Stockbroking corps, investment outfits, banks and insurance
companies are free to dream up all kinds of scams involving betting on
the future value of a bit of paper (well, not even paper, it’s all on
computer); futures trading and hedge funds are the most well known but
there are dozens of combinations of bet on offer, some so arcane that
nobody knows how they really work except the person or persons who
dreamt them up in the first place. All have their analogy at the
racetrack, spread bets, each way, combinations, splits, losers, winners
and so forth.
But they all have one thing in common, they all
take place in an imagined future where the actual value of the piece of
paper is irrelevant, what counts is that when you ‘invested’ in it, you
made the right guess as to what it’s value would be at some future
date, less or more, it doesn’t matter.
It’s brilliant, only a
bunch of really clever crooks could dream it up (except that what was
previously illegal is now legal, this what I mean by a state run by a
bunch of gangster capitalists who have stacked all the rules in their
favour).
So for example, the so-called sub-prime lending
catastrophe (let’s not forget the poor schmucks who are getting their
houses repossessed, a fact that’s rarely mentioned in news coverage of
the crisis) is made even more of a catastophe by the fact that the
billions in debts owed to banks has been ‘broken up’ into millions of
‘small’ debts and then ‘repackaged’ with a bunch of other financial
notes and then sold off to some clever cuts in the investment section
of an institution, who sees yet another chance to actually print the
money (rather than producing something real).
It’s fucking
brilliant. What’s more, because financial trading has been deregulated
pretty well globally, these debts have been sold, resold, repackaged,
resold, split, recombined, and had who knows what else done to them,
right across the planet!
So that’s what they mean when they say
they don’t know where the debts are. Meanwhile, the state in the form
of the Central bank has had to step in with billions in cash to prop up
a banking system that’s on the verge of crashing.
The BBC Website, 10th August explains it in the most anodyne terms,
‘Leading
UK and European banks may be forced to pay out as much as £70bn
($142bn) over the next 10 days as the global credit crunch continues to
bite.
‘The banks may have to pay out that sum if investors, such
as pension funds, decline to buy the banks’ latest debt issues which
are now due for renewal.
‘Analysts say investors are reluctant to buy the new debt until the full impact of the US home loans crisis is known.
‘With fewer buyers for the debt, banks may have to refinance it themselves.
‘…
Institutional investors, such as pension or insurance funds, are
usually happy to buy the commercial papers, as the banks then pay them
interest, and they are traditionally seen as very safe investments.’
BBC NEWS | Business | Banks could face £70bn debt bill
The same piece ends with following ominous statement;
‘An
unnamed boss of one of the UK’s largest banks told the Sunday Times at
the weekend that conditions in the money markets were the worst for 20
years.’
Twenty years ago in 1987, we had ‘Black Monday’ when
stock markets the world over took a dive that was comparable to the
1929 Crash.
And of course, what rational institution would throw
good money after bad? Instead, the state steps in and bails out the
banks! So much for letting the market decide. It seems that state
intervention is okay as long as it’s to help out capitalism.
What
the media only hint at is that it’s all connected in real time, thanks
to computers, so even though the sub-prime crisis is wholy a US thing,
these repackaged debts are now part of the global circuit of capital,
doing the rounds you might say, and ending up in the portfolios of
insurance companies and banks across the planet, who are effectively
stuck with them because they don’t know where the debts are either.
You
must also be aware of the fact that traditionally, banks make their
profits out of your debts, so when it comes to assets, for a bank it’s
the debts that count, the entire thing rocks along on the interest
earned (which is why the interest rate is so crucial to profitability).
And banks sell these debts to investors such as insurance companies on
the ‘promise’ that the debts will get paid off, plus of course, a
profit.
But deregulation of the banking sector has meant that
banks are using your money to invest in anything that moves; currency
speculation, land, takeovers, and of course the now infamous
‘collaterised mortgage obligations’.
Making credit cheap to
obtain is an easy way of creating demand and it looks great in the
propaganda, as long as the interest rate stays low enough for people to
repay the loan but it ignores the fact that the money in circulation is
falling in value, that is over time, you get less for your buck. Inject
billions more into the system and the value falls even further; it’s
called inflation.
And in any case, it’s all pointless (except
for those made homeless), there is no way these fragmented debts can be
recombined. It’s a nightmare but just one of a sequence of systemic
faults (remember Enron?), it’s what happens when the market rules
everything and there are no rules; it ends up ruling nothing, as it’s
just chaotic systems in action. The ‘experts’ are clueless and it’s
born out by the so-called news coverage, for to admit that it’s the
actual nature of the economic system that’s the problem, is unthinkable
(as well as being impermissible).
The BBC’s Website, 10 September, had the following piece, allegedly written to explain why and what’s going on,
‘BBC NEWS | Business | Q&A: World stock market falls
‘It was not just stock markets that have been worried.
‘Interest
rates in credit markets – such as the bonds issued by companies and
governments – have been rising as investors price in previously unknown
risks.’
I love it, ‘previously unknown risks’? Like the billions in ‘Ninja’ loans (No Income and No Job or Assets) were an unknown risk?
‘Fears
that more undisclosed bad debts would surface in the banking sector led
other banks to cut back on their everyday lending to one another.’
Banks
rarely, if ever, use their own money, they use yours or they borrow
from central banks (the state), normally short-term loans (no more than
three months) hoping to repay the debt from the profit on the interest
charged to its borrowers.
‘This drove up the bank’s overnight lending rate, which usually tracks the base rate set by central banks.
‘In
London, as the crisis began, the cost of overnight lending (the London
Interbank Offered Rate) rose dramatically, from 5.85% on Wednesday 8
August to 6.45% on Friday 10 August, and similar sharp changes occured
in Frankfurt and New York.
‘If this had continued, it would have
undercut the ability of world central banks to regulate interest rates,
and would have raised the cost of borrowing across the board.
‘That
led the European Central Bank and the US Federal Reserve to step in and
pump in billions of dollars to prop up the financial system.’
‘Prop
up’? Bail-out is the correct term, for without the injection of cash
from these central banks, commercial banks would have gone bankrupt
(some banks that specialised in home loans, already have including one
‘small’ bank to the tune of $100 billion).
Under the heading of
‘What are the wider implications?’, the BBC piece says absolutely
nothing of any value, instead it offers the following,
‘Even if the central banks stem the financial panic, there seems to have been a general shift in market perceptions about risk.’
Generally,
the riskier the investment, the higher the interest rate – but now the
additional premium for risky investments (the ’spread’) is set to widen
sharply.’
In other words, the capitalist system is caught
between a rock and hard place, for it has only been able to claim
‘growth’ of the economy by making it easy to borrow money, which keeps
consumption on the up (over 60% of the GDP in the UK is actually
composed of consumer spending, all of it financed through borrowing).
In
other words, the ‘growth’ is an illusion, it’s all down to consumption
and financial speculation and in any case, most of the consumer
products purchased are not even manufactured here. It’s a house built
on sand.
The BBC ‘analysis’ goes on,
‘Stock market
fluctuations are a normal part of stock market activity, and no one can
say how far shares could fall or how long the slowdown could persist.’
‘Markets
have had quite a sharp rise in the past 18 months, and the current
correction may simply return them to previous levels.’
In other
words, the BBC along with the investors are clueless about the real
nature of the economy, so for example, although “company profits have
been strong and the world economy seems to be entering a period of
revival, especially in Europe and Japan”, what the BBC does not mention
is that the rise in the value of shares is based largely in speculative
ventures eg, sub-prime loans and most importantly, on buyouts and
acquisitions, where the buyers borrow lots of money to finance the
takeover in the knowledge that the inevitable cuts in jobs brought
about by the mergers and acquisitions will be used to pay the loan back.
The BBC ‘analysis’ ends with,
‘What does it mean to you?
‘Many individuals own stocks and shares – about half of all US households, and around a quarter of those in the UK.’
What
the BBC doesn’t tell you is that for the most part, our
‘property-owning democrats’ own only tiny share portfolios, the real
deals take place in the boardrooms of insurance companies, banks and
investment corps, where billions of shares live.
‘If the stock
market falls continue, they [the public] may feel less wealthy – and be
less likely to buy goods and services, slowing the economy.’
I
love the BBC’s (mis)use of words, where being in even deeper debt is
called “feel[ing] less wealthy”. Are we to understand then, that being
broke is just a state of mind?
But the real (and related) kicker comes right at the end of the piece,
‘In addition, many pension funds own shares which make up part of their portfolio used to pay people’s occupational pensions.
‘If shares fall, they may have less money to pay future pensions, and employee contributions may have to rise.’
In
other words, we will have to pay for the sub-prime scams and a bankrupt
banking system, it’s the dot.com bubble bursting all over again.
But
note how the BBC presents the crisis using innocuous phrases,
everything is low key (musn’t cause a panic) and designed not to reveal
the real causes; unregulated financial markets, financial instruments
so arcane and complicated that to the average person, they must be okay
and above all, do not reveal that the ‘growth’ is based on speculation
in stocks and currencies and selling chimeras to an uninformed public,
who, just like the investors who sell them, are out to make money
without actually producing anything of value. Isn’t capitalism
wonderful.
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