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Arguments for socialism :: Banking crisis
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CHARLES PRINCE, chairman and chief executive of the world's biggest bank, Citigroup, has resigned. His replacement is former US Treasury Secretary, Robert Rubin. This follows a drop in Citigroup's profits to $2.38 billion from $5.51 billion a year earlier, in the three months to the end of September.
Citigroup has been a leading player in the sub-prime mortgage-backed securities market, buying billions of dollars worth of mortgages (including $55 billion of sub-prime debt), then selling them on to international investors.
Sub-prime loans are housing mortgages offered to people with poor credit records or unpredictable earnings. This debt was repackaged and sold around the world making huge profits. However, rising interest rates triggered record defaults, driving down the value of the debt.
Overall, over $1 trillion worth of sub-prime mortgage-backed securities are outstanding. The US Federal Reserve has estimated that the financial sector as a whole could lose at least $100 billion.
But while Prince can expect a handsome pay-off, up to two million US families are expected to lose their homes over the next two years.
Another recent high-profile casualty has been Stan O'Neal, chief executive of US bank Merrill Lynch. Pressure for him to go from big shareholders grew after the firm was forced to admit a $7.9 billion (£3.85 billion) exposure to bad debt. The write-off contributed to the firm posting a third-quarter net loss of $2.3 billion, its worst financial performance since 2001.
Meanwhile, UK Chancellor Alistair Darling defended the billions of pounds lent to Northern Rock, saying the bank still had assets of £100 billion. By the end of the year the Northern Rock will have borrowed £30 billion from the Bank of England.
Three-quarters of Northern Rock's funding came from the wholesale money market and when the global credit crunch took hold, its main source of financing dried up.
The Treasury has also indemnified a further £20 billion of retail deposits. This equals a total of £40 billion public-sector exposure to Northern Rock, the equivalent of around 3% of the entire UK economy!
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Banking crisis (15)
Clause 4 (1)
Clause four (6)
Minimum wage (312)
New workers parrty (6)
Northern Rock (34)
Party funding (1)
Socialism 2007 (17)
Socialism 2008 (13)
Solidarity Scotland (1)
The Socialist (1167)
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Trade union organisation (7)
What we saw (38)
Workers press (1)
Working class (849)
Article dated 8 November 2007
The Socialist, weekly newspaper of the Socialist Party
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