Bail of the Century
UKWatch.net - 20 Sep 2008
As Governments step in to prop up the global financial system SchNEWS never thought that Neo Labour would do so much to boost the welfare state. Over the last six months the government has pumped an unprecedented (and gigantic) amount of cash into the welfare system. The only trouble is that this money is not heading for the needy, but the greedy as we?re talking about the welfare state…for big business. The country?s wealth is being squandered supporting the very company shareholders that have been arguing for years that, in Maggie Thatcher?s words, ?the business of government is not the government of business.? Interfering politicians hell-bent on regulating the market only serve to hamper the competitive spirit, say the profit-hungry capitalists. Unless, that is, the interference comes in the form of hard cash designed to prop up their ailing investments at a time of crisis. Following ?Meltdown Monday? and the ensuing turmoil in the corridors of global capital earlier this week, rampant free-marketeers are now clambering for more government cash to bail out the banking and financial system. And we are talking intergalactic telephone numbers. After years of sucking out huge commissions, profits and bonuses (Krug all round!), recorded losses for the banking and insurance sectors are now running at 275,000,000,000 – and it is estimated that this figure will double over the next twelve months. So far the most ?market friendly? governments in the world have pumped enough money into the system to cover 80% of these losses. Some analysts are estimating that Western governments will spend $1 trillion of public money bailing out the financial corporate sector and it?s shareholders. Shareholders who have been only too happy to reap the benefits in recent years, without ever worrying about how their miraculous wealth was actually being created. It?s worth remembering how this whole mess started. Offering loans at ?normal? rates of interest was just not profitable enough for some banks. They chose to lend to people on lower incomes and adverse credit histories, charging a much higher interest rate. If you can borrow money at 4%, why lend it at 8% if you can charge 40% plus fees? Typically such loans were secured on people?s homes, so if they defaulted the bank could get the money back via repossession. But alas, the value of property has crashed, reducing the banks? ability to claim the cash back upon the sale of a house (the classic confidence supported pyramid scheme collapses) ? meaning they have to write off all these debts. The cost of these ?write downs? has sucked up all the available cash in the system, meaning that there?s hardly any money available to borrow, leading us into the ?credit crunch?. With two-thirds of the UK economy based on consumer spending (and most of that consumer spending taking place on the back of rocketing house prices) the system soon fell apart and we are now heading into recession – all because of the short-term profit aspirations of a banking sector we have no control over. Now the crisis is deepening as the value of these write offs start to exceed the value of the companies themselves ? leading to their bankruptcy. But never fear, the taxpayers can pay the price of all those failures! With government bailouts, shareholders? investments are being protected at the same time that the poorest in our society will bear the brunt of any economic downturn. On Tuesday alone, the Bank of England pumped twice the annual Housing Benefit budget into the banking sector. The debt owed by Northern Rock (17bn) would be enough to pay for 900,000 nurses for a year! CASH CONVERTERS Over the pond in the heart of Neo-liberal capitalism ? the US of A – the numbers get even bigger. In an unexpected twist to their economic policy, the Bush Junta has brought three huge private companies into common ownership. Of course we don?t use language like ?nationalisation? any more ? this is a much more market-friendly form of ?conservatorship.? In the US Fannie Mae and Freddie Mac (two of those recent purchases) are the biggest providers of secondary mortgages and they?ve really come a cropper in the recent economic crisis. Earlier in the month the US-treasury bailed them by guaranteeing their balance sheet to the tune of $3.5 trillion ? that?s 200 times bigger than the Northern Rock bung and is the equivalent to ten years of US government spending on welfare. For some time UK plc has been bunging its own wads of cash into business in the form of regeneration funding and hundreds of grants schemes for small and larger businesses alike. As the already-rich receive a new subsidy, the working poor are given a kick in the teeth. Back in April 2005, the Blair government said that it was ?inconceivable? for it to ?interfere in the market place? to prevent MG Rover going bust. While a billion couldn’t be found to save 18,000 jobs (not that SchNEWS really minded a car company going bust), somehow they could sling 40 times that amount to bail out Northern Rock, 28 months later. One of the arguments put forward to not helping Rover was that the business was going to make a loss of 200m. But last month Northern Rock confirmed that its loss for the last year was 585m. Clearly the message is that if you?re working class you can take a hike, but if you?re a member of the business elite you can hold the government to ransom and there?ll never be a need to worry about not having enough cash to pay your kids private school fees. Against this backdrop, welfare benefits for the sick and disabled are, according to Neo Labour , – “no longer affordable in the modern age.” (See SchNEWS 516) Now ministers are planning to push people off Incapacity Benefit and Disability Living Allowance and into dead-end menial McJobs. If they refuse, a US-style welfare-to-work scheme is proposed where people who?ve been out of work for more than two years without ?good cause? will be forced to work on the cheap for various corporations in order to get their benefits (See SchNEWS 614). So a lone parent on 125 per week would earn less than 3.50 an hour for a full time working week ? just 40% of the minimum wage. The UK spends 20bn a year on these sickness and disability benefits – 5bn less than the ?loan? fund it donated to the banking sector in just one day. Meanwhile new cash injected into the Social Fund ? a source of interest-free loans for people on low incomes, including grants to help the mentally ill return to the community and emergency loans to re-house families who?ve lost their homes due to fire or flood ? stood at just 81m for the whole year. Whilst there has been a little talk about more regulation, nobody has stood up in parliament and called for a major rethink about the way we run our economy. And no wonder ? all their pensions are linked to the value of shares in the very businesses the government is propping up! But the hypocrisy doesn?t stop there. For years we heard the same old story about how there?s never any money for a liveable benefits system or a decent minimum wage, but somehow UK plc finds billions of spare cash to support corrupt businesses that are in a mess only because of a greed that has benefited no one but their shareholders. For years we?ve heard the mantra that the free market must be allowed to run unfettered ? yet the most ?capitalist? governments are nationalising huge companies left, right and centre. It just goes to show that capitalism is a myth and the sooner we stop wasting money propping up a failed system that will never work – the better.

Cluster Bomb Treaty
UKWatch.net - 20 Sep 2008
The UK has been the third biggest user of cluster bombs in the last decade, but was among the 111 governments that adopted the treaty in Dublin and played a significant role in ensuring that the negotiations were successful. Two days before the end of the negotiations, Gordon Brown announced the withdrawal from service of the UK?s remaining cluster bombs, influencing the decision of many other governments participating in the conference. Now the UK must sign the treaty in December and implement national legislation. Expectations Considered the most significant disarmament and humanitarian treaty of the decade, the final text exceeded all expectations, banning the use, production, transfer and stockpiling of cluster bombs and containing the strongest provisions for victim assistance ever agreed in international humanitarian law. Campaigners from around the world, survivors of cluster bombs, former military personnel, Nobel Peace Laureates and clearance operators cheered alongside government delegates as, one by one, 111 nations formally endorsed the treaty. Just the beginning Delivering the Cluster Munition Convention was a momentous and historic step, but the work of governments and individuals around the world is really just beginning. To become binding in international law, 30 governments must ratify the treaty after it is signed in Oslo in December 2008. The UK government has confirmed that it will be among the countries that sign the treaty in December. Now the UK must implement national legislation to prohibit cluster bombs enabling early ratification, encourage other countries to sign the treaty and take national steps to start abiding by the terms of the treaty. Taking a leadership role in this way will help to internationally stigmatise the weapons and prevent other countries that have not signed from using cluster bombs, notably the US. Cluster bombs Cluster bombs have consistently caused excessive deaths and injuries to civilians both during and after conflict. Designed to break open in mid-air and scatter up to hundreds of smaller bombs over wide areas, cluster bombs cannot distinguish between military targets and civilians. Many do not explode on impact, thus continuing to kill and injure innocent people long after conflict has ended. Furthermore, widespread contamination of residential, agricultural and industrial land makes it virtually impossible for people to rebuild their lives after conflict. Often it is the poorest communities that are the most victimised by the weapon. In signing the treaty governments are committing not only to prevent future harm to civilians from cluster bombs, but, in accordance with international human rights and humanitarian law, also to ensure clearance of contaminated land and medical, financial and socioeconomic support to those people who should never have been harmed. By signing the treaty our government will directly improve the lives of thousands of people worldwide. All governments mustvnow turn the treaty?s text into reality. Support needed Every signature is needed in Oslo later this year if the world is truly going to set a new international standard. Only with wide adherence to legally binding international law will the world stigmatise cluster bombs so that it is no longer politically or morally acceptable for any country to use them. Stigmatisation is key to ensuring that states, like the US, China and Russia, abide by the standard set by the treaty even though they refuse to sign it. The Cluster Munition Coalition, the global network of organisations campaigning to ban cluster bombs, launched the People?s Treaty as soon as the treaty had been negotiated in May. It is a worldwide petition urging governments to honour their promises and legally commit themselves to banning cluster bombs but also to clearing contaminated land and providing victim assistance. People across the world must sign the petition to show their intention to make sure governments live up to their obligations. You can sign the People?s Treaty at http://www.minesactioncanada.org/peoples_treaty. For more on the Cluster Munition Coalition see www.stopclustermunitions.org

Brown goes nuclear
UKWatch.net - 20 Sep 2008
The problem with the Labour government is not the unpopularity of Gordon Brown, as measured by successive opinion polls, but the policies being pursued. Let me take one important example. Last Wednesday Gordon Brown held his monthly prime-ministerial press conference. The reports by the Guardian’s current and former political editors (‘Producers may pass on cost of energy package to consumers’; “Brown comes up with a cones hotline moment” and the supporting editorial, ‘Lofty ideals’ ) overlooked the fact that in the press conference launching the energy support package, Brown chose on no less than three occasions to praise nuclear power. He said: “I think people may have forgotten that we made the right decision about nuclear power, I think very few people now doubt that”. Actually, the prime minister might be surprised that many do still oppose an energy source that produces dangerous plutonium as an unavoidable byproduct, and sometimes uses it in new fuel too, requiring methods of transport that are vulnerable to terrorism. Some 105,000 kilograms of this stuff is stockpiled at Sellafield: it takes but 5 kilos to make a bomb of the size that devastated Nagasaki in 1945. As Dr Bennett Ramberg, security advisor to the state department in the 1980s, has argued, nuclear regulators are unfortunately not likely to implement appropriate protective insurance strategies “as long as they cling to the view that attacks are improbable and plants are well protected. The annual commemoration of the Chernobyl accident should serve as a useful reminder of what can happen if the presumptions prove wrong.” Some think that Brown, hitherto sceptical about the benefits of nuclear power, may have been unduly influenced by the fact that his brother is public relations chief for EDF-UK, whose parent company in France ? a company 78% dependent on nuclear power ? is in the final throes of buying the majority share in Britain’s main nuclear generator, British Energy. Brown added “I am encouraging other countries to go ahead with nuclear power, France and Britain are leaders in nuclear power … “ This is inconsistent with Brown’s insistence on fighting international terrorism and the foreign secretary’s oft-stated determination to curb nuclear proliferation. More, France has been a major industrial partner in the controversial Iranian nuclear industry. A little known report prepared last year by Paris-based analyst, Mycle Schneider, for the Green group in the European parliament, revealed that in 1974 Iran took a 40% share in a special purpose nuclear company Sofidif, the other 60% owned by the French Government owned nuclear giant, Areva. The next year, Schneider reports, Sofidif took up a 25% share in the international Eurodif consortium that built a large uranium enrichment facility in Pierrelatte in the south of France. Sofidif still exists, still holds the same share in Eurodif and is still active. In a letter dated 13 February 2006 (reproduced by Schneider), addressed to the CEO of Sofidif, Reza Aghazadeh, vice-president of Iran and president of the Iranian atomic energy organisation, announced the changeover of the Iranian representatives on the board of Sofidif, demonstrating their contemporary involvement. Is this the kind of international nuclear partnership Brown wants to promote? And on broader geopolitical energy matters Brown asserted: “Russia must maintain the obligations and commitments it makes to the international community … I do say there is another thing that has arisen from not only what has happened in Russia, but it is happening in other countries as well, we cannot allow a country like ours, given the need for energy security, to be wholly dependent on the supply of one resource. Instead of being wholly dependent on oil and gas, which of course is not going to be the best way of us proceeding as North Sea oil declines, we want a balanced energy policy, and so in my view does the rest of Europe. That will mean more nuclear building … “ Brown finds himself a curious political bedfellow with none other than the Conservative prospective parliamentary candidate for Copeland, the constituency containing Sellafield. In a letter to his local newspaper, the Whitehaven News, on September 11, Councillor Chris Whiteside wrote: “But if we don’t support nuclear or coal, how are we to keep the lights on? Are we going to rely on buying gas from Vladimir Putin? I don’t think that’s a good idea”. You can dress up nuclear power stations however you like: they are still inevitable generators of nuclear explosives and nuclear waste, alongside electricity. Ducking under the duvet won’t change these facts, Brown.

HBOS takeover
UKWatch.net - 20 Sep 2008
Lloyds TSB?s 12 billion takeover of Halifax Bank of Scotland (HBOS) Thursday followed a collapse of the UK?s largest mortgage lenders? shares, which threatened to destablise the entire British banking system. With 20 percent of the mortgage market, HBOS has some 22 million customers and 72,000 employees. Lloyds is the fourth-largest mortgage lender with an 8 percent share. The rescue package came amidst panic selling of shares on Wall Street, as confidence in the US and global financial system collapsed. In events that led many to recall the Great Crash of 1929, leading US financial institutions Merrill Lynch and AIG were bailed out in billion-dollar deals by the Bank of America and the US Treasury, while Lehman Brothers, America?s fourth-largest investment bank, filed for bankruptcy protection. Writing on the scale of the crisis in the Times on September 17, Anatole Kaletsky noted, ?Two weeks ago nobody would have imagined that, before the end of the month, the Bush Administration would have nationalised the world?s biggest insurance company, that two of the four biggest global investment banks would be out of business and that the US Government would take responsibility for three quarters of the country?s new mortgage loans.? ?Sadly,? he went on, ?the events of the past two weeks may be only the prelude, not the climax, of this amazing crisis.? This was clearly the concern of the markets and the Brown government in Britain. In two days of trading beginning Monday, HBOS had seen its share price fall by more than two thirds?recording a 7 billion loss by Tuesday evening?and at one point stood at just 88 pence. According to the Guardian, after the Bank of England was informed by the US Treasury that Washington had decided not to bail out Lehman Brothers, the city?s Financial Services Authority ?trawled through the finances of British banks to see which were particularly vulnerable.? The failure to rescue Lehman Brothers meant that the banks would not lend to each other, and the interbank lending rates was already beginning to rise rapidly. In February, the Brown government had been forced to nationalise Northern Rock, the UK?s eighth-largest bank, at the cost of more than 80 billion to the taxpayer. With HBOS almost 10 times the size of Northern Rock, neither the government nor the City wanted a similar scenario this time round. The Guardian reported that during a private event sponsored by Citigroup in London on Monday evening, Prime Minister Gordon Brown had met Sir Victor Blank, the chair of Lloyds TSB, and asked for his help. Lloyds TSB had been looking to expand and had been involved in tentative talks since July with HBOS. On Tuesday morning, Brown met with Mervyn King, the Bank of England governor, and Alastair Darling, chancellor of the Exchequer. The Bank of England announced it would extend the special liquidity scheme it had introduced after the collapse of Bear Stearns for a further three months until January?a move previously ruled out by King. In the meantime, the FSA scouted for other potential buyers for HBOS, including HSBC. With HBOS shares continuing to slide, it appears that only Lloyds TSB was willing to take on the ailing bank. As soon as the stock market closed Tuesday, talks began in earnest, paving the way for the deal to be announced Wednesday. HBOS had been resisting Lloyds TSB?s approaches for months. Since it was formed in 2001 as the outcome of a merger between the Bank of Scotland (formed in 1695 and the oldest surviving bank in the UK until this week) and the Halifax Building Society, HBOS had sought to position itself as a significant challenger to the ?Big Four? high street banks of Lloyds TSB, Barclays, HSBC and the Royal Bank of Scotland. But HBOS was dependent on money markets to fund 40 percent of its operations and had been partcularly hit by the credit crunch following the sub-prime mortgage crisis. Earlier this year, several hundred of its senior managers had clubbed together to purchase 1.4 million shares at 446.25p. That 6 million had reportedly been reduced to just 2 million this week Only a few weeks ago, HBOS raised 4 billion in a rights issue where there was only an 8 percent take up, leaving the underwriters, mainly the high street banks, holding the rest. The government intends to break the rules governing competition and mergers in order to ensure that deal goes through. Business and Enterprise Secretary John Hutton is to use emergency powers to prevent the deal being referred to the Competition Commission on the grounds of national interest. Fearing speculation on HBOS and other banks, the government also banned short-selling of bank shares aimed at driving down share prices to make a killing for three months. Under the deal, Blank will become chairman of the greatly expanded entity, the Bank of Britain, controlling almost one third of the UK?s savings and mortgage market and four times larger than any other bank as regards savings. Lloyds TSB and the government dismissed reports of redundancies involving one third of the workforce and pledged to continue using HBOS headquarters in Scotland, but the deal sets out that ?significant cost savings can be made by combining the networks and back offices of Lloyds TSB and HBOS.? With plans to slash costs by 1 billion a year?equivalent to 10 percent of the banks? combined costs?union leaders believe the job cuts will be in the region of 21,000 and 28,000 out of a 140,000 workforce. Such cuts take place under conditions in which the latest government figures showed the largest rise in the number of people unemployed and claiming benefit for 16 years. In the three months to July, some 138,000 were made redundant?a sharp increase over the 28,000 laid off in the three months to April. Some 1.72 million were officially registered as unemployed in July, taking the official unemployment rate up from 5.3 percent to 5.5 percent. In the last week alone, jobs have also been shed at the collapsed travel firm XL?the UK?s third-largest travel operator?and Lehman Brothers in London. Referring to earlier warnings by David Blanchflower of the Bank of England?s monetary policy committee that 2 million people could be out of work by Christmas, the Guardian editorialised, ?at this rate we will be lucky if…[his two million forecast] is all that happens.? Even with such extensive government backing, it was immediately apparent that the crisis had not passed. Kaletsky had warned, ?Even the apparent rescue of Halifax Bank of Scotland may result in a bigger crisis, if the drowning HBOS drags down its rescuer, Lloyds TSB.... If this fails, it will take down all Britain?s banks.? He expressed little confidence in the viability of the new bank if it was not offered ?some kind of firm government safety net??paid for, of course, by the taxpayer?for shareholders and was instead a ?pure private sector solution.? If not, then ?market attacks against HBOS will soon be revived and redirected against the merged bank,? leaving ?only one solution? nationalisation of the entire British banking system.? These predictions were swiftly confirmed when almost 2 billion was slashed off the value of Lloyds TSB?s takeover of HBOS in initial trading and the bank?s shares fell by 15 percent. Attention has also turned to other potential fatalities?most notably the Royal Bank of Scotland, which was also recently forced to raise additional finance through a rights issue and whose shares fell by 10 percent. The Scotsman reported, ?A source familiar with the situation yesterday warned that Scotland may be in danger of losing both its banks. ?This is a revolutionary day for the banking sector,? the source said. ?Nothing is ever going to be the same. Look at the state of the markets. There?s still another shoe to fall?a merger of Royal Bank of Scotland with HSBC.? ? It is somewhat disingenuous to described RBS as merely a ?Scottish? bank. One of the top 10 banking groups in the United States and amongst the largest in Europe, RBS is a target for speculation because, like HBOS, its loan book exceeded its deposit base. Reports indicate that the funding gap at RBS is 161 billion (HBOS was 198 billion) while it also ?has a heavy exposure to the United States via its Citizens Bank subsidiary,? the Scotsman reported. Only the announcement by the US that it would buy billions of bad mortgage debts held by American banks produced a rally of Britain?s banking share prices and of the London shares market. But the long-term picture remains fraught with danger, given the massive sums involved. The credit agency Standard & Poor?s has predicted that US and European banks will suffer a second massive wave of losses from the credit crunch in the next few months, raising the present total from US$378 billion to something nearer US$500 billion.