by Alex Porter
In the vacuum caused by want of political principle or ideology, big business – sly, genius and organised – instilled in The Labour Party an ideology of their own – ‘New Labour’. It was all about focus groups and soundbites signifying nothing. It was a display of government instead of actual government. In reality it started off as a cover for a system of influence, access and kick-backs but soon became an integral component of the biggest heist in history.
Labour had cosied up to special interests and became bosom buddies but while the British political class lost sight of its ultimate purpose – public service – big business had not. Labour politicians, many of whom joined the party for laudable reasons, were now in the belly of the beast. They became that which they set out to defeat – agents of injustice. While the greedy took control of the levers of state, the party followed a strategy of transferring wealth from the people to the super-wealthy. The historic Labour movement born to fight for the workers was now in the business of offering services to clients such as war and wealth confiscation.
Recession or Systemic Collapse?
One myth that has to be exploded is recession. The ‘Crisis’ is not a recession and we are not in any recovery, whether it be a double-dipped or v-shaped one. Blaming it on business cycles is convenient but let’s be honest – the crisis is a structural collapse caused by policy failure. Until this is acknowledged there can be no planning and the economy will continue to fracture.
“Give me control of a nation’s money and I care not who makes its laws” (Mayer Rothschild)
Banks sell debt. If the citizens, business and government have no debt then banks have no market. The strategy of the bankers, consequently, is to create the market for their product. It doesn’t get any better then than to have a monopoly over the supply of money. All the money in the British economy is issued by the Bank of England. This is lent to commercial banks at interest and then lent out into the economy, mostly through employers but also through credit cards, mortgages and so on.
When you see a ten pound note, it represents debt. It has to be paid back and at interest. So, once all the debt is paid back, there’s still debt (interest) and to pay this back, more money has to be created (inflation) and lent out and you get ‘compound interest’. More money in the system means more interest payments in the system.
This cycle continues until the volume of debt is so great, you simply can’t borrow anymore. You have nothing to borrow against. The currency will no longer have value. Everything that you own loses value along with the currency devaluation. In the end wealth has been transferred to the lenders – the banks and their shareholders. The central bank system is designed to eventually collapse the currency. The parasite consumes the host – the economy is bankrupt.
This central banking system (credit monopoly) ensures that there’ll always be economic injustice and the super-rich get a free ride. Those who understand the system and can, charge interest and those who don’t or can’t, pay it. If you want to know who the rich and powerful are – they’re bankers.
Fractional Reserve Banking
When a deposit of £100 enters a bank the bank can lend £90 of it out. Ideally, the system works in that the banks lend to someone who will pay them back or if they can’t then they have security such as a house or land – that would be sold and the loan sum recovered. If there’s a fraud event and the bank needs to replace the original deposit it gets ‘bailed out’. For this system to work banks must have good security and minimise risk with deposits. When securities are batched together into a package (derivative) and then ‘rated’ they can be bought and sold in large quantities at the flick of a switch. Every time a derivative is bought and sold it generates commission and fees meaning the ‘assets’ inside it become even less valuable. The leverage designed to help small businesses and ordinary depositors became an engine of wild speculation and profit.
Gordon Brown, then Chancellor and ultimate supervisor of the Financial Services Authority (FSA) pressurised the regulator into regulating with a “light touch” or not to be “heavy and intrusive” with banks like HBOS and Northern Rock, according to the head of the regulator, Lord Adair Turner. High street banks continued reckless lending. Rather than lending out money to small businesses for example they began buying and selling derivatives. The £100 that you deposited saw a bank buy £90 of derivatives and then repackage and sell that ‘asset’ to another bank. That other bank would then use 90% of that £90 to buy some more derivatives and resell them to another bank. In the end your £100 deposit became thousands in the worlds’ economy. All this multiplication of money in the banking system is ‘leverage’. In the end the same ‘asset’ behind the derivative was owned by numerous investors.
How did the entire developed world, with mature democracies get into massive debt? The answer to this £500 Trillion question was derivatives. Britain or should I say the City was the global epicentre of the derivatives market. Selling derivatives was selling assets which have a calculated financial return. The flaw with derivatives was that the assets were never going to pay those returns – they were toxic. However London and Wall Street sold them to banks, governments, local governments, pension funds and individual investors all over the world. Derivatives were very complex ‘financial instruments’. Very few understood them and if they did then they were designing new ones. Given the complexity of these products investors depended on rating agencies such as Standard & Poor or Moody’s to assess their value. If a rating agency said that the product was rated AAA, that meant they were the least risky investments on the market. Great thought investors – give me lots. World-wide £500 Trillion were sold yet the world’s GDP was only £40 Trillion. Something didn’t add up and it turns out it was the rating agencies.
Western Banking System
The IMF is interlocked with the World Bank which is 51% owned by the US Treasury which in turn works hand-in-glove with the US Federal Reserve Bank – a private organisation owned by the richest banks in Europe and America. Various ex-CEOs of Goldman Sachs and other private banks have recently and are currently heads of each and all of these institutions. The network means that the same people who create money also sell derivatives and can bail themselves out using public money.
Corporate Strategy: Rolling Out Crisis
The predatory nature of banking means that poorly regulated competing banks will incline towards speeding up the process of debt saturation. The banks shareholders want to maximise profits and market share is the all important ‘performance’ indicator. A full and frank confession (to investigative journalist Greg Palast) by the former chief economist of the World Bank, Joseph Stiglitz, exposed a corporate strategy of getting whole nations into debt and then asset-stripping them using World Bank loans to the third-world.
This strategy was confirmed by John Perkins in his book Confessions of an Economic Hitman where he explained that trained economists where sent in to manipulate and bribe leaders of target countries. If leaders remodelled their countries, according to the neoliberal principles of privatisation and deregulation and undertake hugely expensive, and of course outsourced, infrastructure projects (such as the hydro dam in Iceland) then that nation could be asset-stripped by the corporate empire. If the ‘hitman’ failed, as in Ecuador and Panama in John’s case, then assassination or coup strategies would commence. If that failed, as in the case of Iraq said Perkins, the military option would be taken.
To plunder a modern democratic nation like Britain with a developed economy though the corporate elite needed a different plan. To lure Britain into debt, crash the economy and then asset-strip it, would require some refining of the IMF/World Bank model. Joining the 21st century corporate empire religion would require a blood sacrifice. That’s where the City of London and the derivatives market came into play.
In short the new template was pump Britain (or any other developed nation) full of cash, get its government borrowing based on future growth and go on a spending spree. When the cash is pulled out there’s a crash and the nation is asset stripped and unable to get out of the hole. The global bankers make money speculating and selling government debt on the way up and they make money asset-stripping on the way down.
Proof of Concept: Argentina
Wall Street insiders attacked Buenos Aires. During the 90s the Argentinian President Carlos Menem’s government had embarked on and was speeding up a programme of privatisation and deregulation. Perfect. In 1996 Goldman Sachs sent out the word to its client investors in a report entitled “A Bravo New World”
Investment bankers, analysts and bond traders piled into Argentina – investment followed. International investors started speculating on the country’s ‘fantastic’ prospects. So much money piled in that politicians felt good about the financial situation and started spending. The tax take was going up and up and so the government borrowed money (selling bonds) that it was sure it comfortably pay back and so asked for more.
In the years between 1991 and 2001 investment banks pocketed $1 billion in fees from Argentina’s bond sales. The government got to spend on infrastructure, welfare and whatever else took their fancy. When there were some warnings that things had gone too far, the analysts (who are paid bonuses by banks based on ‘performance’) kept shtum. The fees were enormous and so the more debt the merrier.
The tax-base crashed and so did the economy. In came the IMF with loans and those ‘conditions’ known now as austerity. The loans were given to help Argentina pay their creditors – banks. The more money they borrowed to pay the creditors the worse the situation became. Unemployment hit 20%, the banks froze people’s accounts, there were riots and finally Argentina did what it should have done before the IMF came along – declared bankruptcy.
While Goldman and JP Morgan were busy gutting Argentina, New Labour came to office. Tony Blair was going to clean up Tory sleaze.
Within a year of being in office ‘Cash for Access’ hit the news stands. People like Derek Draper who were close to the New Labour project set up Lobbying firms. Their firms, allegedly, could provide access to government, provide confidential information on legislation and spending policies before being made public, obtain environmental waivers and have legislation altered. A network of key New Labour politicians including Blair and Brown, banks, energy and media companies and others were interlocked via lobbying firms according to The Observer newspaper’s exposé.
New Labour built an influential network of contacts and they especially liked American ones like Enron, PowerGen, Bill Clinton and friends. Tony knew he hit the big time when Brazil got looted and British Gas picked up the Sao Paolo Gas Company on the cheap. Blair had been initiated into the global game of plunder. Britain was back doing what it was conceived for – empire.
In Scotland, the Scottish parliament was being set up. And before the elections were held, lobbying firms were gearing up for business. Labour insiders or family members such as John Reid’s son Kevin worked for Beattie Media. The former Scottish Secretary and ex-NATO General Secretary George Robertson’s son Malcolm also worked for them. In 1999, again an Observer investigation alleged that Beattie Media was offering privileged access to ministers in the Scottish Parliament including Jack McConnell, then Finance Minister before becoming Scotland’s First Minister. Again, the story went away but the impression was left that devolution was never designed to be about Scottish democracy but about New Labour’s business aspirations.
The dividing lines between big business and the New Labour government were, confusing.
To really drive the derivatives market Britain needed more debt. Expensive projects, that meant lots of future earnings for banks to lend against and leverage, would do the trick. Financial wizz-kids came up with the Private Finance Initiative (PFI). With PFI you could have infrastructure projects like schools built now but paid for later. Brown forced councils to use PFI finance to construct buildings like schools and in city council’s like Edinburgh, they did. The shiny schools arrived without any public outlay but in the end the public would have to shell out four-times the cost of the schools and then still not own them. That policy has brought Edinburgh council’s education department to the point of bankruptcy. PFI was rolled out all over Britain and now, during ‘crisis’ a heavy price is being paid.
There really is no better way to wrack up a nation’s debt than war. Oh how the US wanted one in Iraq and oh how the British public didn’t. Tony Blair showed his true colours – they were painted into stars and stripes. After the conquest of Iraq, JP Morgan was given the contract to run the Iraq Trading Bank. Two days after leaving his job as Prime Minister, Tony Blair was a consultant with JP Morgan paying him a cool £2 Million a year. Tone is now worth tens of millions and is a highly successful consultant to oil producing governments in the Gulf region. In 2007, while still PM the ‘deal in the desert’ with Libya’s Muammar Gaddafi regarding the prisoner transfer agreement to Libya from Scotland of the man convicted of the Lockerbie bombing, Abdelbaset Ali Mohmed Al-Megrahi, was an early sign of Tony’s oil consultancy potential. Apart from the human cost, 2 million Iraqis and many ‘coalition’ soldiers have lost their lives because of the war, Britain was paying a heavy financial price (£20 Billion: Iraq and Afghanistan, so far).
Sell and Lease Back
The ‘crisis’ arrived and suddenly all tax from the British financial sector dropped off a cliff. More immediately, the fraudulent derivatives had seized up the global credit markets, banks didn’t trust each other and stopped lending to the general public and each other. Debt reached saturation point.
This was a historic moment in British history. Gordon Brown had two choices: 1) He could let the financial sector go into bankruptcy (banks’ shareholders and bondholders would lose their investments), cancel all mortgage and credit card debt in the nation and create a new financial architecture with the citizens in a position to buy and save, or 2) He could use the citizens’ money to bail out the fraudulent financial sector.
It was an old-fashioned class war of finance against labour and industry. The party of the socialist tradition, of the welfare state and of trade-union partnership chose finance. The super-rich had lost their money at the casino and wanted it back. The Prime Minister transferred those private debts, running into hundreds of billions of pounds, to the British public. The irony was that he had to borrow money on the British citizens’ behalf from banks who used the people’s own deposits to pay for the bail outs. Britain’s future was now mortgaged, indebting unborn generations.
With credit frozen the economy contracted. Gordon borrowed yet again to pay for ‘stimulus’. This made no sense. It was like curing a heroin addict by increasing his number of hits. The theory goes that if you spend money into the economy then people will be back consuming and business will survive long enough until the recession is over. However this was not a recession. Debt had frozen the economy and borrowing more money to spend was therefore counter-productive. Money was taken from the productive economy to pay for jobs that had less economic value. The real economy paid the price of propping up temporary ‘stimulus’ jobs throwing hundreds of thousands out of work and many more into low paid jobs. Cast as the prodigal ‘son of the manse’ Gordon Brown became the father of the sweatshop.
As it started to sink in that ‘stimulus’ wasn’t doing the trick so Gordon had Mervyn King at the Bank of England reduce interest rates further, meaning banks got money almost free but instead of offering businesses credit, the bankers hoovered it up in bonuses and fees. The banks though were in so much debt themselves it still meant they wanted that cash to help clean up their balance sheets and so still didn’t lend.
As Gordon was having problems raising money on the bond markets so Gordon and Mervyn turned to quantative easing (QE) also known as money printing and bought bonds that way. Money printing caused the currency to lose value and Britons became poorer as their wealth was diluted. The pound fell 20% in a single year and quantative easing has now reached the £200 billion mark.
Reducing the value of a currency means the people become poorer but it helps exports become more competitive. However Britain under Brown became an importing economy (based on speculation and consumption rather than production and savings) and so for an import economy a fall in the value of your currency means importers pay more for overseas’ goods and the country loses money. The only reason you would print money in this scenario is to meet debt interest payments that you can’t otherwise meet.
And thus ‘Labour’s Bankrupt Britain’ moved from the balances sheets to the history books.
Now that New Labour is out of office where lies Britain’s finances? To balance the budget in the single month of August 2010, Britain had to borrow £15.302bn. That’s half of what Scotland spends on public services for a whole year. With tax receipts falling that is only going to get worse.
Now Britain moves into the austerity phase. Public sector cuts, rising prices and taxes will squeeze the population until the pips squeak. As the public sector is downsized so former public servants will need to be paid benefits, meaning a drop in income tax and an increase in benefits. Social security will be slashed so those dependent on them will not be able to spend in shops. More jobs will go and VAT payments will plunge.
The only tool Britain will have left, to try and balance a budget, will be quantative easing (money printing). Those who buy Britain’s debt will not be happy about that. If the government wants to continue borrowing to balance the budget, investors will demand more interest for accepting the risk. When interest rates go up and the economy doesn’t grow, all the money the government borrows will go on meeting interest payments alone. To avoid default the printing press will be speeded up and eventually the currency will crash. In history this is generally referred to as ‘hyper-inflation’ where the currency, the financial system and the economy crash all at once.
The people will be begging for the IMF to lend some money. With the money will come conditions; trade-union reform, an end to the minimum wage, charges to get hospital treatment etc. Local government will be owned by investors all looking for a return and Britain will no longer be a ‘developed’ nation.
Almost two years ago the famous international investment guru Jim Rogers, former partner of George Soros, advised young Britons to emigrate. He envisioned the collapse of the pound and a Britain not worthy of its status as a first-world country.
And so the juggernaut goes on. The European Central Bank (ECB) which prides itself on being independent from political control is not independent from its member banks. Governments in serious crisis such as Spain, Ireland and Greece who were ‘helped’ by Goldman Sachs are now being told that they can’t borrow directly from the ECB to balance their budgets but must sell bonds i.e. borrow from private banks at interest. (Many European countries have now joined Argentina in refusing to allow Goldman, JP Morgan and others to operate in their countries.) The European Commission has been hoodwinked into demanding that instead of taxing banks to pay for budget deficits they should instead borrow from them. The agenda is clear and explained well by Mike Hudson in his Counterpunch article A Financial Coup d’Etat:
“At issue are proposals to drastically change the laws and structure of how European society will function for the next generation. If the anti-labor forces succeed, they will break up Europe, destroy the internal market, and render that continent a backwater. This is how serious the financial coup d’etat has become. And it is going to get much worse – quickly. As John Monks, head of the European Trade Union Confederation, put it: ‘This is the start of the fight, not the end.'”
The global elite, determined to reduce the working citizens of Britain to debt peonage, simply had to proclaim Gordon Brown as ‘prudent’ and they succeeded in their aims. The invites to Washington, top spot at the G7 ‘saving the world’ and good coverage in the Murdoch press, paid off. In the end Tony and Gordon just wanted to be in the inner-circle with the Bushes, the Clintons, the Haliburtons, Goldman Sachs, JP Morgan, Credit Suisse, Deutche Bank, Barclays, the billionaires in the middle-east and so on.
New Labour got to play with the big boys. Their language, the G7’s and the World Bank’s were one and the same – the neoliberal cosmology of deregulation. Brown prised open Britain and the speculation and derivatives party was in full swing. When it all went wrong, Brown shackled Britain with the losses of his high flying, wheeler-dealer ‘buddies’. It was Brown, after all, who established the template with the bailing out of Northern Rock back in 2007.
The guiding hands behind the global corporate empire, whose storm-troopers were Wall Street merchant banks like Goldman Sachs, had Tony Blair and Gordon Brown on the pay-roll. Goldman Sachs were described by Matt Taibbi of Rolling Stone magazine thus:
“The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
New Labour facilitated and the ‘vampire squid’ reduced Britain from a social democracy to a neo-feudal colony. What began as Tony Blair’s management project, bereft of any political convictions, ended up as ‘Labour’s Bankrupt Britain’.
In Scotland Labour still seeks to win the Holyrood elections by blaming job losses on the premise that it was the SNP at Holyrood, with virtually no economic powers to effect any economic change at all, that lost them. It’s ‘Salmond’s Slump’ that has brought mass unemployment and increased poverty to Scotland. After all these policies of stimulus, bail-outs and quantative easing which subsidised the City of London, Scottish unionism still holds to the belief that Scotland is lucky to be economically sheltered by Britain. However with oil off Scotland’s coast set to contribute 20% of the UK’s corporation tax (and that’s ignoring tax at the pump), it turns out that unionism is the fox guarding the hen-house.
To throw salt on the wounds, Iain Gray – Labour’s parliamentary leader in the Scottish Parliament – last week pointed to the Joseph Rowntree Foundation’s report that child poverty in Scotland had grown faster in Scotland than England since the recession as evidence that the SNP government had failed Scots. The reality is that having bankrupt Britain Labour tried to save its skin by sucking capital into London City from outwith. These policies are still exacting an enormous cost on the Scottish economy. In the absence of anything approaching sound, economic journalism in Scotland though, we are going to be subjected to the unedifying spectacle of Labour taking the moral high ground as protector of the people against ruthless Tory cuts.