Time to do the Maths

The last estimate for the amount of public money going to Northern Rock was £50bn. For that price we've bought ourselves a bankrupt bank. It isn't clear how many of the other banks are also teetering on the brink but the government is sufficiently concerned to oblige us to buy their worthless assets (euphemistically known as 'mortgage-backed securities') to the the tune of another £100bn. or so.

These numbers are nice and round. If we round the population of the UK to 50 million we can see fairly easily that we have recently spent around £3000 per head on bankrupt banks. This does not feel like a very good long-term investment that is going to serve the public interest.

Let's compare it with the post offices. Here we paid Adam Crozier £1.3m last year and bonuses to board members came to £4.5m. in total. This is a reward for closing 20 per cent of our post offices this year - 2,500 are due to close by the end of 2008. One of those is my local post office in Uplands. It is a profitable business but post office managers have closure targets to meet in order to receive their bonuses this year so it is on the list.

The cost of keeping my post office open is a mere £24,000, so if I could find eight other people and ask them whether they would rather give their £3,000 to keep the post office open or keep some degenerate banks afloat I could raise the cash in half and hour or so. Of course, although we apparently live in a democracy, we don't have that choice. Instead, we are probably going to have to put our hands in our pockets as a community here in Stroud to subsidise our post office.

At least our postmaster is resisting the hefty bribes on offer for redundancy packages. Many others, especially the old and tired, are taking the money and creeping off to retirement. As with the pit closures, they are being offered a good deal now and told they will get nothing in the future if they refuse it. Our money is being used to bribe people out of their livelihoods.

This week we saw Housing Minister Caroline Flint having to remind herself that she should put the interests of the British people first. Just like the rebranding of the Post Office as 'the people's post office' this sort of doublethink is only necessary becase it is no longer the truth. What is happening with the Post Office is symbolic of what is happening to our democracy - we are allowing it to be stolen from us by profit-driven corporate executives. And the solution is the same too: use it or lose it. If you vote for one of the parties that have prostituted themselves to corporate interests (or don't vote at all) you only have yourself to blame. Tweet

Poetry vs. Greed

Shelley wrote extensively on a very modern theme: the way scientific and technological advances are used not to create the earthly paradise for all but to generate profits for the few:

The cultivation of those sciences which have enlarged the limits of the empire of man over the external world, has, for want of the poetical faculty, proportionally circumscribed those of the internal world; and man, having enslaved the elements, remains himself a slave. To what but a cultivation of the mechanical arts in a degree disproportioned to the presence of the creative faculty, which is the basis of all knowledge, is to be attributed the abuse of all invention for abridging and combining labour, to the exasperation of the inequality of mankind? From what other cause has it arisen that the discoveries which should have lightened, have added a weight to the curse imposed on Adam? Poetry, and the principle of Self, of which money is the visible incarnation, are the God and Mammon of the world.

If we substitute a word like ‘imagination’ for what Shelley called ‘the poetical faculty’ this quotation has immediate relevance to our political project.


Shelley was not alone in his revolutionary interests. Other poets of the so-called the Cockney School, including John Keats, shared his anti-capitalist views. Robert Southey, who later joined the establishment and became poet laureate, wrote a poem in praise of Wat Tyler in 1817. Coleridge and later Wordsworth joined Southey in brainstorming ideas about an ideal form of just and egaliatarian government they called ‘pantisocracy’. The aim of all these poets, now termed romantic but more accurately revolutionary, was to rekindle the energy that had led to the French Revolution around the time of their births. The group revolved around Leigh Hunt and bears his name:

The Hunt Circle believed that one could subvert power by undermining the intellectual, emotional, ideological grounds for its appeal. If one could not literally assault the Bank of England, one could raise questions about the use of paper currency and ultimately the economic system it underwrote.

This revival was successful, resulting in political unrest in the UK leading to the Peterloo Massacre, the Chartist movement and the Great Reform Bill of 1832. Several of the revolutionary poets had already predicted that an extension of franchise would be granted rather than a reversal of the economic changes which had led to wage slavery and were their real target. Rather than this message being heard the poets have been sidelined into nature-lovers and creators of beauty. The message from their verse with the greatest staying power ‘A thing of beauty is a job forever’ (written by Keats in 1817) has been transmuted into an appeal for consumption rather than the rallying call of a movement bent on restoring mankind to its natural paradise on earth, as it was intended. Tweet

Buy Now Pay Later for Public Services

The number of times Gordon Brown has invented funding schemes which would make goodies available now to be paid for by our poor cash-strapped children has made me wonder whether he shares my view of the inevitability of collapse of this riotous financial system we are struggling with - and that was before the near-collapse of Northern Rock.

First there was PFI, in order support which you would have to believe that corporations would cheerfully pay for us to have hospitals and schools now, on the cheap, out of the goodness of their hearts. Then there was the International Finance Facility, which funded 'development' in poorer countries along similar lines. The latest is the vaccination scam, that not only leaves debts for future generations but also lines the pockets of the big pharma corporations.

Unison Scotland have produced a report (http://www.unison.org.uk/acrobat/atwhatcostoct07.pdf) detailing the costs of some of these projects and making it clear how horrendously we have been ripped off by a policy that never amounted to more than jam today at the cost of horrendous debts tomorrow.

According to the report, Scottish PFI/PPP contracts could be costing around £2.1 billion more than conventional funding. The NHS in Scotland is now having to pay rent to the companies that built the hospitals of some £2.4bn. ‘UNISON Scotland’s analysis of official figures from 35 schemes found that estimated public sector comparators (PSCs) were 6.4% (median) cheaper than the contractors’ bids. For just these 35 schemes, that means almost £720m is being wasted - nearly enough to pay the whole of the PFI bill for Wishaw General Hospital.’


In 2006 a report by the Centre for International Public Health Policy at Edinburgh Unversity, found that the debt for the NHS will be far greater than the investment provided by PFI schemes: £2.4bn. compared with £602m. No prized for guessing where the difference has gone.

What is the cost of this to the private sector? They usually argue that the vast sums we pay are to underwrite their risks (there’s that word again), although the risk involved in building a hospital for an ageing population for which you have no shortage of demand and a single captive customer can never have been that great can it?

But in fact we are paying for the risk involved in these contracts – to the tune of £3.5bn. for an insurance policy in case anything goes wrong. And of course if anything does go wrong, as in the case of the tube and the nukes, we know who will really end up carrying the can.

The dubious scheme is being expanded countrywide. Mark Hellowell and Alyson Pollock, authors of the report, estimate that the annual cost to the NHS will rise from £107.1 million in 2005/06 to almost £500 million within the next five years. The mystery about how so much extra spending on health has achieved so little appears a mystery no more. Tweet

Buying at Rock Bottom, Darling?

In the industrial era the slogan was 'Where there's muck there's brass'. For the post-modernist entrepreneur this slogan has been replaced by 'Where there's risk there's brass'. For such a person Northern Rock is seeming increasingly interesting. This was the appeal for Philip Richards, who bought shares in the ailing bank at the bottom, sensing that the value of the stock would be determined by politics and not by the market.

Richards is Chief Executive of Hedge Fund RAB capital. This has a hugely profitable Special Situations Fund which Richards manages. The fund almost doubled in size during 2005 and by the spring of 2006 controlled more than $1bn. Richards identified a very special situation at Northern Rock and moved in for the kill.

He has now emerged into the media to exert political muscle. Unlike most of us he has the power to be able to produce a comment piece in the Observer and to have a chat with the BBC's business editor on the Today programme. His view that shareholders should have their investments underwritten by the government to allow the bank to continue as a going concern is in reality a request that we should pay him for an opportunistic business investment.

He argues that if shareholders are abandoned then 'the most important role of banking' which he defines as 'to take short-term deposits and lending and turn it into long-term capital and finance' would no longer be attractive because it would not yield sufficient secure returns. In other words, the government should use our money to prop up a financial system that works against our interests and those of the planet; if it does not, the credit/debt that is the lifeblood of a capitalist economy will drain away.

The affair of Northern Rock is becoming an object lesson in how financial value is fought over in a capitalist economy, a process that is usually concealed behind scenic drapery. As with most companies, the citizens of the UK are 'stakeholders' in Northern Rock, some of us as depositors and mortgage-holders. Unusually in this case many more of us (all those who pay taxes) because we have each loaned an average of nearly £1000 to the Bank. Without handy media contacts we have to rely on our elected representatives to ensure that we receive a fair share of the value we have invested.

The affair also makes clear that, in spite of all the rhetoric privileging the market above all institutions, in a democracy power still lies with politicians. When the shit hits the fan it is the job of politicians to make choices and, no matter how large the tent, somebody will be disappointed by those decisions. That is what politics means: either/or not and. Vince Cable for the Lib Dems has suggested nationalisation; in another blog I propose a mutual solution, but it is the Chancellor's job to decide which side his political bread is buttered.

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Rock and Roll Suicide

The immediate crisis at Northern Rock has passed, but only because the government has spent an estimated £40bn. of our money preventing the bank from collapse. This was a desperate strategy, only resorted to because of fears that the collapse of Northern Rock might lead to the failure of other banks and eventually the collapse of the whole banking system.

This is a huge public investment, of the same order of magnitude of the whole of health spending in one year, which is somewhere above £50bn. these days. It raises several questions about the meaning of a democratic society. Perhaps the most important is why a reckless financial institution, that produces nothing of value, can be bailed out in this way, while countless manufacturing companies which produce useful goods and employ many more people have been allowed to fold to conform to the iron law of the market. Clearly, the interests of capital carry more weight than the interests of labour.

The most important questions to be decided now are who should bear the loss of the bad investment decisions taken by the bank's board, and who should see the value of the assets it still holds. Should the British public really be asked to compensate shareholders who made poor judgements? They see the gains when their tricks pay off; what sense can there be in calling this a financial market if they do not also see the losses?

In terms of the assets the vultures are circling hoping to prey on the carrion at the expense of the British public. An offer to pay £1 for the bank is not a generous bid but rather a grab for the significant assets still owned by Northern Rock. Of the 'bidders', Branson and Flowers have both been the beneficiaries of government largesse in the past and scent the opportunity to make a killing. The fee for saving the government's political bacon can be a generous one, giving new meaning to the phrase 'laughing all the way to the bank'.

A financial institution that was once a staid and responsible building society, operating for the mutual benefit of its mortgage-holders and depositors was transformed by demutualisation into a victim of destructive financial speculation, mediated by greedy shareholders who believed in returns to-good-to-be-true and the wideboys to whom they relinquished control of financial destiny.

As an alternative to a state-sponsored corporate buy-out, nationalisation of the bank has been mooted. But rather than a nationalisation resulting in state ownership surely a remutualisation is a better solution. Shareholders, whether instutitonal or personal, can lose their stake as a lesson to themselves and others about rapacious expectations and dodgey dealing. The government can limit public investment to ensuring the value of depositors investments, while the remaining assets of the bank will be the homes of its mortgage-holders.

Governance can revert to an board elected from among the lenders and borrowers of the building society, as was traditionally the case. Calls for independent financial experts to play a major role have surely been utterly undermined by the disgraceful performance their have displayed thus far in this and other banks the world over.

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Bursting the carbon bubble

The government hopes it has now stopped the decline in the asset base of Northern Rock by offering guarantees that all savers' deposits will be repaid in full. Let's enquire a little further into this guarantee. Where is the money coming from? The Bank of England, the government's bank, will supply it to the Northern Rock but it will be government money, or rather our money. Cash haemorrhaging across the counters of the bank will be replaced by a steady transfusion of public money, money that might have been spent on better hospitals or schools.

The most obvious problem with this is that it is transferring money from the poor (e.g. those who shovel chips or sweep streets and pay their taxes) to the rich (those with money in hedge funds). It also provides a huge incentive for the gamblers in the global financial casino to continue their high-risk strategies, knowing that when they fail it will be the working people of this country who will bail them out.

Since giving away the power to regulate financial markets with Big Bang in 1986 the government has irresponsibly left the management of the money system we all rely on to city speculators. The ideology behind this was essentially the Adam Smith doctrine of the invisible hand: if lots of players act with individual selfishness the outcome will be to the benefit of all. But it hasn't been. It has been to the benefit of those with more knowledge of, and power in, financial markets.

But even if any politicians who is accorded air time were to argue for the taking back of political control over the fundamentally important monetary system of this country how could that be done without precipitating exactly the sort of collapse that causes such social distress as witnessed in Russia frollowing the break-up of the Soviet Union?

The ideal would be to manage the descent in the consumption imbalance between rich and poor, whether we are thinking of individuals or nations, in conjunction with the managed decline in the production of carbon dioxide. This is entirely consistent with evidence showing that there is a close relationship between wealth and behaviour which causes climate change.

The debt bubble in the international financial system is funding by the purchase of US government debt by the booming Asian economies. The Contraction and Convergence model (http://www.gci.org.uk/contconv/cc.html) offers a mechanism for equalising carbon dioxide emissions on a global per capita basis and thus a means of rebalancing this relationship. Introducing the TEQ or tradable energy quota in the UK might be one tool to reduce consumption: if it could be linked to a managed withdrawal of debt from the national economy we might move towards a future that is financially, as well as ecologically, stable.

You might like to investigate this online petition: http://petitions.pm.gov.uk/NoCityBailout/

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Solid as a Rock?

Rumours about the likelihood of a financial crisis are swirling and it is difficult to ascertain exactly what is going on. Especially since now is precisely the time when we are least likely to be told the truth. Our job is to act as ignorant punters and keep playing the game: shut up and believe what we are told by our superiors.

The key objective of spokespeople from the financial casinos is to reassure us. If we really thought about how unstable our financial system is, we would instantly take fright and the system would fail. This is why we have Angela Knight, Chief Exec. of the British banking industry, explaining in calm and measured tones on the Today programme that we have nothing to fear.

Ms. Knight, former Tory politician and Economic Secretary to the Treasury in the last years of the previous Tory administration, exemplifies the way politicians and bankers collude to back up a financial system that enshrines inequity and instability. For more on her activities check out this profile by the Independent: http://news.independent.co.uk/business/analysis_and_features/article2300459.ece

Nowhere are the metaphors of economics as myth and catechism so beloved of green critics more apt than in the arena of finance and banking. While we might imagine that the cited value of banks and building societies relates in some way to their holdings of property or real assets, in fact the only support they have is our faith. Without confidence, investors will recall their money and the financial institution will be unable to pay. Risky lending may have enabled the banks to create cash and boost their profits, but if debtors begin to default the gap between the banks' assets and their ethereal value will become clear and bank failures will occur.

The problem for Northern Rock is that those with more inside knowledge than we are privy to, in this case other banks, are refusing to lend it money to conduct its business. Presumably they feel that the building society's recent huge expansion of mortgage lending has not been prudent. If too much of its asset base is made up of grossly over-valued houses, a small fall in the housing market could lead to insolvency. The intervention by the Bank of England as 'lender of last resort' to plug this liquidity gap has not happened since the oil price shocks of the early 1970s.

So we should listen carefully and watch the manoeuvrings of the high priests as they intone their incantations and weave the myth of security and stability, a myth encapsulated in the name of the very institituion that is wavering: the Northern Rock. What we have seen this morning is the government and the banking industry working together to convince us of the solidity of the system. The black knight and the Scottish darling clinging together as they glimpse the potential disaster of the whole financial system, and then the whole unstable economy they believe in, hitting the rocks. Tweet