FINANCE CAPITAL TOTTERS AS REALITY BITES.   by Ian Johnson

Last month the governor of the Bank of England, Mervyn King, wrote to the House of Commons Treasury select committee, warning them that any attempt to pump money into the financial system and give emergency financial support to the banks and building societies affected by the ongoing ‘credit crunch’ would not only “encourage excessive risk taking” but would “sow the seeds of a future financial crisis’.

 

Mere weeks later the Bank of England, against its own previous advice, gave emergency financial support to Northern Rock, the country’s 5^th largest mortgage lender, and by so doing, to use Mervyn King’s own words, “sowed the seeds of a future financial crisis.”

Northern Rock has 1.5 million savers and lends to 800,000 homeowners. In 2006 it posted profits of £627 million and record gross lending of £33 billion.

Its chief executive, Adam Applegarth, was paid £1.3m last year and has an annual pension entitlement of £266,000.

The Guardian Unlimited website commented,

“Its future (Northern Rock) as an independent mortgage lender is now dead, and over the next few days there's a strong possibility of a takeover.

“Interest rates will probably rise for those not on a fixed-rate deal and Northern Rock will no longer be in the business of offering cheap remortgages and may be forced to raise its standard variable rate”.

But why should mortgage payers now have to face higher interest rates because of the irresponsible practices of these financial cowboys? Will the Bank of England bailout the customers as it bailed out the company? Of course it will not. It is the customers, the working class, who are now expected to foot the bill for a crisis not of their making. 

After news emerged of the Bank of England’s intervention Northern Rock’s share price plummeted by 31% while other lenders whose shares were hit hard included Paragon, the country's biggest buy-to-let lender, Bradford & Bingley, Halifax owner HBOS and Alliance & Leicester.

This crisis in the financial sector is devastating for capitalism because this is the area they have forsaken manufacturing for. The rise of the financial sector has coincided with the demise of the manufacturing sector. In other words if the financial sector hits trouble they have nothing to fall back on because there is no real value being created in the economy.

 

Moreover, the Bank of England is not known as ‘the lender of last resort’ for nothing. The sheer scale of the crisis meant that if they did not intervene then the resulting financial crash would send the capitalist economy into a recession, the like of which would overshadow the great depression of the 1930s.

 

With the collapse of the credit bubble, which has fuelled the economy over this last period, the ruling class will attempt to dump the cost of their crisis onto the backs of the working class, which will involve attacks on jobs, wages, pensions, welfare rights and cuts in government expenditure.

 

Yet this is not only a British problem. The European Bank and the US Federal Reserve have been pumping money into the world financial system in an attempt to maintain the illusion that it is business as usual.

 

All this leaves Gordon Brown’s claim that capitalism has overcome its ‘boom and bust’ tendencies looking very sick indeed. What Mr Brown, and the rest of the apologists for capitalism are now experiencing is the tendency for reality to assert itself and smack them in the face. Furthermore, the growing economic crisis, which they are now unable to conceal, is in fact sowing the seeds for the massive class battles ahead.

 

Ends.