Democrat July-August 2012 (Number 130)
Is this the end game of the City
Another week, another City banking scandal. Following the LIBOR rate and Mexican drugs laundering scams Business Secretary Vince Cable and the Bank of England's Paul Tucker branded the City a `cesspit`.
Tough talk but will anything change? No! The City's overwhelming power and influence has made it too big to regulate, too big to fail and too big to jail. The only question that really matters now is how does this end?
Our ruling elite cuts psychosis
Prior to the 2007 crash UK banks were leveraged up to 70 times their capital base, down now to 23 times according to the Bank of England – meaning a 5% decline in their corresponding `asset` values which would still bankrupt them. In reality the City is the epicentre of a $20trillion, unregulated, opaque, highly leveraged, tax haven linked, shadow banking empire where the banks true leverage ratio and the quality of their corresponding assets are unknown. The consequent risk of huge losses threaten the UK's AAA credit rating and drive our ruling elite cuts psychosis. The £375bn cuts programme is a pledge to the markets to impose any burden. The £375bn cuts programme is a pledge to the markets to impose any burden - to bankrupt Britain's health, education and welfare services, starve its productive economy of investment, impoverish swathes of its population by permanent austerity, but never to default on the UK's bank debts. Unfortunately for our great and greedy blagging an entire nation into indefinite acceptance of austerity is only the half of it.
The City's current supremacy depends upon London's lax financial regulatory regime and unimpeded access to the EU single market - source of 50% of its business. In turn it attracts around 250, predominantly US, foreign banks, making it the world's biggest centre for foreign-exchange trading and cross-border bank lending, and daily trades of $1.4 trillion of interest derivatives. Financial services has become the U.K.'s largest export and accounts for 12% of its tax receipts.
Rival Franco- German interests
Amid deepening recession this position is being increasing challenged not least by its Franco- German rivals determined to end its domination of the EU financial services markets . A spate of recent proposals to change EU banking rules in favour of Paris and Frankfurt have led to an unprecedented UK legal action against the European Central Bank. The eurozone's latest moves to form a banking union combined with extreme fiscal austerity, if successful, threaten severe negative consequences - austerity worsening Britain's trade deficits, further threatening its AAA credit rating, the new eurozone banking union `entente` bound to use its power to grab the City's European business.
Symptomatic of the City's weakness is the support Cam/borne has been publicly obliged to give to these moves. Why? Because all of the above not withstanding a eurozone failure could trigger huge Spanish and Italian sovereign debt and banking defaults to which the City is massively exposed.
UK Ruling Elite Wish-list
Politically this weakness translates into the Cam/borne `wait and see` strategy, obliquely attacked by Liam Fox in his "life outside the EU holds no fears" speech. Responding to Fox, Financial Times diplomatic editor Gideon Rachman (FT 2.7.12) spells out the calculations behind this strategy. Stating "If necessary Britain could remain free and prosperous outside the EU" it reads like a UK ruling elite wish-list. Here the eurozone's banking union/fiscal diktat strategy fails, (a strong possibility), the Euro collapses and the EU breaks up. Where `free and prosperous` equals continued City supremacy, the UK emerges from the rubble of this economic earthquake unscathed, forms new alliances to counter German domination and regains a leading role in Europe. Really? Mr Mcawber's last stand as in `wait and see` how long a small and shrinking productive economy can backstop a speculative financial empire looks more like the reality.
City domination and its financialisation of the economy have left Britain uniquely vulnerable to the tsunamis of global speculation and inter-capitalist rivalries.
The labour movement must intervene, must refuse to be intimidated by accusations of `talking the City down` and fearlessly develop and popularise an alternative state controlled banking, savings and pensions system as the heart of a green advanced manufacturing investment strategy. And to achieve this it must place itself at the heart of an anti-monopoly alliance of all those whose futures depend upon a sustainable productive British economy.
Politically this weakness translates into the Cam/borne `wait and see` strategy, obliquely attacked by Liam Fox in his "life outside the EU holds no fears" speech. Responding to Fox, Financial Times diplomatic editor Gideon Rachman (FT 2.7.12) spells out the calculations behind this strategy. Stating "If necessary Britain could remain free and prosperous outside the EU" it reads like a UK ruling elite wish-list. Here the eurozone's banking union/fiscal diktat strategy fails, (a strong possibility), the Euro collapses and the EU breaks up. Where `free and prosperous` equals continued City supremacy, the UK emerges from the rubble of this economic earthquake unscathed, forms new alliances to counter German domination and regains a leading role in Europe. Really? Mr Mcawber's last stand as in `wait and see` how long a small and shrinking productive economy can backstop a speculative financial empire looks more like the reality.
City domination and its financialisation of the economy have left Britain uniquely vulnerable to the tsunamis of global speculation and inter-capitalist rivalries.
The labour movement must intervene, must refuse to be intimidated by accusations of `talking the City down` and fearlessly develop and popularise an alternative state controlled banking, savings and pensions system as the heart of a green advanced manufacturing investment strategy. And to achieve this it must place itself at the heart of an anti-monopoly alliance of all those whose futures depend upon a sustainable productive British economy.
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What do you think and how best to convince the labour and trade union movement?