Tuesday, 14 October 2008
The credit crunch
In this Sunday's Observer Will Hutton claimed that "the global system is paralysed on a scale that surpasses 1929". The paper predicts unemployment to hit the two million mark by the end of December. We will see big increases in house repossessions, pension losses and in the numbers of people unable to pay back credit card debts and mortgages. Last week we found out that Welsh councils and police forces have millions tied up in Icelandic banks.
The problem has been caused by greed. The financiers have been gambling with our money, lending to uncreditworthy borrowers and covering their risk with derivatives called credit default swaps (CDS). These are intended as a form of insurance for investors, but the desire to make a quick buck has seen them bought and sold as bets on banks failing. This caused the market crash of last week, including the Icelandic turmoil - a few greedy investors are winning because they bet on banks collapsing, while most people will lose from the ensuing economic collapse. The banks have now lost trust in each other and have stopped inter-lending. As Will Hutton says "The problem is that the markets no longer have any faith that the world financial system they helped create has any future. The model is bust." This should be the end of casino capitalism.
Alistair Darling last week announced a £500bn package to try to get things moving again. Adam Price gives a good analysis of this, as does Rhydian over at Bontnewydd. Darling has "re-capitalised" the system.
As this and this article point out, public ownership of the banks as a way out of this crisis is no longer thought of as socialist pipe-dreaming. While my recent calls for bringing the energy companies into public ownership have been rubbished in some quarters, it now seems that even former New Labour ministers are thinking the unthinkable.
This is big politics, where the decisions are made in the "big" place. Can we do anything about all of this in Wales?
Ieuan Wyn Jones has called an economic summit for this coming Thursday, where business leaders and trade unions will meet with Welsh ministers, to see what the government can do. The priority will be saving jobs, but there'll be no room for manoeuvre if the Secretary of State has his way and refuses to accept Westminster responsibility for local authority and police losses in Icelandic banks. With credit unobtainable if not extortionate, PFI, PPP and housing stock transfer contracts will be put under pressure, potentially having a big knock on public spending. All of this could seriously damage the public services which are under the remit of the assembly. I've no doubt that ministers are doing and will do whatever they can, but what about the rest of the assembly? We need to pull all available heads together to find solutions to these problems. We know they are coming, so we need to consider how we can work together to pool ideas that may put protections in place to stave off the worst effects.
This is an interesting idea backed up by the man who refused a job in Gordon Brown's re-capitalising team. In Plaid's 2007 Assembly election manifesto we pledged to “maintain and strengthen the Post Office Development Fund and work with the Post Offices to develop a full range of over-the-counter banking services geared to people who otherwise would be excluded from financial services, effectively creating a ‘people’s bank’.” Adam Price has argued the case for local authorities to offer mortgages. There could be avenues for helping people to access affordable food and fuel. Tomorrow I will call for all parties in the assembly to work together to investigate some of these ideas and to be prepared to act on issues as they arise. There's no doubt that bad times face us. We have to utilise all talent to find a way for the assembly to cushion people from the worst of the blows.