Many of these trading transactions are structured by buying one asset and selling another asset. This means that the amount of capital (cash) that a bank has to put up to cover losses in the transaction is much smaller. These large nominal positions have smaller returns but on very small amounts of capital. An upfront tax on these transactions will make many of them unprofitable or have to a low return for a bank to enter into them. Brown knows this but needed to be seen to be making a stand against the greedy bankers. He knew he would get no support for his proposal. It is nothing but a cynical public relations exercise.

It is ironic that Brown has come up with this proposal in a week that the government gave away another £56 billion pounds of our money to the banks through a further £31 billion bailout for RBS and Lloyds and another £25 billion on Quantitative easing (QE).  QE gives money to the banks and financial institutions for unwanted government and corporate debt. Little of this money is flowing into the real economy – the banks are hoarding it to cover losses and future losses and the financial institutions are using it to buy other assets helping to create the new financial bubble.

A real reforming move would be to tax these banks profits at much higher levels and have a progressive tax on high earners to cut out their bonuses. Both would create huge revenues to spend on public services. A 100% tax on all earnings over £50,000 would mean the public sector budget could be increased by 33%. Brown, the person who over saw the deregulation of the financial markets and creation of the easy money environment that helped lead to this crisis, is clearly not up to any such radical proposals.

The real priority for Brown is to implement public sector cuts to make us pay for the bailouts and stimulus programmes. The latest leak that the government is going to cut youth training programmes at a time of massive youth unemployment is a case in point.

The G20 offered nothing new but a continuation of their stimulus programmes. They fear if these are withdrawn the world economy will slump into a depression. This is because there is no real consumer demand due to rising unemployment and no fresh credit available from the damaged banking system. They were of course unable to resolve the dispute over exchange rates where the United States and China have kept their currencies artificially weak to make their exports cheaper against their main competitors in Europe and Japan.

The G20 continues to subsidise the private car industry and private housing market with our money. These two industries are major contributors to the climate change crisis and the financial bubble respectively. But they would rather support them than use the money to create a lower polluting public transport system and sustainable social housing for whole of society.

These stimulus programmes and the bailout will have to be paid for by us. The International Monetary Fund in a report issued this week estimates that the major developed economies will face ten years of public sector cuts and tax rises to pay for it all.

It’s up us to not let them get away with it.

While the world economy has been globalised for decades – some argue that since the 1920s – finance has only become globalised since the 1990s. The globalisation came about as financial markets were liberalised and the barriers to overseas investment brought down. Together with these two trends has been the growth of technology and coupled with that complex financial instruments (derivatives) whose values could not be compared quickly enough until the arrival of cheap powerful computing power.

This has led to a globalisation of institutions, trading and products. Many of these products are driven by fundamental economic measures which have led to economic crisis in one area being globalised financially. Examples have been the Asian crisis, the Russian debt crisis and most recently the sub-prime lending crisis.

Economic crisis feed into the global financial system causing a crisis there which feeds back into the economies exacerbating the crisis and spreading it globally.

The G20 was set up to tackle such crisis and is in effect the twenty finance ministers (in the UK that is the chancellor of the exchequer) of the largest economies – they account for 85% of the wealth produced in the world – but they represent a minority of the world’ population – just 15% of the globes total countries.

The USA sees G20 as the board of directors of global capitalism plc discussing and setting policies. The IMF is to be the executive of the G20 making sure the polices are implemented globally. Political leadership will be taken by the G8.

The objective of this restructuring is to ensure the eastern emerging economies are assimilated into this global management and take their share of the responsibility in ensuring capitalism operates smoothly and that the pain for solving a crisis is shared equally.

Rather than confront a country such as China with import tariffs far better to have cooperative pressure to have them free their currency from the US dollar so that it strengthens and have implicit trade tariffs instead.

The other aim was to create a level playing field for US capitalism by having uniform: accounting standards; capital requirements for banks and leverage ratios for financial institutions (how much they can bet against their capital). Current regional rules favour the continental European banks and their governments as a consequence did not have to spend as much money bailing them out. This has allowed Germany and France to have modest economic recoveries with more money to be spent on stimulus programmes.

Bit these measures will not be introduced until 2013 because the financial system is not yet out of the crisis. These new rules if introduced now would mean that governments around the world would have to pump more of our money into the banks to keep them afloat. This would create huge deficits for most western governments. The plan is that by 2013 the crisis will be over and then is the time to control the financial system when the crisis has finally petered out

Agreement over bankers’ bonuses is a cover to allow governments to boast they are squeezing bankers’ pay. There will be in fact no reduction in bankers’ bonuses but 40% to 60% must be deferred over several years. This will only stop bankers hoping jobs not cutting their obscene wealth.

The meeting reflected the weakness of Europe with the USA- seeing the UK and France as weak economies with dwindling importance. That is why they want them off the IMF executive committee to make way for the Chinas and Indias and Basils of the world. They would rather displace them than Saudi Arabia and Russia who while having weak economies have huge natural resources which the US sees as being key to controlling for their own survival.

Pittsburgh offered no new solutions to the crisis but rather a restructuring of global finance’s management controlled by the USA with a diminishing role for the weakest European economies while co-opting the new emerging giants such as China.

At the G20 finance minister meeting in ST Andrews on November 7th we should demand and an end to the bank bailouts with our money and instead the use of our resources and wealth to build a just society that ends global poverty, that meets peoples need and not the needs of Global finance and capitalism.

This fund will be used to bail out bankrupt countries and their financial systems. The funds come from the member countries. This money will be raised through future tax increases and the issuing of government debt – although the latter will prove difficult given the lack of success of recent government bond sales globally. This raises the spectre of raging inflation, as was experienced in the 1930s, with this level of money being literally printed.

The money will not be used to create jobs but to bail out collapsing economies and financial systems. In the long run the mass of ordinary people will pick up the final bill.

A report issued by the Organization for Economic Cooperation and Development (OECD) shows the depth of the crisis of capitalism and it expects the 30 major economies to shrink by 4.3% in 2009 and unemployment to reach an incredible 36 million in the same countries. They are predicting that we are half way to a global depression (10% shrinkage of an economy).

In addition the G20 are pumping $100 billion into the World Bank to bail out the poorest countries with the usual strings attached to such aid and another $250 billion to help world trade which is collapsing – for example Japanese exports are down 50% in one month

Many of the G20 members may renege on their commitments to contribute to the $1 trillion plus pot as they are faced with further bailouts of their own financial system and industries.

The world is literally facing bankruptcy in 2009. Capitalism is not only bankrupt as a system put looks set to try and take us all down with it.

Europe

At the end of last week several Russian banks indicated they would have difficulty in paying back some or all of 400 billion Euros of loans to European banks – mainly German, Swiss and Austrian. These were loans that had been made – wait for it – on property schemes. As the value of property collapses in Eastern Europe and Russia so these loans turn into bad debts. This crisis then spread to the Baltic states of Lithuania, Latvia and Estonia where these countries banks had taken out similar loans. It has already brought down the Latvian government and a European and International Monetary Fund (IMF) bailout of these countries is on the cards. This will be problematic for Lithuania in particular as the size of the bad debt and bail out needed is larger than what they can technically take out of the IMF rescue fund.
In addition the European Union may have to bail out the weak economies of Italy, Portugal, Spain and Greece as these economies slip towards bankruptcy. The likely increased levels of bail outs for European banks and the money needed to save the southern European countries has weakened the Euro. Stock markets across Europe have also fallen sharply particularly in Germany. The German government passed legislation on Wednesday of this week to allow them to nationalise the German banking industry in preparation for the banking crisis deepening in Europe.

On top of this is the likely collapse of General Motors subsidiaries in Europe – SAAB and Opal – which the parent company looks set to let to go to the wall as it grapples with its own fight against bankruptcy in the United States.

Japan

Japanese Gross Domestic Product (GDP) came in for the last quarter of 2008 showing the worst decline since the end of the Second World War.  GDP declined by over 12% on annualised basis. This reflects Japan’s dependence on exports which have fallen rapidly as its major customers’ economies slowed down. This was bad news for the rest of the Far East which is heavily dependent on exports – especially China. Far Eastern stock markets fell sharply all week as the outlook for this region looks very bleak.

UK

Lloyds TSB/HBOS rumbled into Monday with Darling not ruling out full nationalisation on Friday only to rule it out on Sunday. But the realty is it is here which was brought home when the office of national statistics added £1.5 trillion to the public debt to cover Lloyds/TSB/HBOS and RBS’s liabilities. We own the shares in these banks and are liable for their debt. The only thing we don’t do is control the banks themselves. It was laughable that Lloyds was trying to portray itself as the Captain Mainwaring of banks. This is the bank that owns Scottish Widows and tried to stuff Scottish Widow’s clients with all its toxic debt at the end of 2007.

The outlook continues to look bleak for the banks in the UK for as well as the continuing deteriorating corporate loans the housing market continues to decline. The year on year decline for February was 12%. Repossessions were up to 45,000 for England and Wales in 2008 and are forecast to at least double in 2009.

The final whammy came on Friday when UNITE claimed a UK factory was about to close with the loss of 6,000 jobs unless the government came up with a bail out. It not hard to guess it is the Vauxhall plant at Elsmere port. Vauxhall is owned by General Motors who are on the edge of bankruptcy in the US. They need another $14 billion from the US government and have already pulled the plug on their Saab in Sweden and look to do the same in Germany with Opal. In both cases asking for government help or face closure.

To underline the seriousness of the overall situation a director of the Bank of England stated at a talk at the London School of Economics on Thursday night that the bank and the government were fighting a furious battle to stop the UK going into a ten year depression

USA

Finally in the USA the Dow Jones at one point on Friday reached its lowest level since 1997. The markets did not like the Obama rescue plan thinking it was too vague. A lot of the money is going to help the pauperisation of millions of Americans – extra unemployment benefit and reduced medical insurance premiums. Some of the money is going to help fund projects in near bankrupt states where these projects have come to halt. So the amount of money that is going to create new jobs is smaller than the headline PR figure.

The spectre of bank nationalisation raised its head too. Citicorp and Bank of America, who have been hit by toxic decling assets from the takeover of Merrill Lynch, are rumoured to teetering on the edge with the government prepared to step in and nationalise to rescue them.

Finally Anglo American the transnational commodity miner reported huge declines in profits for 2008 reflecting the falling demand from manufacturing globally but mainly from the US. They are laying off 19,000 workers mainly in South Africa.

So there you have another week of turmoil in the global financial and economic system as veers towards a great depression.

Ireland has had to nationalise Anglo Irish bank as losses from loans to property speculators escalate.
They are likely to have to go to the International Monetary Fund to fund this and other rescue plans as they are finding it difficult to sell the now low credit rated Irish government debt on the financial markets.
The difference between Iceland and Ireland? One letter and one year!

This is a likely trend in 2009: after the banks it will be governments that will be going being bankrupt. Countries on the periphery of Europe are most at risk: Ireland, Iceland, Latvia, Estonia and Lithuania.

But the UK is at risk because of the Banks exposure to recession.
Their losses are likely to be unlimited.
Brown and Darling want to take this debt on our books – the UK tax payers and people.
This essentially transfers the liabilities from the banks to us. We may have go to the IMF by the end of 2009 or start of 2010. The UK to will find it difficult to sell its debt on the international markets as the UK’s credit rating plummets as it is seen as having the largest credit and housing bubble and will suffer more than the other major economies.

2008 was just the warm up to 2009.
Expect to see huge turbulence on the financial markets with further massive falls in assets prices from shares to houses. The recession will bite hard with a massive increase in unemployment, corporate and personal bankruptcies and attempted large cut back on public spending.
There will be an all out assault on working conditions and pay rates.

Like everything Brown and Darling have tried to do, to first avert a first a financial crisis and then an economic crisis, it has come to late and without an understanding of the dynamics of the crisis that capitalism faces. Compare what has happened in the UK to the United States (US) where they have cut rates aggressively and have already given tax rebates to try and avoid a recession.

Of course this type of Keynesian intervention has never averted a recession or pulled economies out of a depression contrary to popular myth. These policies if put in place in time can delay the onset of a recession and reduce its depth and length. In the 1930s it was a massive increase in military expenditure and ultimately war that created the conditions for the recovery of capitalism.

What the global leaders are desperately trying to do is stop the global economy going into a depression where economies have periods of years of negative growth and stagnation. Unlike the 1930s they have acted swiftly in the US to avert such a disaster for capitalism. But this time the banking crisis is not just restricted to the US but is a global banking and financial crisis. The banks and financial institutions have exposure to a global recession that is multiplied by the use of complex financial instruments and derivatives. The banks positions in these instruments are not known and the dynamics of the losses created by these products are not fully understood or quantifiable.

Even then if the banks were taken under full state control, governments will be sitting on unlimited liabilities. They could cancel some contracts – such as credit default swaps – but the legal consequences of such a move is unknown.

The cuts in interest rates and tax rebates have so far had little effect on stimulating demand from consumers or encouraging capitalists to make fresh investments in new projects, these are the two prerequisites for any type of economic recovery. This is because individuals face an uncertain future over their financial future and hoard any extra money they receive to pay off creditors or deal with that surprise bill.

Banks on the other hand were at first unwilling to pass on the cuts in base rates from central banks to other banks and financial institutions because they did not know what risks these borrowers carried – who would be the next Northern Rock. Now they need money in their tills – called tier 1 capital – to cover losses on sub-prime lending products; mortgages; loans to corporations and private equity schemes and pay outs on bankruptcy insurance – credit default swaps (CDS).

Here in lies the major problem for capitalism: a complete freezing up of the credit markets. First it was lending within the financial system that was affected. Now it has spread to lending to individuals, small businesses, corporations, local states and countries. Bringing the whole global economy to a standstill.  Banks are recalling loans and refusing to roll over loans as they need the money to protect them from future write-downs and losses on CDS and other derivatives. That’s why governments have been giving them bailouts to drag the banks back from the brink of bankruptcy. But there will be another run on them as we approach year end and we start to see large corporate bankruptcies.

General Motors is warning that without a government $30 billion loan bailout they could go bankrupt in 2009. In the third quarter of 2008 they made a $4.2 billion loss and contributed to the 240,000 people who lost their jobs in the US in October of 2008. Ford plans to make a further 11,000 redundancies in the next two months. And as the credit freeze bites every level of society there be millions more all over the world that will lose their jobs.

In the Far East and Asia the decline in the northern mature economies is pulling most of their economies into recession. These economies are dependant on exports to the rich north and act as a manufacturing base for their industries. China may escape recession but it will see a steep reduction in growth which will lead to factory closures and redundancies.

Brown is portrayed as the saviour of the financial and economic system. But he is fact one of the major architects of its problems. With Blair he extended the privatisation of housing, created an easy credit environment and deregulated the financial system. All these things were done to avoid a repeat of the crisis of 1974/75 when too many goods were being produced and capitalists run out of investment avenues.  This created the fertile ground for a housing and credit bubble with a whole series of financial products and practices that speculated off the back of these bubbles.

Working people and the poor of the world will be in the firing line as the face the fallout from capitalism’s crisis. Capitalists will attempt to shut workplaces, lay people off and restore profitability by increasing productivity through relative wage cuts and flexible working practices. Public services will come under attack as the government tries to make up the huge shortfall in revenues from decling personal and corporate taxes. They will also have to plug the hole in their finances from bailing out the banks with more bailouts likely in the future.  Socialists will have plenty of opportunities to stand alongside those who stand and fight against this capitalist onslaught and put the case for a rational economy under the control of ordinary people that meets their needs.

The US economic figures were truly horrific. Durable goods orders – cars, TVs washing machines etc – fell by 14% in the third quarter. The US economy shrank by 0.3% and this figure disguises the real depth of the recession brewing as a weak dollar, armaments spending and the stockpiling of goods lessened the fall. Only armaments will help in the fourth quarter of 2008.

The economy is shrinking as result of the decrease in consumer spending as the fall in house prices continues and credit for personal loans freezes up. Most economists are predicting a further decline in the last quarter of the year with a further year of shrinkage in 2009 with 2010 being a year of stagnation. No pick in the economy is seen before the start of 2011. This is the optimistic view with no real account being taken of the paralysis of the banking and financial system and the consequent freezing of credit.

Stock markets have rallied this week particularly in the US based on the hope of  a bottoming out in the first quarter of 2009 and pick up in the economy in the 2nd quarter of 2009. This is in complete contradiction to the most optimistic view we have outlined above. Also, they have rallied on the cut in US interest rates by 0.5% and an apparent stabilising of the banking system after the billions poured by governments around the world into banks coffers.

We see this as a temporary respite and banks will be under attack again as the full scale, depth and length of the recession becomes apparent as more and more economic numbers come out. Their till will be ringing empty soon as they have to make further write-downs on sub-prime based assets (which governments have not taken off the banks books), on their mortgage books as defaults and missed payments increase. Payouts by the banks will also be needed as loans to corporate finance and private equity schemes go sour because of the down turn and finally the $60 trillion exposure to credit defaults swaps (CDS) starts to create massive losses as companies start to go bust as the recession bites -  CDS are insurance sold by banks against company bankruptcy.

And as we have seen before a cut in interest rates by central banks to major banks does not encourage lending but the hoarding of money by these major banks.

This will see governments move again to pump more of tax payers money into the banks to stop them going under. Many governments will go for a full takeover of their banks to stabilise the system but will be left with unlimited losses to the worst recession since 1974/75. This is likely to happen in the first quarter of 2009.

Whether we will enter a full depression remains to be seen – a 10% fall in the size of the economy – but we are in the midst of the first globally synchronised recession since 1974 and certainly the greatest global financial crisis capitalism has ever faced.