The Parasitism of Finance Capital and the Necessity for the People to Decide the Direction of the Economy

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Northern Rock Nationalisation:
The Parasitism of Finance Capital and the Necessity for the People to Decide the Direction of the Economy

Money Market Parasitism

On Sunday, the government decided to nationalise Northern Rock. £25 billion had already been leant to Northern Rock by the Bank of England, as financial instability swept through the capitalist system, and broke against this former mortgage-lender that had become a leading light in selling debt.

This is the latest chapter in the saga of Northern Rock, which has seen the government do everything possible to ensure that the owners of capital are supported, to the full extent of the government’s powers. It underlines that there is a need for the working class to organise for a change in the direction of the economy, and create the conditions for the people to decide on the direction of the economy. In the present system, the financial parasites are turning the whole of the socialised economy into a reservoir of funding for their enrichment. Crisis is the fellow-traveller of this system, and the present financial crisis is an indication that this sucking of the wealth from the socialised economy by the financial parasites is unsustainable. The situation is calling out for the workers to rise to the occasion to take the lead in turning things around.

A Bill is going through parliament to "nationalise" Northern Rock. But what kind of "nationalisation" is it? It is certainly not "public ownership" in the sense either that is under the direction or control of the people, nor that the bank is being governed for the public good. The question is: who decides? Who is in control? Alistair Darling speaks of "temporary public ownership". This can be translated to mean a period where the government takes the risks that the finance capitalists are unwilling to take before handing Northern Rock back under their direct say and control. Meanwhile further social product is appropriated to keep this parasitic outfit in existence. Ways and means could be found to protect and guarantee the mortgages of home-buyers, if that is the issue, without focusing on guaranteeing the return to the institutional shareholders, such as the hedge funds, which have major stakes in Northern Rock.

The calls for nationalisation have been made in the sense that control of such institutions should be in place to completely curtail its operations of speculation and the selling of debt as assets, to protect the workers of Northern Rock and the ordinary mortgage holders, and end the siphoning of funds to the finance capitalists. The government has taken the form of "nationalisation", and given it the content of paying the rich. "Northern Rock will continue to operate as a bank on a commercial basis," said the Chancellor. The new Board of the bank will operate "at arm’s length" from the government, in other words, with commercial autonomy. And to emphasise the point, he appointed "troubleshooter" Ron Sandler, chairman at a "derivatives" trading concern, whose record was established as chief executive of Lloyd’s London insurance market from 1995 to 1999. According to reports, Sandler is also a director of Belgian-Dutch bank Fortis, which was part of the consortium with the Royal Bank of Scotland that bought AMN AMRO last year in the world’s biggest bank takeover. He is to be paid £90,000 per month.

The government’s primary concern is for the finance capitalists, particularly the parasite capitalists whose capital is not directly connected with wealth-creation but rather as gamblers and leaches on the body of the socialised economy. It is not with the plight of those in debt.

When more than £77 billion was wiped off the value of Britain’s stock market on January 21, the Chancellor, Alistair Darling, made a statement to the House of Commons on Northern Rock. His proposal was that the government provided a guarantee to make private financing possible in the current market conditions. The plan was that Northern Rock would raise the funds it needs from investors by selling assets. The Treasury would guarantee payment to these investors in the event that the assets were insufficient to meet its obligations, for which Northern Rock would pay the Treasury a fee. This was a proposal for the government to act as a "backstop" so that shareholders and other providers of capital would face no risk in investing. In the event, even this attractive proposition was not enough to tempt sufficient capital from the providers of capital, and the "backstop" has turned out to be that the taxpayer is taking the burden for ensuring the "commercial success" of Northern Rock.

Who benefits from the "nationalisation" of the assets of Northern Rock? What is the government guaranteeing?

The government continues to insist that the problem is "global market conditions", and that it continues to provide guarantees because of the "destabilising risk" of collapse to the rest of the financial system. In doing so, it is underlining and strengthening the anti-conscious factor. It is stating that the economy is not under human conscious control and cannot be expected to be so. Market must be allowed to create their havoc. That the parasitism of the whole system of international usury and gambling under the name of high finance is the underlying cause of this crisis does not enter into their equation. But the widespread danger of recession as the international parasites eat into and threaten to destroy the host economies does not seem to register on the Chancellor’s antennae.

According to the Chancellor, under nationalisation, "the taxpayer will secure the entire proceeds from the future sale of the business in return for bearing the risks in this period of market uncertainty". The government will underwrite the risk in this period of adverse "market conditions", to remove the risks to the "wider financial system", and return it to the "private sector" thereafter. Thus the plan is to nurse this stricken parasite back into health, rather than addressing the health of the social economy, and then let it back once more into the wild to continue its blood-sucking activities.

According to press reports, the government faces a £100 million bill in fees from lawyers and bankers for the advice given to the Treasury during its attempts to first sell the bank and then on nationalisation, and that "taxpayer exposure" now stands at a staggering £110bn, that is, the actual amount of debt owned by Northern Rock, which is now classified as public sector debt. Such is the greed and fetish for competition between these finance capitalists that rival concerns are voicing displeasure at being put at a "competitive disadvantage". Questions are being raised as to whether the government will go on to assist other financial concerns facing huge losses, and indeed the Bill introduced into the Commons is not Northern Rock specific.

One of the most crucial factors as far as the government is concerned is London’s standing as a global financial centre. The city financiers cannot afford serious damage to Britain’s reputation, in the face of the growth of other centres such as Frankfurt. In this respect, there are not a few hurdles for it to overcome from the finance capitalists and big business of the European Union, with their strict rules on state aid, based on the dogmas of neo-liberalism. The financial press is also warning of difficult times from the shareholders demanding compensation, as well as from the bidders such as Virgin whom the government turned down.

The issue is not that this particular bank, Northern Rock, overstretched itself by borrowing too much credit with a short-term repayment period. It is that the whole mechanism of parcelling up debts as assets, and the outlook that the greater the debt, the more healthy the financial institution, cannot but give rise to crisis without furthering impoverishing the working people. With the working people further impoverished, the need to suck more added-value from the labour of the people becomes ever more urgent. Now the claims on the social product in the case of Northern Rock by the financiers will take priority, as they are guaranteed by the state.

The "nationalisation" of Northern Rock highlights in a particularly stark fashion that class interests are paramount, and are clashing in two outlooks on the direction of the economy. It underlines that the Labour Party is acting as executive of the rich, enforcing the will of the monopoly capitalist class. It is totally at odds with the will of the working people, which are headed by the working class.

Workers therefore need to discuss this situation, not just from the point of view of guaranteeing jobs and curbing excesses, but with the outlook of the necessity for change, and actually organising to change the direction of the economy. It is their outlook which embraces the public good, not the outlook of saving Northern Rock for the finance capitalists. They must set the agenda within the political programme to stop paying the rich and increase investments in social programmes. Their outlook must be to achieve that political power so that their will is supreme, to outlaw parasitism, get rid of the dogmas of neo-liberalism and winning in the global market place, and actually come forward with the solutions to the problems facing society. To guarantee the right to housing, rather than making housing the means for the enrichment of the finance capitalists is one such solution. This means that the workers themselves have to organise to occupy the centre-stage of political affairs. In this respect, the crisis of political representation for the working class is shown to be one of the most important issues to resolve for the ending of the crisis of this society and its economic system so that the dictate of the super-rich is seriously challenged head on.

The experience of Northern Rock must be fully grasped by the working class and people, that those who hold political power will do everything to serve the rich but blame the poor for all the ills of society, and penalise the disadvantaged and vulnerable. It points the way for the workers to sum up this experience and organise themselves to be in the position to dictate the direction of the economy for the public good.

Whose economy? Our economy!
Who decides? We decide!

TML Daily, daily on-line newspaper of the Communist Party of Canada (Marxist-Leninist), November 22, 2007

The working class produces all the wealth by transforming raw materials into useable products. The time has come for the producers of wealth to take up their social responsibilities by assuring the proper circulation of the wealth they produce and that enlightened principles and considerations underlie all production and distribution. To begin this historic obligation, the working class must organise itself into an effective opposition that can restrict the destructive and parasitical practices of the owners of monopoly capital. In the realm of circulation this is done by putting itself in a position from which it can take over the banking and credit system and protecting Canada's socialised economy from the ravages of out-of-control international monopoly capital.

An item from CBC News entitled "Banks' credit losses could hit $400B US, Goldman Sachs says" highlights the urgency of taking up this historic task. The article states: "Losses in the credit market could wind up hitting $400 billion US and financial institutions may cut their lending by $2 trillion US, according to an economist with Goldman Sachs Group Inc.

"Jan Hatzius, the chief economist at Goldman Sachs in New York, said the cut in lending, if it took place in the span of one year, could tip the US economy into recession. If the drop happens over two to four years, it would produce 'very sluggish growth,' he wrote. "The macroeconomic consequences could be quite dramatic,' Hatzius said.

"In a report dated Thursday, Hatzius based his calculations on a 'conservative' estimate that banks, brokerages and hedge funds would reduce their lending by 10 times their capital losses." Banks and brokerages, including several in Canada, have already revealed billions of dollars in losses stemming from the beleaguered US housing market and the global credit crunch."

Canadian workers should question why the credit system should have such a negative impact on the socialised economy. The dark world of international usury has arisen with increasing ferocity to dominate production and distribution of goods and services. The merging of industrial and banking capital into finance capital has created a monster that is consumed with profiteering and empire-building without the slightest consideration of the social and natural consequences.

Even on the housing front, finance capital through greed and corruption has turned one of the basic necessities of life into a complete disaster. Instead of mobilising the natural resources and abilities of the modern working class in construction to serve the people and their socialised economy, finance capital turned the housing market into yet another battlefield for big scores at the expense of the long-term interests of the people and consequently wreck havoc on the economy.

Finance capital organised a huge scam to exploit the housing sector by borrowing massive amounts of capital short-term on the international money markets to finance long-term in the housing market. Virtually every monopoly became involved in one way or another from auto parts manufacturer Magna International Inc. to pollster Goldfarb Corporation.

For finance capital to sustain its magic conjuring of something from nothing, it needed a very conscious criminal plan for the state to provide it with liquidity, and the mass media to create the euphoria of a housing boom. Housing prices would have to rise constantly to create a constant new flow of long-term borrowing that in turn would sustain the euphoria for short-term lending. Fortunes were made from the fees, interest, housing construction and constant movement of capital. These fortunes drained realised added-value from all other sectors of the socialised economy. But who cares among the finance capitalists as long as their narrow private interests are served. When interest payments were pouring into Magna and Goldfarb, they never questioned the source of this newfound secure wealth and the consequences of taking it. They only began to complain when the gig was up and the unsustainable essence of the scam blew up in their faces and they were left with losses. But while the scheme was in full flow, it was all praises for the monopoly capitalist system and the magic of its money markets. Companies around the world were quite happy to grease the scam with short-term money from their revenue, which comes from the realised added-value produced by their workers.

The scam functioned with a sublime illusory grace as long as house prices continued to rise. Mortgage lending monopolies Countrywide in the US and Coventree Capital Inc. in Canada were blithely unconcerned if a borrower's income was insufficient to service the mortgage for they merely shifted the loan repayment assurance to the rising value of the house collateral. The big money for the mortgage agents is in the fees. Worry over repayment of the mortgage is papered over by packaging them together and selling them as commercial paper on the international money markets. The narrow interest of the monopoly schemers leads them to ignore the reality that many who receive a wage, especially when they are young, cannot possibly afford a mortgage and still pay for the other necessities of life. Who cares, says the schemer, in the meantime I will make a big score and get out before the scam collapses. The construction capitalists received their money and the mortgage agents became richer than their wildest dreams. Home buyers were reduced to needed intermediaries in a scam to turn debt into immediate fortunes. Short-term money from all over the world poured into the US and to a lesser degree into the Canadian housing market. International investors, real estate companies and others lined up to buy homes and condos, and even some from the working class took advantage of the low interest rates and no money down. This influx of money and buyers and media hype had the desired effect of constantly raising house prices. But with all scams the chickens come home to roost eventually and the burden will fall on the working class and its socialised economy. Borrowing costs, especially in the US have reset higher, and housing prices have stopped rising making refinancing impossible; the inevitable wave of mortgage defaults has begun. The flow of short-term credit in the form of new (mortgage-backed) commercial paper has stopped flowing while existing commercial paper falls due. The scheme was dependent on a constant new flow of short-term money to pay off the existing short-term commercial paper that was relentlessly falling due. The wreckage is spreading and Goldman Sachs predicts a recession at worst and a severe slowdown at the very least. Company after company around the world is left holding worthless commercial paper and some may even go bankrupt especially in the face of a recession. Investors holding several mortgages will likewise declare bankruptcy and many workers who bought homes during the feeding frenzy will lose them to foreclosure. Many construction companies are stuck with unsold houses and condos, and unpaid bills; construction equipment sits idle and workers are laid off.

An irony not lost on progressive people is the fact that during this so-called housing boom the housing crisis of homelessness and affordable housing became worse! The right to proper housing for all is still negated by the capitalist system. Some became richer during this housing and mortgage scam but many became poorer and are left without proper housing. This debacle is one more proof that the monopoly capitalist system does not work and workers must organise to bring in an alternative under their political direction.