Before looking at why there’s a financial crisis in most of the industrialised world, let’s get one thing straight – the rich are not in any financial crisis. Ok, a billionaire may lose the odd house or two, or some millionaire may top themselves, but they will always have more money that we will ever see in our lifetimes. So don’t cry for the mega rich. It is ordinary working class people who will suffer the most.
What’s this crisis all about?
Capitalist economics says a country’s economy has to grow. To do this people need to continually spend more. As most workers and unemployed can’t normally do this (our wages don’t go up enough), we are encouraged to take out more and more debt. Obviously this is not sustainable, which is why under capitalism we will always have what is called “boom” and “bust”. In booms the rich profit hugely. In busts ordinary people suffer big time as the economy contracts and we lose our jobs and homes. It’s that simple and the politicians and bosses know it. So the next time any of them are on the telly saying they didn’t see this coming – bollocks!
This crisis has another factor
Legislation was in place in most of Europe and America which stopped banks lending stupid amounts to ordinary people. Wanting growth at all costs, politicians relaxed the banking rules. In Britain it was Gordon Brown as treasurer who was the main culprit, but politicians from all parties knew what was happening and turned a blind eye.
With relaxed legislation, banks started lending up to 125% of the purchase price of homes and didn’t check on proof of people’s income. Ok, so we fell for it as well. But with no new council housing being built and renting really insecure, what were our options?
While house prices kept rising the banks couldn’t lose. If we didn’t repay the mortgage, they repossessed our homes and took the money. Either way, the bankers won. Meanwhile, ordinary people were being chucked out on the street. They knew this from day one, and couldn’t care less, as long as they made huge profits and bonuses.
This game was good for business as long as house prices kept rising. The problem was they didn’t. So if we defaulted and got evicted, the banks didn’t get all their money back and they started losing as well. Banks started to panic and wonder who had what dodgy mortgages on their books (so-called “toxic debts”). So they stopped lending to each other in case one went bust owing the others money. With no money for people to borrow and debts being called in it meant growth slowed – ie recession.
Then Labour agreed to loan the banks billions of our money, hoping banks would start lending to each other and us again. Brown also agreed to guarantee any bank’s “toxic loans”. This bailed the banks out of the mess they caused. But as people stop spending, companies don’t sell things and they lay workers off. So more people can’t pay the mortgages = more repossessions. Bankers and politicians cry crocodile tears and we are deeper in the shit.
If governments really wanted to help, they could use the money to help ordinary people with their mortgage arrears. The debts then wouldn’t be “toxic”. Then banks wouldn’t worry about these debts not being repaid. Mortgage repossessions could be stopped over night.
Northern Rock is a good example. They were lent huge amounts of our money, on the guarantee they paid it back. The way they have been doing this is by calling in loans and repossessing homes of people who have got in debt but put a big deposit down. This way the bank doesn’t lose money when they sell your home. This money then pays back the government. So our money is being used but we get evicted.
No matter which way you look at this, ordinary people are being tricked out of their hard-earned money to benefit only one small group of people.
Capitalism is there solely to make a few people super rich. Ok, occasionally some working class kid becomes mega rich or some rich boy becomes poor, but for capitalism to work the majority of us always need to be at the bottom of the pile. That’s how this system works. It stinks and it needs changing.
- Published: 18 November 2008