Saturday, 20 November 2010

Banking crisis and cuts - rich keep their wealth, poor take their lives

Here's something that an austerity-afflicted public might just becoming a little more aware of. There is an alternative to the cuts.

A study by Greg Philo and the Glasgow University Media Group shows that a staggering 74% of the public sampled support a one-off tax on the richest, an exercise - formulated by economists, tax experts and others at the behest of Philo's group - that would erase the bulk of the current national debt.

As Philo and others point out, there has been almost nothing of this very rational option in the mainstream media.

The figures have, at least, been duly considered in this rare feature by the online Daily Finance:
"A one-off 20% tax on the wealth of the richest 10% in the UK has been backed by 74% of a sample of 2,200 people in a YouGov poll commissioned by the Glasgow Media Group. The proposal would raise £800 billion pounds and wipe out the national debt at a stroke.

The level of support, says GMG's Greg Philo, "is an extraordinary result given that there has been no public discussion of this proposal and that the very negative consequences of the alternatives are only just beginning to emerge." Some 44% of the sample 'strongly approved' of the measure."
The author of the piece, Martin Cloake, goes on:
"The level of support for the measure revealed by the poll really is extraordinary – it's not hyperbole to say so. It's backed by 75% of ABC1s and 73% of C2Des, by young and old, men and women, working and unemployed. The level of support is virtually unchanged across all demographics.

And yet there has been almost no discussion of the proposal in the media. Instead, that media feeds us a constant diet of stories backing the lie that there is no alternative to cuts, and taking the lie that 'we are all in this together' at face value.

Why could it be that the very rich people who run the media and claim to have their finger on the public pulse do not want to discuss a proposal which would benefit the public while reducing their own wealth? And what is the Labour Party's excuse for being so silent on the issue?"
In a follow-up interview at Daily Finance, Philo responds to the question of whether it's right for the richest to pay most of the debt:
"Some think the rich should pay more because they have such a high proportion of the wealth and have used their position in the 'free market' to maximize their share of social assets.

There is nothing democratic or especially fair about such a process. Nobody asks the population as a whole whether the man who makes Cillit Bang should earn £92 million a year or if Sir Philip Green should have a £1.2 billion dividend, let alone whether he should avoid £285 million tax on it because of his domestic relationship with Switzerland.

So the short answer is, yes of course the rich should pay more because they have the bulk of the money. The second point is about whether people have 'earned' their money.

"In the past people have asked whether the distribution of £21 billion in city bonuses in a single year was really to people who were working so much harder than a nurse or a teacher and was their work more valuable? As it turned out the answer was no as they were wrecking the world's financial system."
It's a highly-relevant point of blame, entirely ignored or marginalised by the media. As is the actual context of the crisis.

The current crisis is the inevitable product of neoliberal orthodoxy which, having promoted flagrant deregulation of the banking/financial sectors, allowed a spate of predatory dealing in the US housing market, notably the sub-prime mortgage sector, a bonanza which began to unravel in spectacular fashion with the collapse of the US housing bubble, a consequent liquidity crisis and the rush for state bailouts.

The story of how highly-aggressive mortgage selling to poor and financially insecure people in America became the catalyst for the banking crisis might be seen as comic-farcical where it not so grave. But the myriad chain of packaged debt, casino-type speculation on that debt and the chaotic fallout that ensued shows what happens when 'brilliant-minded' market-makers and vastly-salaried banking executives are allowed free-rein to pursue their relentless drive for profit.

As Harry Shutt's latest book, detailing the anatomy of the crisis, notes, the deepening range of speculative investments and resort to fraudulent activity were encouraged by the new environment of liberalisation on Wall Street and the City of London, which included the removal of cross-border capital movements, the 'levering-up' of bank lending ratios, expansion of their securities assets and the riskier practices of trading and underwriting different securities, all combining towards an increased conflict of interest and the potential for ever-riskier exposure.

But the darkest paradox of this unfettered, 'free market' activity and lack of control was the assumption that those engaged in it could always fall back on the state. As Shutt explains:
"Underpinning this ever more freewheeling structure of finance was the implicit understanding that the state (in it's historic role as 'lender of last resort') could be called upon to bail out any institutions that got into serious difficulties, at least if it was large enough for its collapse to threaten the stability of the entire financial system. Hence despite the official claim that the rewards of highly paid bankers, fund managers and speculators were appropriate compensation for the risks they were taking, in reality most of the institutions they worked for enjoyed the ultimate protection of the taxpayer. The obvious temptation to take excessive risks provided by this implicit indemnity against their own failings is commonly referred to as a state of 'moral hazard'." (Harry Shutt, Beyond the Profits System (Zed, 2010), pp 16-17)
The inexorable growth of collateralised debt obligations (CDOs) - the end-product of all that sub-prime mortgage debt - introduced a new level of anarchy to market instruments, one that over-zealous banks had rushed to be part of, contrary to past and more prudent banking practices.

The result has been massive over-exposure, the acquisition of 'toxic assets', the spectre of banking foreclosures and the last recourse to 'corporate welfare' through state/public-funded bailouts.

And, as Shutt relates, political administrations in the US, UK and elsewhere have responded dutifully with a resolve to:
"spend as much taxpayers' money as necessary to prevent those major banks and other financial institutions which have been rendered insolvent - by their own imprudent and and often fraudulent investments in various forms of 'toxic assets' - from collapsing totally, in line with what market forces would have dictated. The official justification given for this approach is that it is an urgent public priority that the banks' balance sheets be strengthened or recapitalised so as to permit them to resume lending to businesses or individuals whose activities would otherwise be paralysed for want of continued access to credit." (Ibid, p 34)
Shutt further notes how:
"Critics of the authorities' approach - such as Nobel prize-winning economist Joseph Stiglitz - argued convincingly that the public purpose would have been better served by allowing insolvent financial institutions to go bankrupt while protecting the depositors, but at the same time creating new banks (initially under state ownership) - unencumbered by the toxic assets that have turned so many of the existing major banks into 'zombies' and therefore better able to provide new credit to those businesses in genuine need of it. This would, moreover, have been more consistent with the state's lender-of-last-resort role.

Hence the only solution compatible with both the public interest and financial stability would have been the outright nationalisation of all the major insolvent institutions."
Which might have had the desired effect were it not for the power and influence of the banking aristocracy and their political servants:
"The reason neither the Stiglitz solution nor anything more drastic was allowed to happen is that the enormously powerful vested interests of Wall Street and the City of London successfully lobbied to prevent it. For they recognised that the tiny clique of the very wealthy that they represent stood to lose vast fortunes if the markets had been allowed to take their course free of intervention - while equally wholesale nationalisation of of insolvent banks would have posed and existential threat to their power, or even to the capitalist profits system in its entirety. Rather than accept such a fate, therefore, they tried to contrive that their bad assets be largely transferred to the state, thereby adding unimaginable sums - officially estimated as $18 trillion world-wide - to already excessive public debt." (Ibid, pp 35-36)"
Despite the selective and limited narrative promoted by politicians and the media of 'unavoidable austerity' and 'necessary cuts', Philo's study reveals quite the opposite view when the public is actually informed about real alternatives.

And, as Shutt suggests, that mood of realisation is growing:
"There are indeed already signs of strong resistance to such brazenly unjust impositions in countries where an attempt is being made to ensure that the reckless greed of a tiny minority of bankers and politicians will be paid for by imposing years of austerity and privation on the mass of the population who bear no responsibility for this folly." (Ibid, pp 36-37)
Meanwhile, the rate of suicide and depression is rising alarmingly amongst those most exposed to the austerity and insecurity caused by that folly.

While many are now coming on to the streets in serious protest, others have resigned or given up. Lost lives and human despair.

Bankers, profit and greed. Might the crisis and the misery it's causing help create, as in Shutt's book subtitle,"new possibilities for a post-capitalist era"?


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