Back to Front - Feet of clay
WORKERS, FEB 2008 ISSUE
The so-called giants of Wall Street are tottering. Simply in order to survive, they are drawing in huge funds from abroad, selling off stakes in themselves and mortgaging their own futures. And these are the companies that thought they ruled the world.
That's capitalism for you. They convinced themselves – and many workers, too – they could make money without actually producing anything.
What they have produced is a recession. The US housing and property markets are in freefall. Even bankers Goldman Sachs now admit it.
The world's biggest bank, Citigroup, had its worst loss in its 196-year history, $9.83 billion in 2007's last quarter. It has written off over $35 billion in bad investments, sacked 4,200 workers, and threatens to cut some of its 11,500 jobs in London. US investment firm Merrill Lynch is writing down $23 billion – and that's just for the latest accounting period.
The list goes on – name the bank, and look for the billions lost. Overall write-downs total around $100 billion. Worse will come. One trillion (a thousand billion) dollars are invested in sub-prime mortgages. Losses could wipe out half of that.
Now a new generation of finance capitalists is trying its luck in this global swindling casino. China Investment Corp, a "sovereign wealth fund", the investment arm of the Chinese government, is bailing out Morgan Stanley, loaning $5 billion at high rates in return for 10 per cent of the company.
Others are also propping up Wall Street's and Europe's mauled banks. Kuwait , Singapore, Abu Dhabi and a Saudi Arabian prince have invested $20 billion in Citigroup. Merrill Lynch has had $12.8 billion from Singapore, Kuwait and Japan.
Banks keep the important money flowing upwards, even when homeowners and other borrowers suffer. Merrill Lynch is giving its CEO a $160 million payoff, while sacking 1,600 workers – £100,000 per sacked worker. Morgan Stanley gave its partners bonuses of $16.6 billion for 2006, up 18 per cent on 2005. The bigger the loss, the bigger the bonus?
In December, central banks – the US Federal Reserve, the European Central Bank and the Bank of England – offered to lend $110 billion to banks. On 18 December, the European Central Bank put a further £250 billion into the market. Money down the drain.
The government now admits it is bailing out Northern Rock to the tune of £60 billion in loans and guarantees. This shows its panic about the banking system, the foundation of capitalist economies. The bidder Virgin does not even have a banking licence. We should nationalise Northern Rock, then when it is sold on, the taxpayer benefits, not the shareholders or corporate financiers.
Brown has mortgaged the government's current and capital accounts to balance the books, and has sold forward contracts to private firms to supply services through his PFIs and PPPs. The government borrows dear now: workers pay dearer later.
Thus Brown shifted investment in public institutions "off the books", hidden from the public borrowing total, a technique he copied from his banker friend Gavyn Davies of Goldman Sachs. The gross off-balance-sheet public debt was £110 billion by 2003. The result for the NHS, for example, is shown in hospital budgets, whereas a fifth already goes to service bank loans, far outweighing any promised "efficiency gains" from the PFIs.