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Arguments for socialism :: Northern Rock
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WHEN NORTHERN Rock collapsed last year, the Financial Services Authority (FSA) set up an internal review of its regulation of the bank. Now, in the words of The Guardian, the FSA "did not have a clue" about the risky practices that Northern Rock was engaging in to raise money for mortgages. The FSA itself said its monitoring was "totally unacceptable".
Northern Rock did not collapse because of direct exposure to subprime mortgages - it had very little in its portfolio. But its rapid expansion of mortgage lending, providing mortgages at up to 125% of a property's value, was financed by the use of complicated products and borrowing in the banking markets.
When the subprime crisis exploded last year, the interest rates at which banks lent money to each other shot up - no banker would trust any other. As a result, Northern Rock was unable to finance its dealings.
When its application for emergency funding from the Bank of England was revealed, the first run on a British bank since 1866 occurred, with queues of worried savers scrambling to withdraw their money. The FSA admitted they had not treated Northern Rock as a risk, and had paid little attention to its dealings in the two years before its collapse.
New Labour set up the FSA in 1997 by merging the Bank of England's regulatory functions with the old Securities and Investment Board, which was a self-regulatory body of the City financial businesses.
The FSA was supposed to stop the financial scandals of the Tory years in office recurring. But New Labour allowed the FSA to have 'light touch' supervision of the markets and companies, with the consequence that dealers were inventing ever more risky products at the possible expense of savers and, the crisis has revealed, the financial system itself.
"Regulation, regulation, regulation" is now the mantra for sections of the capitalist class, who see that their tolerance of the casino economy in banking and finance has led to the possibility of worse recession in the world economy, maybe even a deep one. Savers could have lost their deposits, and others may yet do so, as the credit crunch is not over yet.
But for workers, the bankers' speculation will mean redundancies, falling living standards, maybe cuts in pay and longer hours, if we don't struggle through our trade unions and organisations. Capitalism gambles with our lives; our demand should be "Nationalisation, nationalisation, nationalisation" of the finance industry, as part of a socialist plan of production that could end the capitalist system.
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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 (1164)
Them & Us (25)
Trade union organisation (7)
What we saw (38)
Workers press (1)
Working class (848)
Article dated 2 April 2008
The Socialist, weekly newspaper of the Socialist Party
Lessons from history
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