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Arguments for socialism :: Banking crisis
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NORTHERN ROCK, the UK's fifth biggest mortgage lender, went into financial meltdown when it was forced to call on emergency funding from the Bank of England in September, sparking the first big run on a British bank in 140 years.
The latest twist in the bank's saga is that the consortium led by Richard Branson's Virgin Group is being picked as the bank's preferred bidder. The Virgin deal is being dressed up as a step forward for the 6,500 Northern Rock staff who have had a dark shadow over their jobs, and for the small investors who have seen share prices plummet.
Branson has said that "pretty much all" jobs will be guaranteed. This is a vague promise, which like a pie crust will be easily broken.
The bank and government are reportedly going to say there is no alternative to Virgin, other than the bank going into administration. No doubt Branson and his consortium will be rubbing their hands in glee at picking up Northern Rock at a knock-down price, after the bank has been bailed out by public money.
The guardian recently further exposed the bank's murky finances. Local branches were ruthlessly closed down and replaced by internet banking. Fewer branches meant many people moved their accounts and the bank lacked savings. To secure finances for new mortgages, alongside relying heavily on money markets, the bank parcelled up existing mortgage loans and sold them on. 70% of Northern Rock's mortgage assets were squirrelled away to an offshore company.
Granite, that owns £53 billion of Northern Rock mortgages, "is ultimately owned by Law Debenture, a Jersey-based trustee, but controlled by Northern Rock". Yet chancellor Alistair Darling and Bank of England governor Mervyn King handed out an emergency loan of £23 billion.
Surely anyone with half a brain would check out the assets of a company first!
While Northern Rock workers and small investors face uncertainty, the bank's former chief executive, Adam Applegarth, has ensured himself a rosy future. He received a £1.36 million salary and bonus package last year and also got £1.6 million from cashing in shares. The shenanigans of such super-rich individuals need to be scrutinised, not by parliament or select committees, but by representatives of the workers whose jobs are at risk.
The Northern Rock crisis is not just a case of one rotten apple in the barrel. The whole capitalist system which banking operates in is rotten to the core. No doubt many Northern Rock workers are looking anxiously at the US financial sector, suffering its worst year for job losses on record. As a direct result of the US subprime mortgage crisis, on and off Wall Street 130,000 finance jobs have been axed this year.
Whilst the government and Northern Rock bosses have hatched up plans to turn Northern Rock over to Virgin, many serious economists have recommended temporary nationalisation. Prior to the Virgin announcement even the pro-free market Economist stated that "nationalisation looks the best choice of a bad lot".
Nationalisation is certainly necessary. However, in order to make it the best case scenario for bank workers, small investors and for public money, it must be permanent, under democratic workers' control and management, and must include the whole of the banking system. Furthermore, compensation should only be paid on the basis of proven need – why pour money at the fat cats who have creamed the banks at the expense of workers?
Ultimately, only by running the banks in the interests of the whole of society, as part of a socialist planned economy, can workers' futures be guaranteed.
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Banking crisis (15)
Clause 4 (1)
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Minimum wage (312)
New workers parrty (6)
Northern Rock (34)
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Socialism 2007 (17)
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Article dated 29 November 2007
The Socialist, weekly newspaper of the Socialist Party
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