Tuesday, 14 February 2012
An International Civil War.
The world is in the midst of what might be called an international civil war. Unreported and undeclared it is nonetheless very real. It broke out in 2008 and has raged across the planet without pause ever since. The belligerents in this war are undefined, unclear and often indistinguishable from one another and are both deadly enemies and allies at the same time. Worse yet both sides are riven by their own disagreements, differing agendas and rivalries and both have an overweening sense of entitlement and a belief that they are above the law. It is war of the worst type – a war of all against all. On the one side we have national governments and on the other the international finance industry. The issue at stake is who rules the world and both sides are locked in a deadly embrace that threatens the future of us all.
How did this war break out? The answer is that there has been a low level conflict between the two sides for several hundred years, bubbling below the surface but, by and large and with a few brief exceptions, under control. The real problems began when the international finance industry made national governments an offer they couldn’t refuse. It went something like this. “Capitalism, with the fall of the Soviet Union, has demonstrated its clear superiority and seen off its only serious rival. We now want to enjoy our victory and indulge our greed and selfishness without interference from you. In return we are willing to put you on the payroll by offering you money through apparently legal channels such as party “donations” and lobbying fees. We understand that many of you have constituents that have to be mollified and we have the perfect alibi for you. It is called the theory of “trickle down.” This gives the impression that making wealthy people like ourselves even wealthier will benefit the whole of society as the money we steal leaks out into the wider economy. All you have to do is embrace this new ideology and make it sound as if you believe it and all will be well. For our part we can assure you that we can expand the economy and the demand for goods and services through clever financial vehicles without limit.” It was, essentially, the biggest Ponzi scheme in the history of the world and was bound, like all Ponzi schemes, to come to grief sooner or later. Politicians were warned by cooler and more thoughtful heads but they didn’t want to listen. The finance industry was similarly warned, but was too arrogant to believe what was blatantly obvious.
The assets that the finance industry decided to concentrate on was property. Assets are always the foundation of any financial dealings and people’s homes are the most valuable asset they are ever likely to possess. What would people do, or be persuaded to do, if those assets were to suddenly become even more valuable than they thought? How would someone react if they found out, for instance, that the house they had paid £20,000 for was now worth £200,000 and mortgage rates were at an all-time low? The second mortgage beckoned with the promise of being able to buy all the things that people had ever wanted. A brand new shiny car. A second home in France or Spain. As many holidays in the sun as you could possibly want. A film star lifestyle for the price of a week at Butlin’s. Business loved it, especially the estate agents, solicitors and mortgage lenders who all took a slice of an ever-expanding pie. Goods and services flew out the door while wages stagnated. Who needed a wage increase when finance rates were so low? The flight of money from labour to capital that Karl Marx had warned about was in full flow. But all markets, no matter what is being sold, need a constant supply of new customers and, after all the credit-worthy customers who already owned their own homes had been serviced, there was no choice but to accept those who were less credit-worthy. Finance rates were already low so the only room for manoeuvre was in terms of the deposit needed to buy already overpriced houses. Soon customers could get mortgages that were five times their yearly income with deposits that continued to shrink. To disguise the intrinsic danger in such transactions mortgages were bundled together and passed with little scrutiny from one financial institution to another in a deadly game of “pass the parcel.” The trick was buy and sell these subprime mortgages as fast as possible, hoping that if anything went wrong your institution wouldn’t be the one caught with them still in its possession. Then the subprime market began to unravel and, when the financial institutions began to look more closely at the business they owned, they found that they all had more bad debt than they could handle. Bankruptcy threatened and the financial industry was in danger of meltdown.
What was to be done? Banks urgently needed a money transfusion to cover the huge amount of bad debt they had taken on, but where was the money to come from? They had no choice. They turned to their allies, national governments, held a gun against their own heads and said “help us or we’ll shoot.” Politicians across the world now suddenly woke up to what was happening and what their future was likely to be once their constituents realised it too. So, under the banner of saving the world from another 1930’s style depression, they took taxpayers money and gave it to the banks – hoping against hope that this transfusion of liquidity would provide the necessary lubrication to save the financial system. The banks said “thank you” and promptly pocketed the lot, paying themselves the obscene bonuses they saw themselves as entitled to as the entire financial system began to seize up. Fully realising the power that had been handed to them on a plate the banks went back to the national governments and demanded yet more money. Now thoroughly panicked the governments stumped up the money and the bankers gave themselves yet more bonuses. The war had broken out almost without anyone noticing. National governments began to dig their heels in as their constituents began to dimly perceive what was going on and the financial industry retaliated by downgrading their credit rating. This had the effect of making it more difficult and expensive for governments to borrow to cover the money they had already given to the banks. Panicked once again, governments began to cut their spending to curb borrowing, shrinking their own economies and pauperising their own citizens to hide what they had done. As entire nations such as Iceland, Eire and Greece began an inevitable slide towards bankruptcy they were rewarded by the banks with more downgrading of their credit ratings as the banks tried to squeeze the last drop of lifeblood out of them. This affected their trading partners who took even more of their tax payer’s money to bail out their unfortunate neighbours. Money was now disappearing from national economies and rushing into the coffers of the banks who used it to pay off the creditor that had cannily bought up much of their debt. Meanwhile, to try and fill the black hole that had opened up in economies, governments sold bonds to finance their growing national debts. The buyer of these bonds and the creditor that had bought up the banker’s debts was one and the same – communist China. Now that country essentially owns most of the western world – lock, stock and barrel – while our governments and the international financial industry are still locked in their deadly civil war and tearing at each other’s flesh with increasing ferocity. As Lenin once said about the West; “They will sell us the rope we will hang them with.”