economic crisis – Page 5

Blame Wouter Bos

Published on May 22, 2009

John Lanchester has written yet another brilliant article on the financial crisis for the London Review of Books. Much of the article deals with the RBS and how its takeover of ABN Amro led to disaster:

The consortium’s plan was to split ABN Amro up, with RBS getting the Anglo-American and wholesale parts of the business, Fortis the Belgo-Dutch, and Banco Santander the South American. It wasn’t in principle a ridiculous scheme, but the problem was the price. Most of what has been written about the financial crisis is pure hindsight, but not this: many observers thought that the winning consortium had overpaid. The consortium won their takeover on 10 October 2007; by April 2008, RBS was going to the markets to raise more capital, to cover losses from the deal; by July 2008, Fortis had lost two-thirds of its value and its CEO, Jean-Paul Votron, had resigned; on 28 September, Fortis was part-nationalised by the Dutch, Belgian and Luxembourgeois governments. We’ve already read what happened to RBS. So within months, the ABN Amro takeover destroyed RBS and Fortis and what was left of ABN Amro itself. Along with the AOL-Time Warner merger and the Daimler-Chrysler merger, the ABN Amro takeover is one of the biggest flops in corporate history.

There’s one person who could’ve avoided this mess, but didn’t, whose role in the whole debacle has never been fully acknowledged, not by the media and certainly not by him: the Dutch finance minister, Wouter Bos. Had he vetoed the takeover, or the earlier Barclays bid, ABN Amro, Fortis, Barclays and RBS would’ve been in much better shape now, perhaps not have needed the Dutch and British state to bail them out.

RedTube: BMW and Visteon

Published on April 7, 2009

Compare and contrast the difference between the mass firings of agency workers at the BMW mini plant this February: workers angry and upset, but cannot do anything with their anger while their union abandons them in favour of staff workers.

With what happened when the workers at various Visteon plants in the UK and Ireland got told they were all sacked: quite spontaneously the factories were occupied in an attempt to force the owners to at least give all sacked workers the compensation they had a right to.

In one case, justified but ineffective anger, in the other equally justified anger and well directed action. What’s the difference? Better union reps? A more militant climate in general? some proper lefties on staff that took the lead here? Seeing examples from abroad that inspired the Visteon workers?

It is important to get answers to these questions, as this sort of direct action is the first line of defence of us workers against the crisis. in the BMW sackings the union knew since before Christmas that these people -socalled temp staff that in many cases had been working there for years– was going to be sacked, but did nothing to defend them, but deemed these sackings a necessary sacrifise to safeguard the jobs of staff workers. This will happen again, as the current unions are ill prepared to handle the crisis, have evolved to be part of the system and think in terms of compromise rather than resistance. As just one example we have the shameful spectacle in the Netherlands of unions agreeing to fifteen percent pay cuts to avoid firings at the post office despite massive profits, without even bothering to fight these cutbacks. You cannot trust the unions to defend your rights, so we need to get back to the roots of worker solidarity and do it ourselves, as the Visteon workers seemed to have realised.

Obama’s “Nixon in China moment”

Published on March 26, 2009

Doug Henwood on the possibility that the bailout of the financial elites will be financed by an austerity programme:

U.S. workers are certainly used to long-term declines in real wages: the average hourly wage, adjusted for inflation, is almost 10% lower than it was 36 years ago. But the blow of that fall was significantly softened by the availability of easy credit, which allowed people to maintain the semblance of a middle-class standard of living. What would wage cuts without easy credit look like? What kind of retooling would be necessary for an economy now dependent on high levels of consumption, and a society dependent for legitimation on the same? Hard to say, but we should start talking about it.

It would be a nice Nixon-in-China turn, for a Democratic president elected on high “progressive” hopes, to preside over something like an IMF structural adjustment program applied to the U.S. It could be portrayed as a necessary sacrifice for the common good. In fact, we can already see the outlines of a liberal apologia for austerity on the Nation’s website.

Jump you fuckers!

Published on March 25, 2009

Dan Hind has written an excellent short treasise on the true origins of the recession,
available in PDF format from Verso Books under a Creative Commons license. After demolishing common explenations of the crisis he argues that the foundations for this recession were laid down in the seventies in the breakdown of the post-war pact between workers and capital (he doesn’t quite put it in those terms of course) and the subsequent falling of real wages:

After a long period of expansion between 1945 and 1979, in which real wages grew steadily throughout the developed world, workers’ compensation levelled off. Average earnings per hour in private non-agricultural industries in the United States reached $8.99 in 1972 (calculated in 1982 dollars). By 2007 they had risen to $8.30. Sorry, no, they had fallen to $8.30 (again, calculated in 1982 dollars). More widely, in the rich, industrialised world, the percentage of GDP captured by all workers in the form of wages fell from 75% in the mid-seventies to 66% in the middle years of this decade.

This trend took several decades to become dangerous to the new economic consensus, as workers leveraged their labour by working longer and getting more members of their households into work. (In other words, feminism saved the world):

As the economist Richard Wolff explains, workers also worked more. The single income household, which had been more or less the norm after 1945, became increasingly unusual. Where one (usually male) wager earner had been able to provide for a family of four and to increase consumption year on year, now a more affluent style of life would only be affordable with two incomes coming in. So women went back into the workforce in growing numbers and children entered the workforce earlier.

The working week also grew longer ‐ more hours being needed to achieve any increase in real buying power. In some cases one or both adults in a household took a second job, extending
hours spent working even longer. Each of these moves helped offset the reckoning. As industry and the economy expanded, longer hours enabled workers to consume more. Indeed longer hours encouraged them to consume more, even forced them to do so. Women and children who went out to work needed cars and clothes, parents needed child‐ minders.

but with wages continuing to fall, or at best to stagnate, the next step was to borrow, using
what little real wealth the wroking classes had built up over the decades –their own homes:

Those who had secured a higher share of output in the form of profits and executive pay would lend the money they couldn’t spend themselves to the workers who wanted to enjoy higher living standards. In other words the people in the system who liked to call themselves winners would lend the people they liked to call losers the money that they could no longer command as wages. From 1970 onwards levels of debt began to rise in the United States, quite slowly at first. In
1985 total household debt in the US reached 70% of disposable income. After 2000 debt grew at more than 5% per year and had reached nearly 122% of disposable income by 2006.

This was of course unsustainable and once it started to go wrong, it all went fast. the reason I highlight all this is of course because Dan Hind comfirms my own theories about the crisis. I’ve made exactly the same points he has made here about the impact of declining real wages, multiple income households and credit secured by home ownership.

The big takeover

Published on March 23, 2009

Matt Taibbi on how Wall Street is using the recession for yet another power grab. Key paragraph:

So that’s the first step in wall street’s power grab: making up things like credit-default swaps and collateralized-debt obligations, financial products so complex and inscrutable that ordinary American dumb people — to say nothing of federal regulators and even the CEOs of major corporations like AIG — are too intimidated to even try to understand them. That, combined with wise political investments, enabled the nation’s top bankers to effectively scrap any meaningful oversight of the financial industry. In 1997 and 1998, the years leading up to the passage of Phil Gramm’s fateful act that gutted Glass-Steagall, the banking, brokerage and insurance industries spent $350 million on political contributions and lobbying. Gramm alone — then the chairman of the Senate Banking Committee — collected $2.6 million in only five years. The law passed 90-8 in the Senate, with the support of 38 Democrats, including some names that might surprise you: Joe Biden, John Kerry, Tom Daschle, Dick Durbin, even John Edwards.

On this side of the Atlantic things are slightly better, but again we see how the government and the banks are conspiring together to exclude democratic controls from their decision making. Parliament has had no say in the emergency measures taken by our finance minister, while parties like the Christian Democrats are abusing the sense of urgency to force through long desired measures like raising the mandatory retirement age to 67 from 65.