The lame attempts by Brown and Darling to prop up the financial system were treated by contempt by the financial markets with the FT-SE 100 index of leading shares down by over 5% on the day after they announced their latest bailout plan. The equity markets are pricing in a global slump that would match the one of 1974/1975 when equities fell 70% from their highs. This would mean if repeated now the FT-SE 100 falling to  2000!The markets were also saying that the plan was not enough with Royal Bank of Scotland (RBS) already having blown the £12 billion it raised in June. Also, the purchase of preference shares by the government means that ordinary shareholders are further down the pecking order and their shares are worth less and this has contributed to the continued selling of bank shares.

As we have pointed before RBS has exposure to sub-rime assets which continue to fall in value. But it also has big exposure to other derivatives linked to interest rates, inflation and bankruptcy insurance (CDS). It is RBS’s exposure to these instruments, particularly CDS that is causing it to haemorrhage money every day. That is why it needs fresh capital (our cash) to make payments and meet the requirements of banking laws to have sufficient capital (cash) against future potential losses. It’s exposure to non-performing (because of the recession) private equity schemes is also hitting it.

The way the markets are moving and the slump is developing means that the rate that RBS and are other banks are losing money has speeded up. The £50 billion of our money that Brown and Darling have given the banks will evaporate rapidly and they will be faced to make fresh money available or take over the banks completely. The problem then is that the government would own derivatives with almost unlimited downside losses. Either the banks will go bankrupt or we will be asked to pay for their mistakes.

The financial system has frozen up worldwide with banks refusing to lend to corporations, local states and individuals. This will lead to major corporate failures, cuts in local and national public spending and personal bankruptcies.

Cutting interest rates does not work as this is the rate that central banks will lend to major banks. It will not make them lend to each other, other banks and financial institutions, companies and individuals. The inter-bank lending rate went up by nearly 1.4% this morning ahead of the co-ordinated interest rate cuts by global central banks. It is unlikely to fall much at tomorrow’s morning fixing.

Working people and the poor will pay for this crisis with their money, job cuts, and cuts in services. Now is the time to say that yes take control of the banks, but have them managed by us and put to a socially useful purpose.