In the run-up to the Commons debate on the economy this Wednesday, in which he intends to speak, Michael Meacher is seeking to take a delegation for an early meeting with Alistair Darling to press for an alternative policy in the current financial/economic crisis. He said:
“It’s not just the contortions the Government has got into to avoid making it clear that it has nationalised RBS, it’s the colossal and unnecessary cost that has been incurred. The Government has always insisted that it had to save the financial system from total collapse in order to preserve the real economy from recession/depression by restoring lending to businesses back to the pre-crunch levels of 2007. What has actually happened however is that unimaginably stupendous sums of taxpayers’ money have been spent on recapitalising the banks and insuring them against their ill-acquired mountains of toxic assets, yet lending to businesses and homeowners has hardly increased at all.
The policy has been eye-wateringly costly, yet it has not even achieved its one main objective. What is bitterly ironic is not only that a different strategy could have (and still could now) achieve the main objective in full, but it could do so at a tiny fraction of the cost. So why hasn’t that happened? There is just one thing blocking it, but that one thing is the biggest inhibitor in the entire neo-liberal lexicon: the horror of nationalisation.
How much money has been spent avoiding it is truly prodigious. The Government spent £26bn trying to avoid the nationalisation of Northern Rock, but then having spent a sum almost equivalent to the entire MOD budget was forced to acquiesce in the inevitable. It then a year later, in September 2008, spent £42bn bailing out Bradford and Bingley. Then a week later it made available £300bn for a credit guarantee scheme, plus £200bn for a special liquidity scheme and £37bn for a bank recapitalisation plan. The banks took it all with relish, and used it to consolidate their own balance sheets, but increased their lending very little. So the Government went further. In January this year they offered £55bn to protect the banks against corporate debt, and then last month they made available a further £500bn for an asset insurance scheme to cover bank losses. Altogether the Government has offered some £1.15 trillion to the banks (a sum equivalent to 78% of the entire UK GDP), yet still bank lending to its business and household customers is stuck at a level still causing escalating bankruptcies and unemployment.
Was there, is there, an alternative? There certainly is. It is perhaps best illustrated by the RBS saga. After the catastrophic takeover of ABN Amro, RBS in 2008 chalked up the biggest corporate loss in British history – £28bn. So the Government stepped in with a £20bn recapitalisation for the stricken bank. That however didn’t staunch a further massive slide in RBS shares. By 20 January this year RBS stock, which was worth £78bn in 2007, had had its value reduced in the market to less than £4bn – a staggering drop of 95%. What that means is that instead of trying to bribe RBS (and other banks) with colossal £20bn subsidies into increasing their lending in the wider economy, with very little success, the Government could have, at a fifth of the cost, taken over the bank and thereby secured in full the increase in lending that was desperately needed. For with the State behind them, the banks would no longer need to bolster their own balance sheets at the expense of all the rest of the economy.
The same benefits would of course apply in the case of other bank rescues. Instead of HBOS with its very high levels of toxic assets threatening now to put the new Lloyds Banking Group at risk, HBOS which was valued in the market at £35bn a year ago could have been bought at its stockmarket value of £6bn last October. Instead £11.5bn of taxpayers’ money being pumped in to assist the merger with Lloyds TSB, it could have been purchased at half the price or less and the merger which is dragging down Lloyds need not have taken place.
The costs via the public ownership route of returning to full-scale lending would therefore have been hugely less than current policy. Whilst the £1 trillion or more of public funding currently at risk to assist the banks is only likely to be partially used, it is still estimated that the deficit on the public accounts may well reach £175-200bn by the end of the next fiscal year. Recovering from that astronomic level of deficit could take several years of severe financial strain. But the overriding argument for the public ownership alternative is that by rapidly restoring normal levels of lending within the economy it would largely prevent the enormous costs of rising bankruptcies and joblessness that we are now seeing.
It is almost incredible that such an obvious common-sense solution is derailed because of extreme ideological aversion to even the faintest whiff of public ownership, and at such mind-numbing cost to the economy and the wider electorate. But it exposes, more sharply than anything else, just how deeply embedded in the minds of the political and economic leadership (of both main parties) is the market fundamentalism which is the defining element of the neo-liberal era.
Adopting the most obvious and appropriate solution of public ownership at least cost in the current financial meltdown is not an ideological stance, but rejecting such a solution out of hand, even temporarily, at unbelievably massive cost to the taxpayer certainly is an ideological statement of deep prejudice which no Government should countenance. Policy is one thing, but a fetish which warps judgement is quite another. It is time to think afresh on the fundamental approach to this crisis”.