So here we are. The fifth and final piece in our investigation into the truth behind the current economic crisis, the government’s cuts in public spending and the privatization of state assets and services comes at a time when Barclays and the wider banking sector is under intense pressure to answer questions over yet more corruption in the wake of the LIBOR scandal (of which more later) and the outright failure of G4S to provide security staff for the Olympics despite being in line to pick up government policing contracts, all of which has left this particular writer clinging to his seat, resisting the urge to charge into the streets and scream “I FUCKING TOLD YOU SO” at the sky, in reference to parts 1 to 4, as if that would make any difference to anyone, anywhere, ever. Because it won’t.
The sense of self-satisfaction that is normally associated with the bilious street performance and self-righteous activism of many modern political groups is what alienates it so much from the general public. Seeing hundreds of people charging forwards, banging bongos and chanting slogans more often than not simply serves to play them into the hands of the political and financial elite; branded as extremists or lay-abouts by the tabloid media the message is lost under the din of drum troupes, whistles and overblown rhetoric. With this final article we don’t pretend to have all the answers, we don’t even pretend to have all the facts given the enormous weight of research into the subjects that has taken place over the years.
Instead we’re looking to give an overview of what you and I, as ordinary people without anarchistic tendencies and socialist shibboleths, can learn from the situation and hope to do to change it. As the world readies itself to descend on London for the Olympics – an event that looks like a cross between a logistical omni-shambles and a corporate circle-wank replete with VIP car lanes to shuttle fat cats between banquets of roast swan stuffed with poor people and bathed in the juices of inequality, and complimentary nibbles in the director’s box of cripplingly overpriced stadiums – for an event no one asked for and few will benefit from, we, as a people, need to realise what is happening in our country and do what we can to put an end to it. We are being bled dry. How? Let’s go back to the beginning…
The last few years of the 20th century and beginning of the 21st were characterized by a so-called casino capitalism. As explained in part 1, the reins were taken off the finance sector and they were allowed to do as they pleased, betting on the rise and fall of currencies and stocks and inflating a bubble of loans on future repayments to the point where $1 of capital, of real world money, was supporting $40 of lending.
When that is expanded to the global scale of finance and economics, where traders talk in billions of dollars and millions of loans, we are talking truly gargantuan sums of money, with high risk loans being repackaged as triple A standard and the risk being passed down the line while individuals take a cut for themselves. Cue the culture of arrogance and greed, of bonuses and cocaine parties, of John Thain, CEO of Merril Lynch, redecorating his office for $1,000,000, of Fred Goodwin and his pathological commitment to growth and talk of the “haves and have yachts”. When the going was good the profits were kept private in offshore bank accounts and tax avoidance schemes and property investments that inflated the UK housing market to ludicrously high levels. Great.
However, when the whole scam came crashing down it affected the wider economy. Once the loans on which the pyramid was based began to default the impact was immediately felt across the whole of the Western banking system and all of a sudden it was the huge investment banks that were in trouble of not being able to repay their debts. The money markets, in which investment banks and traders lend to each other, ground to a halt as it was uncertain that, should they make any more loans, that they would actually see the money repaid. This then hit the wider economy as banks sought to protect themselves from further defaults and loans were refused to small businesses and households which had previously needed loans to open a new branch, or buy a new car, or hire more workers for expansion.
This was when we entered recession. The banks lent less, the recession deepened, loan losses went up and banks lent even less than before. In order to escape this “death spiral” of a flat-lining economy it was the taxpayers who footed the bill, despite seeing a fraction of a percent of the profits from the boom years. So how much was that bill? The IMF estimates that £1.2 trillion, that’s £1,200,000,000,000, has been handed to the bankers in bailouts, loans and guarantees by the British government to restart the economy.