End this market madness

THE RECENT white-knuckle ride on world stock markets threatens a world recession. And it will be working-class people who will pay the price for this crazy speculation, when the full effects are eventually felt in the 'real economy'.

Manny Thain

On 21 January, Wall Street recorded the biggest one-day fall since 11 September 2001. Next day, the US Federal Reserve bank panicked with its largest single interest rate cut for 25 years.

Incredibly, the £3.7 billion fraud by a 'rogue trader' at one of France's major banks was greeted with relief in some quarters. Jérôme Kerviel became the scapegoat for the world financial crisis! It was not long before fear reasserted itself.

If Kerviel could make unauthorised trades on shares - worth €50 billion, equivalent to the GDP of Cuba or Slovenia - how many others are doing the same?

Kerviel's gambles are part of the system. He is a 'rogue' trader because he got caught. While profits kept rolling in, traders were given a free hand. Now, financial institutions are running scared at the amount of bad debt they are holding.

The US is sliding into recession. Two million homes will be repossessed because of the subprime crisis which broke last August. Companies lent (and continue to lend) money to people who could not afford to buy a house: subprime mortgages.

They were charged high rates of interest: the 'loan-shark principle'. Those mortgages were repackaged and gambled on financial markets, the debts spreading through the world financial system like a virus.

In Cleveland, Ohio, one in ten houses has been repossessed, making Deutsche Bank Trust the city's biggest landlord. US house sales are down 26% year-on-year.

Prices are falling, with millions of households going into negative equity. This is holding back consumer spending.

It was subprime that did it for Northern Rock. Less than a third of the Rock's funds were savers' deposits; 70% came from gambling their mortgage and other deals on international markets. House prices in Britain fell for the fourth month running in January. New mortgages are at a ten-year low.

This is the result of the neo-liberal, ultra-free-market policies pursued over the past 25 years. Most governments deregulated financial markets, privatised public services, and attacked workers' rights, pay and conditions. Phenomenal amounts of money have been pumped into the speculative market. But it is not backed up in the real economy. Now, some of these bubbles are beginning to deflate, bringing stock exchanges down with them.

De-industrialisation of countries like the US and Britain has made them dependent on the finance sector. So they are less able to weather these financial storms.

Britain is even more dependent on finance than the US. And the housing bubble is greater in terms of house-price to earnings ratios.

What is being exposed is the anarchy of the capitalist system. This global financial crisis will impact on the real economy by affecting mortgage rates, economic investment, etc.

That hits housing, wages, pensions and jobs. Working and middle class people are being made to pay for capitalist crisis.

This market madness has to stop! But that cannot be achieved by tinkering with the system.

Only when the working class controls society, can we move towards a democratically organised, rational and sustainable economic plan. That is what the Socialist Party stands for: socialist change, internationally.

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In The Socialist 29 January 2008:

End this market madness