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Back to Front - A subprime system


EVERY SO often, the hidden workings of capitalism come to light, and what strange workings they are. The latest example – as usual, it seems to take a crisis to winkle out these odd practices – is the US subprime market.

A few weeks ago hardly anyone knew what subprime might be, leave alone that it was something to do with American mortgages. Now the subprime crisis in the US has led to turmoil and tumbling on the world's stock markets.

But there were those who did know. "All of the old-timers knew that subprime mortgages were what we called neutron loans – they killed the people and left the houses," one US mortgage expert told The New York Times.

Killing people and protecting property is what capitalism does best. It's had centuries of practice doing it, and making a lot of money along the way. Until things start going wrong, this is what is called "wealth creation".

In fact, the subprime market is the mirror image of those people condemned by capitalism to make their living sifting through garbage, with the same stench of decay. It starts with selling mortgages to people who almost certainly can't really afford them on the basis that if they default, the bank gets the house. And then those mortgages, especially the dodgy ones, are sold on to others at cut prices, and on to others still, until you end up with a lot of banks holding potentially worthless pieces of paper.

The financial world is full of such "products", often called "derivatives", It's a merry-go-round that fuels large City bonuses, which in turn fuel house price rises, and creates a lot of rich people (an old-fashioned description, apparently: the new formulation is "high net worth individuals"). Yet all the time no wealth is created.

The irony is that when things go wrong, real wealth is destroyed. People lose their houses. Pension funds slip into deficit. We must all tighten our belts.

This is the system that the Labour government loves so much. It idolises the rich. It makes a fetish of the so-called free market. Greed is good.

When the TUC meets in Brighton this month, it will doubtless condemn "corporate greed". But surely now the British labour movement has had enough experience of capitalism to mature just a little and understand that attacking capitalists for "corporate greed" is rather like criticising sharks for eating fish, or trees for growing leaves, for that matter.

That's what capitalism is. Live – and die – with it, or destroy it. Just stop going on about its "excesses".

The Labour Party certainly has. It has finally shaken off its aim of redistributing wealth from the rich to the poor. Instead, it's redistributing from the poor to the rich. From those who create value to those who own the means of creating it, who own the means of production (see "A legacy story", features).

It has also taken us back to Victorian values in a way Thatcher never was able to: there are now 4 million people in Britain working in personal service, the same proportion of the population as in the 19th century. It's amazing the National Curriculum doesn't include a course on the correct way of doffing the cap and touching the forelock.

Social democracy has failed. The task for workers is not to reinvent it, but to strike out on their own: for socialism.