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News Analysis - What's happened to the billions?


Last October the government gave the banks £500 billion, supposedly to get them to start lending again. What happened? They cut their lending. In January, the government gave them another £50 billion. Again, they cut their lending. Then the government gave them £10 billion to lend to small businesses. They lent just £40 million. The banks are still hiding the full extent of their bad debts, saving their own skins and prolonging the crisis.

The Royal Bank of Scotland lost £24 billion last year, the worst loss in UK corporate history. We are giving it £25.5 billion. It has at least £325 billion bad debts, but will be liable for only £19.5 billion – we the taxpayers cop the rest. It is trying to sell £540 billion of ‘troubled assets’. We have already given the banks £1.3 trillion, £36,000 from every man, woman and child.

Remember the South Sea bubble of 1720? Walpole’s government arranged matters so that the people did not gain from the transfer of debt to the public, and the South Sea Company’s owners and stockholders made great gains. Throughout, Walpole’s government promoted the Company’s interests. What progress we have made!

As Marx wrote, “By means of the banking system the distribution of capital as a special business, a social function, is taken out of the hands of the private capitalists and usurers. But at the same time, banking and credit has become the most potent means of driving capitalist production beyond its own limits, and one of the most effective vehicles of crises and swindle.”

Light touch, heavy consequences

Lord Turner, the head of Brown’s Financial Services Authority, said that the Treasury kept pressing the Authority, “Can’t you make regulation a bit more light touch?” This hands-off approach increased the opportunities and incentives for speculation in real estate development, stock trading, privatisations and mergers, leading straight to the present disaster. The lighter the regulation, the easier it is for finance capitalists to profit at our expense. Yet Brown urges countries not to regulate their capital markets.

According to Brown and his advisers it is only finance capitalism that must be supported, so that is what they are doing, at great cost to the real economy. Reduced investment is the cost of ensuring the profitability of the financial sector – corporate financing has dried up: investment in 2008’s last quarter was down 7.7 per cent from 2007.

Manufacturing output is down 15.7 per cent on last year. This is worse than the fall witnessed in the Great Depression, of 6.9 per cent between 1930 and 1931, and worse than the fall in Thatcher’s first slump, of 10% between 1979 and 1980. Unemployment is over 2 million. The unemployment rate for 16- to 17-year olds not in full-time education is nearly 30 per cent!

After Japan’s 1991 slump, its government tried zero interest rates, public works programmes, inflation, printing money, building up foreign exchange reserves, export drives, a $500 billion bank bail out – nothing worked. There is no solution to capitalism’s absolute decline within capitalism, unless you count war as a solution. No capitalist plan works: in each country, only the working class can build recovery.