If you want evidence of how reckless and desperate bankers and investors have now become in search of higher yields, look no further than the widespread decision to return to a variant of the mortgage-backed securities which precipitated the 2008-9 crash. Then it was sub-prime securities which were knowingly sold to households handicapped by low pay and insecure employment who predictably could not maintain their mortgage payments in a volatile labour market. Now it’s simularly financially disadvantaged individuals who are lured to take on non-prime mortgage-backed securities, those that do not meet even the minimum legislative standard. But of course they do offer high yields, and if the bankers can dispose of enough of these financial vehicles laced together with other dodgy securities, the risk has been passed on to some other half-witted investor.
Quite apart from the very real risk of paving the way for another crash, this latest trend reported in today’s FT is very revealing in where we are in bank and hedge fund regulation -hardly anywhere at all. It is almost incredible that the very financial instruments which triggered the colossal 2008-9 crash, from which the world has still not recovered and for which the innocent victims are still paying the heaviest price, have not been either banned or so tightly regulated as to prevent any further damage. It reveals how puny and superficial has been such reform as there is – mainly an increase in capital ratios, but not till 2019! The dark heart of the City of London remains intact, namely the exchange-traded funds, the ‘dark pools’, the rise of shadow banking outside regulation, and now a return to the exotic derivatives which triggered the global crash 7 years ago.
That’s why the Labour leadership election should have been about the fundamentals, the real factors that are causing the dire condition of our economy and society at the present time. The whole finance sector needs to be tightly regulated. There needs to be a major industrial/manufacturing revival over the next decade or more as the only means to pay our way in the world and to achieve real genuine sustainable full employment. There needs to be a determined attack on corporate pay excesses and industrial-scale tax evasion/avoidance as not only obscene, but holding back growth as even the IMF has now admitted. And the private market failures in housing, rail, water, pensions, energy, banking, to name but some, must be addressed, including a public sector role in reform.
The HSBC Swiss bank is not an isolated episode. It is part of a general pattern exposing the underlying ideology which has been globally dominant over the last three decades. That ideology has been about consolidating the power and wealth of the world’s richest class, particularly in the West. It is based around the idea that the most efficient and successful way to run the world is through untrammeled markets freed to the highest possible degree of any external constraints. The message for governments is: get out of the way and leave it all to markets to steer capital, employment and growth in the most profitable direction, and it will be best for everyone. It hasn’t been, as the historical record shows. The average annual GDP income growth in the UK in the 30 years before 1980 was 2.4%; in the 30 years after 1980 it was 1.7%. But that has not prevented this ideology from gaining pernicious dominance in the Western consciousness reinforced by politicians of all parties paying lip service to it.
Read more “The detritus of neoliberal capitalism” »
The lies, mis-statements and blatant evasions over the HSBC Swiss bank are beginning to build up. We were initially told that no Minister had any knowledge of wrongdoing at HSBC Suisse until this last week. This has now been contradicted by several different sources. Lin Homer, the besieged and rather ineffective head of HMRC, told the PAC select committee that officials would have told government Ministers within months of receiving the incriminating data from the French tax authorities. She said “We are confident we will have told Ministers that we were about to receive a big tranche of operation information”. Even more explicitly Dave Hartnett, the previous HMRC chief, told the Treasury select committee in September 2011 that “I think the whole nation probably knows that our department has a disc from the Swiss, from the Geneva branch of a major UK bank, with 6,000 names, all ripe for investigation”. So the statement that Ministers never knew anything about this enormous scandal until just a week ago, put out by Downing Street aides unquestionably with Ministerial approval, was a lie. The Minister who approved this statement should be made to resign.
Read more “HSBC: Ministers who lie or refuse to tell the truth should be made to stand down” »
Almost everyone, and that includes the IMF and the ECB, now admit that austerity has gone far too far and is now holding back growth. The only exception are the Germans, but even they are now losing ground. They were forced to concede the eurozone bailouts which they never agreed with, they were compelled to accept the foundations being laid for a eurozone banking union, and they lost out in the struggle to stymy Draghi’s ECB offer of €1 trillion of quantitative easing to kick-start the eurozone out of deflation. And following the Syriza victory in Greece the rigid German position – the primacy of cuts, sound budgets, lower borrowing, and structural reforms – is bringing to the surface serious splits within the eurozone with France, Italy and Spain quietly giving support to Tsipras, even if unwilling to pick a public fight with Merkel.
Greece is of course in a far more parlous position than the UK, but there is one factor that links them. Greece has regularly been funded with a bailout to ensure it can survive to pay off its enormous debts, but only on terms that prevent the Greek economy’s capacity to earn the growth to pay off those rising debts. In the UK the government’s austerity policies have squeezed public expenditure and contracted the economy to such a degree that the capacity to pay off the deficit has been halted by the impact of falling incomes. In both cases the policies followed hitherto have been shown to be counter-productive and self-defeating.
Yet in the UK the Tories have made clear they’re going to intensify these policies if they win the election. Their intention is that by 2020 public spending on services, administration and grants, which was 21.2% of G DP in 2009-10, will fall to 12.6%. Put another way, spending per head is aimed to go down from £5,650 to £3,880. Even more alarming, two-fifths of that has taken place up to 2015, but three-fifths are due to be implemented over the next 5 years. With the NHS and schools supposedly protected in nominal terms (though not in terms of real output), it means a real terms decline of more than half for policing, local government, culture, and everything else besides – and most of it still to come.
Is that what a majority of people want? Increasingly the polls are showing that most people are desperate to exit from austerity and to have the opportunity to vote for the alternative (as in Greece) of public investment, jobs and growth. If Ed Miliband offered a commanding narrative of Labour policy of which dumping austerity was the central tenet, it would be the electoral game-changer which voters are crying out for.
Osborne continues trying to taunt Labour about eliminating the deficit altogether by 2020. But he’s never set out any strategy by which he might get within even spitting distance of it. Economic growth isn’t going to do it. Under his current policies Britain now invests only 14% of its GDP, one of the lowest rates in the world. The global average is 24% and in China it’s 46%. In the UK’s case, by the time provision is made for depreciation at about 11.5% of GDP, there’s only about 2.5% left. This isn’t even sufficient to keep our existing capital assets from being diluted down by our increasing population. We therefore now have no net investment per head of the population at all. For a modern industrialised nation this can only lead to relentless decline. With almost no net investment, a shrunken manufacturing base and an economy heavily constrained by the biggest trade deficit in the country’s history, the prospect for any significant improvement in productivity, incomes and growth is very poor.
Read more “How do the parties think they’ll reduce today’s deficit of £100bn to zero by 2020?” »
Why does Labour, when the Tories lie and lie and lie, keep on turning the other cheek? Hardly out of an excess of Christian charity, more because of cowardice in failing to confront the British people with the truth. Osborne, a snake oil salesman if ever there was one, began his time in office in 2010 by repeating over and over again that all the problems in the economy were all the fault of the previous Labour Government. So why didn’t Labour make the obvious riposte that it was actually the bankers, whom Osborne for some reason had somehow forgotten to mention? Why, even more worrying, has Labour failed to make even a bleep to counter these Tory lies over the whole of the last 4 years? It would have been so easy. The biggest budget deficit in Labour’s 11 years before the crash in 2008 was 3.3% of GDP whereas the Thatcher-Major governments racked up deficits bigger than this in 10 of their 18 years.
Read more “Why won’t Labour tell the truth?” »
Corporate welfare has been estimated in a University of York social policy study to cost British taxpayers nearly £85bn a year. That is not far short of the current level of the entire budget deficit which is still £100bn. If industrial-scale corporate tax avoidance were added in to the corporate welfare state, the cost to Britain would comfortably exceed the whole deficit. So instead of focusing on £25bn (unspecified) further benefit cutbacks and a further huge squeeze on departmental public services bringing their cumulative cutbacks since 2010 to a staggering 40% or more, Osborne might be well advised to look at where money is truly wasted. Instead of the government scrapping a £347m Crisis Fund which is the last remaining port of call for families on the edge of homelessness or starvation, he might well have cause to wonder whether doubling the public subsidy to £5bn a year for the owners of Britain’s privatised railways can conceivably be justified or whether he should now be ladling out government grants to Jeff Bezos, the billionaire boss of Amazon, which actually exceed the corporation tax he paid last year to Britain.
It speaks volumes that the totals of taxpayers’ subsidies lavished on corporate welfare are not systematically kept anywhere in government and certainly not published even fragmentarily except under duress. Tony Benn insisted that the grants and subsidies paid to the top 100 companies under a range of Acts of Parliament should be published, which Whitehall did everything in its power to block, though eventually he overruled them. However since that unique breakthrough, the figures have been very difficult to come by, and they have to be painstakingly assembled from a large set of different sources. This is a scandal. The public who provide the money are entitled to know how their money is spent.
Even what we do know shows how utterly prejudiced and lop-sided is the political discussion over the budget deficit. It ignores the grants and subsidies paid directly to businesses, amounting to £14bn a year, almost three times the £5bn a year spent on income-based jobseeker’s allowance. Then there are the insurance schemes run by government to protect exporters, the market job for British companies done by the Business Department, the cheap credit made available to banks and other businesses, and the gravy train rolls on. Even that leaves aside the £25bn a year paid in tax credits, housing and council tax benefits to people in work because bad employers refuse to pay them a living wage. Or the colossal public subsidies shelled out to the too-big-to-fail banks to protect the economy from their folly and recklessness. So when is Channel 4 going to put on Corporate Benefits Street and invite on Osborne to defend it?
The Commons spending watchdog, the Public Accounts Committee, has uncovered that G4S has been allowed to bid for further government contracts while being investigated by the Serious Fraud Office regarding £110m contracts for cheating the taxpayer over payments for tagging prisoners on probation and for its improper management of invoicing, delivery and performance reporting. Serco is also being investigated by the Serious Fraud Office as well as by the City of London police over two contracts worth nearly £100m, especially in regard to payments claimed for prisoner escorts. Grayling, the justice secretary, had written in September last year that “we should not award new contracts for the two companies until we have established the facts about both their performance and their corporate behaviour”. The facts have been established: they grossly over-charged for the work done, yet despite Grayling’s denials they are still being allowed to apply for further lucrative government contracts. In today’s culture, driven by this government’s fundamentalist market values, there’s no accountability – it’s always business usual whatever executives or officials have done.
Rotherham is another prime example. What is really troubling is that much of the facts of child sex abuse was known for many years to Council officials, social workers and police. Prof. Alexis Jay’s shock report that some 1,400 children were involved led to loud demands that those officials responsible should be held to account. It is truly astonishing that no senior Council official has faced disciplinary action for what amounts to criminal negligence and Shaun Wright remains in post instead of being sacked and prosecuted.
Moreover there are deeper concerns here that are very disturbing. One is that the authorities in Rotherham feared being branded racist if they took action against the Pakistani Muslim culprits. Both the police and senior Council officials have a duty to administer the law firmly and equally, even if it’s politically inconvenient. They abjectly failed and it sends out a dreadful message unless they are stringently held to account. The other worrying implication is that G4S and Serco are treated with impunity because, like the banks, they are too big to fail. They are part of a tiny clutch of giant companies, including also Capita, A4E and Atos, which are the privatised equivalent of the old nationalised industries. They have been granted a dominance in the running of previously public services on which the government is now over-reliant and forced to keep them on regardless because there are few, if any, large companies which are capable of taking on their functions. We now have the worst of both worlds – the loss of accountability of publicly controlled institutions whilst at the same time amoral market institutions are parked on us whose semi-monopolistic position gives them impunity.