupthing Singer & Friedlander, which has been placed into administration.

Iceland's financial watchdog has already said it is taking control of Kaupthing, the country's biggest bank.

Wednesday, 8 October 2008

The Function of Money

As money has been predominately the theme for the last few days here’s an article from the 1968 Western Socialist, organ of the Socialist Party of America.

The Function of Money
Money - its origins, its nature, and its functions - is a subject laden with superstition and wild theory. Even those who are supposed to know all that is worth knowing about it, the economics experts, frequently find themselves tangled in the intricacies of their explanations. To the nonprofessional students of Marxian economics the confusions are based primarily on the fact that the training to which the “legitimate” theorists are subjected is geared to the needs of capitalism. To understand the real nature of capitalism, in general, and money, in particular, would inhibit ones effectiveness as an expert and a hired analyst of a society such as capitalism. It is better for those who own the means of wealth production and who hire the experts that inhibiting factors in their expertise be not encouraged.

Somewhere in my studies when a boy in school I learned that money was “invented” by some ruler or other in the periphery of Ancient Greece. The statement is made bluntly and, as I remember, with no equivocation and is probably widely believed today. The truth of the matter is that money was not invented by anybody but developed at a time ante-dating the particular ruler who gets the credit as a normal and natural consequence of a development in primitive trading. Early domesticators of animals had an advantage over other less developed tribes. Their goats, their sheep, and their cattle gave them a relative abundance of food and materials that could be fasioned into clothing and footwear. It is easy to envisage nomadic tribes as having surplus goods which they would seek to exchange for other types of goods more common to agricultural communities. So important an article of exchange was the cow to early people that it became accepted as an equivalent value for anything else - in proper quantity - and it became money. The Latin word for money, pecunia, meaning cattle, preserves this ancient fact.

Trading or exchanging in its most primitive forms required no equivalent. Simple barter was sufficient. But eventually simple barter is impossible when trading develops to the point where a number of commodities are traded during the same period. So as trading developed under the impetus given it by the wandering herdsman, money became necessary and such primitive commodities as animals snd even - on occasion - human slaves were used as money. A number of other commodities over the years took the form of money but eventually the universal equivalent became the precious metals. Silver and gold had many advantages. They are portable; they can be cut readily into bars and are relatively scarce; gold does not deteriorate in air or water; and most important of all reasons, they have a great deal of socially necessary labor time wrapped up in small amounts.

The most important point to grasp about money, then, is that a specific commodity becomes required to effectuate the exchange of other commodities and is real money. But it is also of utmost importance to understand that it is not the fact that money is a commodity, and has a value, that imparts value to the commodities with which it exchanges. It is the other way around. The fact that the commodities have value, and must find a universal equivalent to express their value, is what causes money to exchange with them. The reason this point is so important is that almost everybody seems to put the function of money on its head and endow it with a mystical power it doesn’t possess. All that is needed, it is widely believed, to put commodities into circulation is to put more money into circulation. It should go without saying that were this true the only explanation for business slow-downs and depressions is stupidity on the part of those with large amounts of money. Why keep their money in hiding when the mere act of investment can bring prosperity? The fact is that it is not money money that brings into being the circulation of commodities, it is the other way around. Despite the widespread fetichism attatched to money it has no magical qualities, and a mere throwing into circulation of money in an attempt to stimulate trade can only result in such phenomena as a rasing of prices and/or a direct devaluation of currency, i.e., the money tokens.

Money Today

In its earlier stages of development, capitalism could function well enough on the gold standard. There have been times and areas where silver functioned side by side with gold as money but it follows as a necessity that silver would have to be considered in ratio to gold and ultimately be used as tokens in the form of currency - in lieu of real money. A silver quarter or half or even a silver dollar as minted in the United States until recently was certainly not worth anywhere near its equivalent weight in gold. In fact, the price of silver itself was artificially pegged for many years by the U.S. government as a concession to silver capitalists. So gold has been - and still is - the only real money and this despite government embargo on its use by U.S. citizens unless licensed to purchase it for use in industry. With all of the theories and plans to demonetize gold and create some new medium, gold remains. It would seem that short of some new discovery of a method of cheapening gold production and making it as plentiful as other metals, gold must continue to lurk in the background as money.

As capitalist trade expanded, particularly in the period following the end of World War I, the volume reached a peak so great that it is no longer feasible to permit gold to circulate as money in the more highly developed nations. There just isn’t enough of it. So a gold exchange standard system was substituted for the old gold standard and British and American currencies were accepted on a basis that they were as good as gold. So trade could now be carried on without the necessity of demanding hard money providing one had U.S. dollars or British pounds. There was enough stability in the economies of these two nations to guarantee that the gold could be had at any time. But, as we all know, this system had not been doing so well as of late and new schemes are now in force and on the drawing boards to attempt stabilization of the world money system. The vaunted currencies of Britain, America, and now France are not as universally acceptable as they were despite economic strength or even despite relatively high gold reserves. If it can be argued - which it can be - that American balance of payments deficits are the cheif cause of America’s economic bind; that the outflow of gold is gradually throttling American capitalism; then how explain the economic miseries of France that led to the recent political convulsions there despite her accumulation of gold which - relative to the French economy - was vast in comparison to other countires. Once again, if all it takes is a throwing into circulation of money to bring prosperity what stupidity could have impelled the rulers of France to sit on their gold reserves rather than to throw more money into industry? Could it be that the economists really do understand that there is really nothing magical about money?

The fact is that nothing can make capitalism operate smoothly for the majority. Great Britain and France are now both out of the empire business. Since the end of World War II it was the costs involved in maintaining their empires that was supposed to have been the direct cause of working class poverty in those countires - according to popular belief. So what explains working class poverty in Britain and France today? Does it make sense to believe that if and when the United States gets out of the empire business the American workers will benefit? Could even the return of Uncle Sam’s disapearing gold, together with the return of his fighting workingmen help economic conditions for the United States population, generally? Again we have the example of Britain and France before our eyes.

A Value Measure

Let us look at money from anothyer angle. One of its several functions is as a measure of value. To measure value, however, it is not necessary to have hard - or even soft - cash and it is this fact that lends credence to the fanciful view that gold is really not so important to capitalism. A recent issue of Fortune Magazine researched the present crop of American capitalists. Oilman J. Paul Getty and financier Howard Hughes, like a pair of Abou ben Adhems, lead all the rest and are classed as billionaires. But there are a number of others that are not that far behind that it makes a great deal of diffrerence. Fortune tells us that:
“All told, 45 persons in the U.S. were identified then (in 1957) as having fortunes over $100 million. In the decade since, the centimillionaire population has more than tripled and tose with $150 million or more has grown to 66.” (Bostion Herald Traveler, April 29, 1968.)

It should be obvious that no actuall money is needed in arriving at the estimated financial worth of these gentlemen. Nor can one conceive of Mr. Getty or Mr. Hughes selling their holdings and storing the money in their own Fort Knoxes, even were they able to get actual gold rather than bank notes. Money, with the exception of the relatvely small percentage of it required to procure their personal consumption needs - their homes, jewels, yachts, limousines, private planes etc. - is of no use to the capitalists unless it can be used as capital. When money is invested in the precess of producing more wealth through the exploitation of the working class it serves its chief function for the capitalists. Lying in hiding, it has no more use than idle machinery and idle factories, yet unless opportunities exist for further exploitation of the working class (a market that can obsorb the result of such exploitation) not all the money in the world can convert slow trade conditions into good ones.

What, then, is the final destiny of money? So long as production is designed for the purpose of sale on the market with a view to profit money will be necessary. Value will have to be estimated in order that the commodities can exchange, one with another. A universal equivalent will also be needed as a standard of price and as a means of payment. Given a new and different type of social system, however, money will no longer be required. How can one measure value for exchange when goods are produced for use and not for exchange? The very concept of value will not arise. For what reason is a standard of price required when goods will have no price? Wherein lies the need for a means of payment when all the earth is commonly owned by all mankind instead of - as now - the proprty of a minority? Socialism will have no need to abolish money. The need for money will have vanished with the abolition of capitalism.
From the Western Socialist, No. 5 - 1968

To calm the crisis

The Bank of England today cut interest rates to 4.5 per cent came as part of a coordinated global effort by central banks to calm the financial crisis.

Housing charity Shelter challenged banks and mortgage lenders to pass on the rate cut to customers.
The charity's chief executive, Adam Sampson, said: "Shelter figures show more than 900,000 homeowners are constantly struggling or falling behind every month with their mortgage payments. The Bank of England has cut the rate, now lenders have both a financial and moral duty to cut their mortgage rates accordingly.

'Major global downturn' says IMF

The world economy is entering a major downturn in the biggest financial crisis since the 1930s, said the International Monetary Fund (IMF).
In a hard-hitting report, the IMF warned the global economy was facing its most dangerous crisis for 70 years.
World economic growth will slow substantially this year.

Tuesday, 7 October 2008

"Close to the edge"

British savers with £4.5 billion invested in the online Icelandic bank Icesave which is
owned by Landsbanki, were unable to access their accounts and told they could not withdraw their money.

Iceland’s slide towards bankruptcy has cast a huge shadow over some of the best-known names on the high street. Businesses regaining from Hamleys to French Connection have all been acquired by Icelandic capitalists in a remarkable spend, spend, spending spree over the last decade.

The Icelandic government desperately wrestles with the biggest financial crisis in the country’s history; tens of thousands of workers wait anxiously to see if their jobs are safe.

Iceland’s Althingi parliament accepted a bill last night on an emergency law enabling the government to stage an extensive intervention in Iceland’s financial system—The most radical economic measures that have ever been taken in the country’s history.

Iceland’s Prime Minister Geir H. Haarde addressed his parliament yesterday evening with the bill, explaining that the emergency law is necessary to prevent the nation from falling into crippling debt or even national insolvency in the coming decades.

“The danger is real, dear countrymen, that the Icelandic national economy—if the situation develops in the worst possible way—would get sucked with the banks into the furious surf and the consequent would be nation-wide bankruptcy."

In the meantime Russia has granted Iceland a EUR 4 billion (USD 6 billion) loan.
The loan will be to three or four years and the interest rates between 30 and 50 points.
The decision has been confirmed by Russia’s Prime Minister Vladimir Putin.

Iceland with a population of just 300,000 and a national economy of £11 billion but foreign debts of £80 billion, is in grave danger of national insolvency.

High Street Names with major icelandic shareholdings:

All Saints
Karen Millen
The Show Studio
Blooming Marvellous
Jones the Bootmaker
Hardy Amies
House of Fraser
Moss Bros
French Connection

They Failed

AFTER stepping in to save five banks in seven countries in the past week, Europe’s governments had hoped to stop fear spreading through the continent’s financial system. They failed. Authorities are again busily trying to keep afloat several of the banks they had previously bailed out.

The biggest of the bank rescues to flounder was that of Hypo Real Estate, a mammoth German property lender and financier of local governments. Hypo was deeply reliant on money markets to fund its long-term loans. Yet these have frozen in recent weeks. Paradoxically, the source of its weakness—its reliance on money markets—also made it too interconnected to fail. German authorities muttered darkly of their economy and financial system suffering a ripple of unpredictable consequences similar to those caused by the collapse of Lehman Brothers in America in mid-September.

In Recession

Britain is already in a recession, with business confidence, profits and turnover now at record lows and unemployment set to rise by up to 350,000 in the next year, according to an "alarming" new report.

An authoritative survey of 5,000 firms by the British Chambers of Commerce (BCC) showed a worsening economic outlook and rising unemployment amid a "collapse" in confidence across all sectors of industry.

The Report warned that the jobless total was expected to increase by between 300,000 and 350,000 over the next 12-24 months, which would take the total over the two million mark.

The number of people out of work in the UK rose by another 81,000 between May and July, to 1.72 million, according to government figures.
That took the official unemployment rate up from 5.3% to 5.5%.

The number of people claiming jobseeker's allowance rose, by 32,500 to 904,900 in August, the Office for National Statistics (ONS) said.
In a further sign of the economic slowdown, the number of people in work and the number of vacancies both fell.
The figures show that unemployment is starting to accelerate and it now looks very likely that total unemployment will reach two million during 2009.

The past few months have seen a steady flow of big redundancy announcements at employers such as major house builders and financial services companies affected by the credit crunch.
More recently there have been job losses at Ford, travel firm XL and the investment bank Lehman Brothers, while the nationalised mortgage bank Northern Rock is in the process of shedding 1,300 jobs.

Britain's services sector shrank in September at its fastest rate since records began 12 years ago, new figures suggest, adding to the economic gloom.
The service sector represents about 75% of the UK economy. Hotels and restaurants were among those hardest hit.

What is left of Britain’s manufacturing sector shrank in September at the fastest rate for 17 years, a survey has suggested.
The Chartered Institute of Purchasing and Supply's purchasing managers' index fell to 41 last month, its lowest reading since records began in 1992.

Monday, 6 October 2008

Even the pontiff is cashing in on the 'Credit Crunch'

Pope Benedict XVI today said that the global credit crisis shows that the world's financial systems are "built on sand" and that only the works of God have "solid reality".

Disseminating like a disease!

The treasurer of Massachusetts has asked the federal government about lending Massachusetts money under the same favourable terms it has given banks and firms during current financial crisis.
Treasurer Timothy Cahill's requests to the U.S. Treasury and Federal Reserve Bank of Boston this week were prompted by the state's inability to borrow from the short-term debt markets, The Boston Globe reported Saturday. The financial turmoil has caused credit markets to stop lending, or to charge prohibitive rates. As reported in an earlier post, California has made a similar request, saying it would run out of money by the end of the month if the short-term debt markets do not ease. The state has asked whether it could not also obtain loans from the Fed.

'Breathing In'

Polluting gases are killing more than 1,500 Britons a year, the UK's leading science body warned yesterday.

A Royal Society report highlighted the dangers of ground-level ozone caused by traffic fumes and industrial emissions.

In the high atmosphere, ozone protects us from ultraviolet rays, but at ground level it damages the lungs, causes chest and breathing problems and has been linked to bronchitis, heart attack and early death.

The Royal Society said the pollutant is already present in quantities that are harming health and farming, and levels are rising by 6 per cent a decade.

In 2003, 1,582 deaths in the UK were attributed to the gas. The report predicts this will rise to around 2,391 deaths a year by 2020 as a result of increased pollution and climate change.
Ground ozone is created when sunlight breaks down pollutants in the air with levels peaking on sunny and stagnant days.

Most ozone in the UK travels here from outside of Europe on air currents.
The Royal Society called for an international response to the problem.

"Snap Crackle and Pop"

This is from the Times newspaper; I thought it useful to reproduce it here as it’s a good explanation of the “credit crunch” that’s snap, crackle and pop!

IT was once an arcane term only known to economists, but the phrase "credit crunch" has been so widely used over the past year that it has been added to the latest edition of the Oxford English Dictionary.

While it has become part of common parlance, what is a credit crunch and how does it affect you? Here we answer the essential questions.

What is a credit crunch?

In simple terms, a crisis caused by banks being too nervous to lend money to us or each other. Where they will lend, they charge higher rates of interest to cover their risk.

In the real world, that means more expensive mortgages, dearer credit cards, pain for pension savers and other investors as stock markets fluctuate wildly, and in the worst cases repossession and bankruptcy.

Is it the same as a recession?

There is often confusion between the two but they are not the same. A recession is usually taken to mean two successive quarters of negative economic growth. A credit crunch can be separate to or part of a recession.

Who invented the term credit crunch?

It is unclear, but it was used in a study by America's Federal Reserve Bank as far back as 1967.

What sparked the current crisis?

Years of lax lending inflated a huge debt bubble as people borrowed cheap money and ploughed it into property.

Lenders were free with their funds, especially in the US, where billions of dollars of so-called Ninja mortgages - no income, no job or assets - were sold to people with weak credit ratings (called sub-prime borrowers).

The barmy notion was that if they ran into trouble with their repayments rising house prices would allow them to remortgage their property.

It seemed a good idea when Central Bank interest rates were low; the trouble was it could not last.

Interest rates hit rock bottom in America in 2004 at just 1 per cent, but in June that year they began to rise. As interest rates jumped, US house prices started to fall and borrowers began to default on their mortgage payments sparking trouble for us all.

How did it turn into a global crunch?

The way the debt was sold on to investors gave the crisis global significance.

The US banking sector package sub-prime home loans into mortgage-backed securities known as CDOs (collateralised debt obligations).

These were sold on to hedge funds and investment banks who decided they were a great way to generate high returns (and big bonuses for the oh-so-clever bankers that bought them).

When borrowers started to default on their loans, the value of these investments plummeted resulting in huge losses for banks globally.

How did this affect the UK?

Many UK banks had invested large sums in sub-prime backed investments and have had write off billions of pounds in losses.

But it got worse. Investors became nervous about buying any investment linked to mortgages, no matter how high their quality.

Many of the UK’s banks had been using the investment markets to fund large chunks of their mortgage business (a process known as securitisation).

As fear spread it became impossible to sell these investments leaving a black hole in many banks and building societies' finances. The result: a credit crunch as lending dried up.

What has this meant for you and me?

Good value mortgages have become more difficult to find as borrowing rates have soared. Lenders have become more choosy about who they lend money to by, for example, demanding bigger deposits.

Stock markets have dropped dramatically as strife in the mortgage market has caused confidence to plunge.That's been bad news for millions saving into pensions and Isas.

The impact on the wider economy is difficult to fathom. Even before the crunch, economists were expecting a global slowdown. However, there is no doubt that the credit crunch has exacerbated downturns in the housing market and wider economy.

Have there been any winners?

As banks and building societies have found it tricky to raise funds on the money markets, they have been forced to woo savers who have been benefiting from some of the highest interest rates in a decade.

Sunday, 5 October 2008

Brown on child poverty

“Every generation has great causes and every generation will be remembered for what it has done and how it has changed the world -- votes for women, votes for men before that, the creation of the NHS (National Health Service), education for all.”

Then, Brown said afterwards.

"One of the great causes of this generation is the eradication of child poverty and I am saying that we will in law make it the duty of government by 2020 to eradicate child poverty in this country."

Research published this week found that in 174 of 646 parliamentary constituencies across the UK, more than half the children live in poverty.

It suggested that pockets of the UK were in "turmoil" and millions more children than previously thought were being left behind.

Of the 13,233,320 children in the UK, 5,559,000 - more than a third - live in low-income families or families in poverty.

Saturday, 4 October 2008

Frankenstein Mark II


“The construction of a serious political force based on real Labour values to the left of new Labour has taken more than its fair share of knocks over the last two years. But its necessity has grown. Respect, particularly in our heartlands of South Birmingham and East London, is continuing to develop that process, but we are well aware that we are not the finished product.”

George Galloway; Respect Newspaper

Credit it's crunched!

California Gov. Arnold Schwarzenegger has sent a letter to U.S. Treasury Secretary Henry Paulson indicating that the state may need up to a $7 billion loan from the federal government within weeks, because the state is having increasing difficulty funding day-to-day operations and accessing short-term loans, The Los Angeles Times reported.

California routinely accesses short-term loans to remain solvent, but the state, like corporations and other businesses / organizations, is having trouble accessing funds from the bond market due to the credit crunch, The Times reported.

Lay-offs could follow, if the state is unable to access cash, payments to schools and other government agencies could quickly be suspended and state employees could be laid off.

Schwarzenegger's letter is another sign of the "financial crisis that is griping the world’s organizations and governments large and small."
These are all signs of increased apprehension by banks and other lenders as the financial crisis gets worse.

In his letter, Gov. Schwarzenegger said that absent a clear resolution to the financial crisis, "California and other states may be unable to obtain the necessary level of financing to maintain government operations.

Fuel Poverty

Fuel poverty hits 3.5 million homes

At Least 1 million more households are living in fuel poverty, according to new government figures.

The number of homes in Britain spending more than ten per cent of their income on heating rose to 3.5million in 2006 from the previous year.

Environment minister Hilary Benn (son of Tony) said Labour was committed to tackling fuel poverty but that ‘sharply rising energy price rises have made that goal increasingly difficult’.
Meanwhile, Help the Aged said more than 25,000 people died from cold related illnesses, such as pneumonia each winter.

Thursday, 2 October 2008

Galloway's on the way out!

Joking apart, the following is the promised reply to the ‘anonymous’ Respect member who’s comments we published today, which is posted directly below this. Also I wish to deal with the Socialists Way’s old friend and regular visitor to this blog comrade ‘Faceless’.

Faceless said: “Galloway has been railing against the poverty chasm, among many other issues, for years. On his radio show you will often hear him condemning the bonuses the city fat cats get, while a mile away people are scraping together money for essentials.But don't let a simple concept like facts get in the way of you going for a ride on your high horse”.

Well Faceless who’s on their high horse – even Tory Cameron said; Anger with bankers was easy to understand, "they paid themselves vast rewards when it was all going well and the minute it all went wrong, they came to us to bail them out".
There would be "a day of reckoning", Mr Cameron acknowledged, as there would be argument over the weeks and months ahead as the Conservative Party resisted those who would use the crisis to try to "bury" rather than "reform" the free enterprise system. What would Galloway do? On his radio show I’ve heard him say that he supports free enterprise and a mixed economy along with his admiration of Winston S Churchill and I quote “a proper war leader” un-quote.

The only factual chasm lies in your miss-arguments, which you clearly believe yourself – that’s a shame!

As for ‘anonymous’ well how can anyone take you seriously, when you have decided to hide behind the mask of anonymity, which is yes, your choice but still weakens your arguments and propels you as some sort of a Galloway cheer leader. However let’s deal with what you’re saying with regard to the meeting that was held on child poverty in Canning Town last April. Firstly the meeting was organised and agreed to by a large meeting of the Newham branch of Respect, as part of their campaign for the GLA in particular supporting their local candidate Cllr Hanif Abdulmuhit the City and East London candidate, and as I have said before it seems he was merely nothing more than a support act, the deliberate intention on Galloway's part. Cllr Hanif Abdulmuhit and his team in Newham intended to seriously contest the election, and that's what they did working round the clock for six weeks they raised thousands of pounds, delivered over 60,000 leaflet's and held a public meeting on child poverty, whilst Galloway travelled around London on an open deck bus handing out post cards proclaiming; "that what he had done in the US senate, he would do in city hall". In the end Galloway got a piss-poor result and lost the deposit!

Originally Galloway proposed to field a "Progressive List" that would back Livingstone and in the Guardian he wrote "what London Needs is an assembly worthy of one of the world's greatest capitals. And one strong enough that the mayor would ignore it at his peril. That's why; I'm currently involved in trying to put together a progressive list for the May elections to renew London's democracy. I will be a candidate somewhere on that list myself! If I'm elected you can be sure Livingstone won't be able to ignore me!

The progressive list failed to materialise, it was rumoured that approaches to organisations like Trade Unions and CPB had been made but with no common ground found, or did it have something to do with what Bob Crow of the RMT had to say on the 29 June, "what our members don't want to see is another Respect or Socialist Labour Party".

But let me specifically deal with the meeting on child poverty as this is where through lack of political clarity, from beginning to end ‘anonymous’ falls down – the meeting was about poverty, child poverty in one of the most deprived words of Newham’s Canning Town North, where incidentally the three sitting councillors are all members of the right wing leaning Christian People's Alliance its Leader, Alan Craig was standing as its candidate for London’s Mayor.

The decision to hold the meeting as I have already said was taken by Newham Respect and as it happens, a good one, any meeting that endeavours to address the issues that affect working people should be supported and encouraged regardless of how many turn out on the day, that’s not the issue, the objective was to raise the level of people’s political understanding not electioneering for the sake of some meaningless political celebrity.

"It's That Bad"

The following comment was sent today regarding yesterdays post on Child
Poverty and maverick MP full of his own dung George Galloway. I’ve decided to
prominently post this comment on the blog as it demonstrates clearly the opportunistic nature of Galloway’s Respect. I will also forward it along with the original post to members of Newham Respect, who decided not me to hold a meeting on the issue of child poverty. I will shortly post a fuller reply in the meantime maybe the ‘anonymous’ Respect member could explain why Galloway will not take up the offer made by the socialist party to have a public debate?

You are a real joke. The reason people didn't want to hold the meeting was the timing. It was in the middle of an election campaign, where everything the candidates do needs to get the biggest audiences. Everyone said you wouldn't get an audience for that meeting, and that you should hold it at a later date.You got about 22 people there, of which only about 3 were local people - the rest were existing Respect members, who could've been out there campaigning but felt obliged to sit through your meeting (so embarrassed were your colleagues, they wouldn't even circulate photos of the meeting and wouldn't write a report for the newspaper or the website).So, a total waste of time. Just as everyone outside the area predicted.This is typical of you and your politics: You have this abstract notion that people need to hear about child poverty, but no actual tactical ability and no desire to actually spread a message in the right way.Not that you would ever admit it, of course. You were completely wrong about that meeting, but all you can say is that people tried to call it off. Actually, people didn't. People simply told you that they thought it would be a bad idea to hold a meeting in that area at that time.They were right, you were wrong, and you're a laughing stock because you put your own sectarian interests before the actual interests of doing something about poverty.Additionally, your disgusting insinuation that Galloway has done nothing about child poverty shows you up for the joke you are. He has done more than most MPs.You are just sour that people started to understand what a divisive, nasty piece of work you are. Anonymous.

The East End Past

How the world came to London

Sailing vessels moored at East India Docks in London around 1880. The docks, which opened after the establishment of the East India Dock Company by Parliament in 1803, could handle up to 250 ships at a time. These ships carried commodities ranging from tea and spices to silk and Persian carpets

The Times

The East End Past

A world of make-believe among the ruins of war

In the ruins of their school in the East End of London, wrecked by German bombing, a little girl is watched by her friends as she plays "trams" with a ruined push chair in which her doll sits as a passenger and is sold a ticket by the boy on a sunny June day in 1942

The Times

Galloway Its Bad!

The Campaign to End Child Poverty, an umbrella organisation for more than 130 including Barnardo’s, UNICEF and the NSPCC, has produced research showing 5.5 million children in poverty in Britain. Bethnal Green and Bow have some of the highest concentrations of child poverty in the country according to the research, with some 79% of children (23,450) in poverty. I was shocked but not surprised to have recently read that George Galloway the wayward self-seeking Respect MP for Bethnal Green and Bow had described figures on child poverty in his constituency as “truly shocking”.

The figures of children living in poverty are shocking and stands upright as proof that capitalism will never provide the vast majority with the necessary means of sustenance that ensures our families and children are always adequately fed, even in the twenty first centaury as the figures clearly demonstrate, and in the fifth richest nation in the world.

Mr Galloway explains: “I know the situation was very bad just from the many families who have come to my constituency in the gravest need. But these figures are a scandal and a disgrace. We have had 11 years of Labour government, which until now has been boasting of the unprecedented period of stable economic growth. We have the City on one side of my constituency and Canary Wharf on another where individual speculators have been walking off with tens of millions of pounds in bonuses. And yet here in the shadow of this wealth we have this terrible grinding poverty for those who should be looking forward to a bright future. ”

All of a sudden Mr Galloway recognises a situation what he calls ‘bad’ - I said that I was shocked but not surprised; shocked that Galloway has at last placed some impotence upon the scandal of child poverty and seen fit to make a something but nothing statement in the best tradition of a professional Labourite politico. Such language was one time common amongst Labour MPs a generation or so ago, when the backbenches of the House of Commons where occupied by Labour members who may have started their working life as skilled or semi-skilled manual workers like miners, postmen and building workers. I’m not surprised that Galloway has made such a statement after all he can not very well ignore or push aside condemning statistics, but I’m reminded that earlier this year; I helped organise a public meeting on the very subject of child poverty in Canning Town currently part of a constituency that he hopes to win at the next General Election for Respect, if he’s lucky.

The thing about the meeting in Canning Town is that although Galloway agreed to participate; his parliamentary assistant Kevin Overden, sought to scuttle the meeting, however he was unsuccessful and Galloway albeit reluctant did eventually participate.

Having lived and worked in the East End for over thirty years I can say that I’ve always observed the presence of poverty amongst its working population and particularly amongst the immigrants who have chosen to start a new life in Britain with their families. It seems that history constantly repeats itself in London’s East End. Two million Jews left Eastern Europe between 1881 and 1914, prompted by economic hardship and increasingly ferocious persecution. Following the assassination of Tsar Alexander II in 1881, the persecution of Jews in Russia became even fiercer, and a wave of pogroms swept across Russia and neighbouring countries.
Many Jews landing in England actually intended to go to America, but about 120,000 stayed in this country, attracted by the area's reputation as a place for cheap living, and by the fact that it had been home to a Jewish population in previous centuries, large numbers settled in Spitalfields, often finding work in the 'rag trade'. By 1900 Jews formed around 95% of the population in the Wentworth Street district of Spitalfields. The Huguenots came before the Jews, French speaking Protestants from France and the Low Countries (present day Netherlands, Belgium, Luxembourg, parts of France and North West Germany) who escaped religious persecution by migrating to England from about 1550.
Edward VI granted them the Strangers' Church at Austin Friars. Strangers was the term used for all foreigners (and even sometimes people from other parts of Britain) before the term 'refugee' was adopted. In 1681 Charles II offered asylum to the people now called Huguenots, a name given to the Protestant followers of John Calvin, a French religious thinker. In 1685 the overturning of the Edict of Nantes that had granted toleration to Protestants in France, led to a mass exodus.
About half of the Huguenots who escaped to England in the 1680s, settled in London, mainly in Spitalfields working as silk weavers. In the late eighteenth century they operated 12,000 silk looms in the area. And, in the 20th century came the Bangladeshis. Many of these immigrants also worked in the clothing industry. The abundance of semi- and unskilled labour led to low wages and poor conditions throughout the East End that still exists today. I find it astonishing to say the least that the member for Bethnal Green and Bow after almost four years representing his constituents in the commons, the only thing he can say about child poverty is - its bad.

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