Labour’s recession is far from over

The big story of the past week, along with the preceeding resignations by Blairite ministers trying to topple Brown?

Millions of Labour supporters stayed home; two fascists won seats in the European parliament on a reduced turnout. Yes, their vote fell, but they won seats because of the low turnout.

I won’t give you the obligatory post dedicated to how and why they made a breakthrough. Oxygen of publicity and whatnot.

So, Brown’s clinging on, having ceded more power to Lord Mandelson, who is now virtually deputy Prime Minister – and unelected, like many in the reshuffled Labour cabinet. Having faced down the parliamentary party in a stage-managed meeting, Brown’s hoping that an economic recovery will save his premiership.

Darling, in situ as Chancellor, despite rumours the PM wanted to replace him with Ed Balls, warns against complacency in seeing “green shoots” of recovery. As well he might, he knows how much government spending will have to be directed towards those made unemployed. Oh, and the banks – mostly owned by the public these days – they aren’t lending to our manufacturing base…

Mandelson, negotiating with the new owner of Vauxhall, is unable to guarantee jobs will stay in the UK. So much has been devoted to bailing out the banks, there’s not much room for manuoevre – not unless there’s another radical change in approach.

A senior Tory let slip that they intend to cut spending by 10% on all but health, education, and international aid, if they win the next election. To Labour’s cries of “Tory cuts!” – the nearest they get to a class analysis of Her Majesty’s Opposition – the reply comes, from both the Tories and the corporate press, that Labour is committed to 7% spending cuts across the board.

As Ann Pettifor has pointed out, to cut spending in the next few years will be a disaster for an economic recovery:

As things stand, any fragile signs of economic recovery will quickly be crushed by the failure of government to intervene and spend at an appropriate level. Instead, government cutbacks will impact with considerable force on the fragile economy, and will hurt the middle and working classes. As the year proceeds many will discover the true, and often pitiful value of their pensions, and will be hurt by cuts in services and job losses in the public sector. This will hamper recovery and deepen, if that is possible, the alienation of British voters from the Labour government.

And don’t forget, this is the woman who was writing about the debtonation before it began.

She continues in the same article to outline the blades which may slice through any “green shoots”:

Foreign direct investment could fall globally by 45% this year, according to the same report, and corporate profits will decline by 20-25%. Global trade is down 25%, and the EIU predicts trade will be down by 10-15% by year end – the worst figure since 1945.

In April this year, consumer prices turned negative in the US, the UK, Germany and Japan. This may be good news for consumers, and may help lower food prices for the poor, but it is not good for the economy as a whole. Businesses cannot profit from negative prices, so they are bankrupted and lay off employees. The rocketing numbers of unemployed (whose plight is seldom taken seriously by orthodox economists) will cut back on borrowing and shopping and may even default on loans. This is not good news for the productive sector of the economy, and it’s very bad news for the banking sector. Banks have still not fully de-leveraged the debts on their balance sheets. Now, thanks to rising unemployment, non-performing loans are “set to rise sharply around the world over the next 12-18 months” according to the EIU. This is very scary, if one considers that there are still $600tn of liabilities in the form of derivatives on balance sheets out there – backed up by a mere $38tn of so-called credit default swaps (in reality a form of insurance on derivatives).

More banking trouble, in other words…

Pettifor concludes:

Nothing has been done to restructure the global economy and limit financial imbalances – including Anglo-American deficits and the Chinese surplus. Indeed these matters were not even discussed at the last G20 summit. Big, reckless money continues to be made from currency speculation, just when the global economy requires currency stability.

We – employees, consumers, investors and borrowers – have been misled and fooled by the economics profession and finance sector for years before this crisis. As a result of our gullibility, we lost $60tn of wealth in the past year. We would be wise now to dismiss their vain efforts at confidence-boosting, and instead rest our judgments on the real world economic outlook.

Back to politics, word is that Balls and Darling are split on how to present the supposedly “inevitable” cuts in public spending.

Hardly confidence boosting!

As far as this modest blogger can tell, the debate isn’t on what to cut, but on when to admit the cuts are coming.

In the leadership challenge that never was, the unions didn’t bark – despite the looming cuts and failure to aid the car industry. For sure, a change of leader – even to someone more in touch with the needs of ordinary people – would bring forth a general election at the worst possible time. With MPs expenses hanging in the air, Labour voters are unlikely to show up at polling stations and register support for the party any time soon.

For the Labour grassroots, there’s no difficulty in choosing between Trident, PFIs, the Afghan war, ID cards – or investing in a new generation of social housing, a Green New Deal, and helping workers to stay in their jobs. However, there’s no means by which the party’s grassroots can influence policy; even the parliamentary party has a tough time defeating unpopular measures, like Royal Mail privatisation, which hasn’t yet been ditched.

According to opinion polling, most voters agree Labour has abandoned its traditional supporters and believe that the Tories are most interested in helping out the rich. So what gives with the BNP victories, then? Well, it’s worth remembering that the Green vote was up – they campaigned on job creation through a Green New Deal to invest in energy efficiency and renewable energy industries, all very practical. But if your main themes are not echoed in the media, it’s difficult to get ahead. The upcoming by-election in Norwich could see the Greens win their first MP, should the support be forthcoming.

In the meantime, I’m wondering exactly where this announcement by John McDonnell will lead:

If we go beyond November without real change visibly under way, what hope is left of Labour not only remaining in government but also surviving as an effective political force at all?At that stage the only responsible act in the long-term interests of our movement would be to offer a real change in political direction by mounting a challenge to the political leadership of the party and letting the members of the party decide. Let me give notice now that this is the path I will take. If this route is blocked again by MPs failing to nominate, then the alternative is Labour MPs making it clear at the next election that they stand on a policy platform of real change as “change candidates”.

Of course, they will be standing as Labour candidates but binding together as a slate of candidates committed within Labour to advocating a change programme, setting out the policy programme they will be advocating as a group and supporting in parliament if elected. Only in this way can we demonstrate to the supporters that want to come home to Labour that there is the hope and prospect of change.

I can’t see a policy debate being tolerated, not without the capitalist media emptying another bucket of shit over the heads of New Labour and calling for a Cameron coronation. Hence the talk of the Blairites toppling Brown without recourse to either the PLP, the members, or the unions – with the Cabinet nominating one of its ranks to become party leader and PM.

So, the question is, will McDonnell and co. defect to form a new workers’ party? If not, will parties like the Greens back this new “change candidates”?

Rubbish! It can’t get worse than Granite, can it?

Has the government acquired the worst bits of Northern Rock?

It is a question easier to answer than “nationalisation – which nation?” or “temporary public ownership – temporary for years?”

The answer is yes, the government has got the worst bits of the Rock.

And yes, it does get worse than the Granite bank-within-a-bank farce.

Ron Sandler, the Lloyd’s man appointed by the government to run the Rock under “temporary public ownership” and make it fit for flotation again (sale to the private sector, in other words) – this guy is a non-domicile.

So Sandler doesn’t pay tax on his earnings abroad due to non-dom status, and his UK earnings aren’t bad – he’s getting ninety thousand pounds a month (that’s around three thousand pounds a day!) for running the Rock for us. His deputy is on a similar ammount and is also a non-dom.

Meanwhile, there are no firm guarantees that NR staff will not face compulsory redundancies, and since the Granite issue has been unveiled, no way of knowing if the debt acquired will be paid off by the Rock…

Worship of profit
(Wednesday 20 February 2008)
THE longer that the Northern Rock saga drags on, the shakier the grip that the government appears to have on what’s happening.

Alistair Darling and the real Chancellor Gordon Brown both insist that the bank had to be nationalised to get it back into financial order and to safeguard taxpayers’ money that was injected into it.

But how can these goals be achieved if the cream of Northern Rock’s assets has been shuffled off by a subsidiary called Granite to a tax haven and is not part of the nationalisation package?

Given that the residue of the bank’s “assets” include unsecured mortgages and those offering advances on the basis of no deposit and 125 per cent of property valuation, how long do the daring duo imagine that it will take to turn such boobies into cash prizes?

Treasury Chief Secretary Yvette Cooper seemed oblivious in Parliament to the Granite sleight of hand.

Is she alone in her ignorance? Or, if Messrs Brown and Darling were aware of this manoeuvre, why were they not straight with Parliament and the public by telling them that we were all becoming joint owners of what may be little more than a

John McDonnell is correct to point out that the government is hoist by its own petard, in that it slashed regulation of the financial sector, believing that banking could safely be left to bankers.

The sad truth is that it cannot, which is precisely why there was previously a framework of regulation.

New Labour swallowed all the Thatcherite guff from the 1980s about business being held back by red tape and how setting it free would release entrepreneurial spirit and prosperity for all.

All it did was encourage speculation, gambling without a safety net, and the results are BCCI, Hambro and now Northern Rock.

Adam Appleyard was regarded as a financial whiz-kid when he masterminded the demutualisation of the Northern Rock Building Society, which, like most societies, had ticked over by offering mortgages at a higher interest rate than that paid to savers and not overstretching itself.

Bidding farewell to this boring respectability, he offered members something for nothing – free shares for agreeing to become a bank.

From then on, Northern Rock financed long-term risky mortgages by borrowing on the international markets, gambling that low interest rates, especially in the US, would continue to underpin the bank’s expansionist scenario.

The Financial Services Authority, whose job it is to monitor banking conduct, did nothing, but that is hardly surprising when the government itself had given the go-ahead to regulation-light banking adventurism.

When these funds began to dry up, the bank was in trouble and had to approach the Bank of England for help.

This ought to have been the time for government consideration of public ownership, but so petrified is the Labour government by the thought of nationalisation that it dithered for six months.

The public can see that nationalisation does not lie at the heart of this problem any more than it does on the railways, water, gas, electricity and all the other public services plundered and degraded by dogged worship of private profit.

Northern Rock – officially nationalised?

Saith the FT:

Northern Rock was officially classed a public sector company on Thursday, bringing its debts on to the government’s books and blowing apart one of the Treasury’s cherished budgetary rules.

The Office for National Statistics announced that the government has had so much control over the stricken mortgage lender since October that it should be classified in just the same way as nationalised entities such as Royal Mail.

While the ONS said the issue of control over the company was different from “nationalisation”, many will conclude that since the ONS views the bank as so similar to other nationalised companies, the term should apply to Northern Rock.

The ONS will not yet say exactly by how much public sector net debt will rise as a result of the reclassification, but said that on the basis of Northern Rock’s published accounts for the end of 2006, £90bn will be classed as public debt.

Since the bank lent heavily in early 2007, this figure might rise a little or might fall a little, reflecting mortgage redemptions since the crisis hit Northern Rock in September, but the Financial Times understands that the £90bn figure is a reasonable guide to the final amount.

The ONS said the likely increase in public sector net debt represented 6.7 per cent of gross domestic product. If added to the current level of debt, the total public sector net debt would rise to 44.4 per cent of GDP, far above the government’s self-imposed ceiling of 40 per cent.

Treasury documentation from the pre-Budget report last October insists that to be sure of meeting the sustainable investment rule, “net debt will be maintained below 40 per cent of GDP in each and every year of the current economic cycle”.

This reclassification therefore blows a huge hole though the letter of the fiscal rule, which will add to the pressure on Alistair Darling, the chancellor, who critics accuse of running too lax budgetary policy as the UK economy heads for a slowdown.

The Treasury has previously let it be known that it will ignore any reclassification of Northern Rock as a temporary aberration and will invoke little-read passages of the legally-binding Code for Fiscal Stability to give it some leeway.

Officials also argue that Northern Rock has lots of assets, most of which are not netted off in the rather arcane public sector net debt classification. They insist they will not raise taxes or cut public expenditure decisions because of this breach.

But officials recognise that breaking one if its cherished rules is likely to cause a political storm.

Many accountants and economists suggest that the Treasury should modify its budgetary rules in light of reclassification decisions such as these and likely decisions soon to bring the private finance initiative on to the public books.

The Budget on 12 March would be the time Mr Darling could announce a review of the rules, although it would be politically difficult to change the rules just at a time when they are under pressure.

Shares in Northern Rock were 6.4 per cent higher at 104¼p.