Barclays’ problems, a second credit crunch, bank nationalisation, cancelling national debt

I posted this on a forum for Left Unity (the initiative for a new mass left-wing party launched by film director Ken Loach) 3 days ago:As many of you will have noticed in the news, Barclays is having to raise significant quantities of extra money from its shareholders. Its share price has fallen by 10% in two days. I include below the start of a special report from a firm called Galvan, provided for free by another free service for investors called Money Morning (I’ve never done any investing myself, and just check out their emails from time to time to help my revolutionary socialist analysis, but it was recommended by a friend of mine who is a full-time stock market investor and who has made a lot of money, although he’s been doing quite badly lately).

There’s never a dull moment with the British banks.

Barclays, regarded as one of the UK’s strongest banks, has announced a shock rights issue.

It’s all come about because last month the UK’s Prudential Regulation Authority (PRA) reviewed the leverage of the UK’s major banks and building societies. As a result, they singled out Barclays and Nationwide as needing to get their house in order.

The PRA wants to see a minimum leverage ratio of 3% (equity to assets). This also happens to be the new standard to be introduced globally under the Basel III rulebook.

The PRA calculated that Barclays’ leverage ratio was 2.5%, but since then the bank has revealed another £2 billion of losses in “conduct provisions” (for bad behaviour) relating to the mis-selling of PPI and interest rate swaps. This has reduced Barclays’ leverage ratio to just 2.2%.

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Paul Mason, the economics editor of Newsnight, has been predicting a second credit crunch since at least 2011 (google: paul mason “second credit crunch”) and there have been rumours of a new credit crunch starting in China this year. Additionally, there are the massive problems in the Eurozone with the PIIGS countries in particular in dire straits which could provoke tumultuous effects on European and world markets.

I think Paul argued (but I can’t find a web page where he made the arguments – perhaps it has been removed due to the politically/economically danger of such information) that when governments bailed out banks in the first credit crunch, they borrowed most of that bailout money from other banks, and he predicted that countries themselves would go bankrupt this time if they bailed out the banks.

Provisions are supposedly being made to avoid this problem by making banks themselves pay for the crisis. However, a leverage ratio of 3%, never mind 2.2%, would surely not be enough given the scale of anything approaching the first credit crunch starting with subprime mortgages in the USA!

So what does this mean for Left Unity and the prospects for achieving socialism generally? I think it means that we should be prepared for another massive crisis at (just about) any time. I think this will render arguments about making small reformist (Keynesian) changes – which cannot work anyway because gains for ordinary people made in booms tend to be taken back in recessions – redundant. This would be a time, which we really must seize, to take power internationally – i.e. carry out a (preferably peaceful or mainly peaceful) world socialist revolution!

[You may like to join my group “Eurozone in crisis: second credit crunch inevitable – end capitalism!” at https://www.facebook.com/groups/eurozonecrisis/.]

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On the LU forum, Luke asked “Nationalise the banks?” I responded:
Yes, of course, Luke, and I would argue for compensation only of pension funds (although I’d accept the Socialist Party position of “compensation on the basis of proven need”). I would also argue for democratic control of the banks, with a say for borrowers, savers and representative(s) of the government as well as bank workers – with the precise formula to be decided.I think what the Socialist Party misses in calling for nationalisation of the banks, however, is the massive national debt which doesn’t have much to do with the banks (except that some of them no doubt invest in “risk-free” bonds, sometimes called gilts) – the national debt is actually borrowed from bondholders. The cancellation of that debt, i.e. never paying it back, should be one of the SP’s “transitional demands”. The Bolsheviks refused to pay the debt accumulated by Tsarist Russia after the revolution in October 1917. In countries like Greece, this is surely already a key solution to their problems now, and it will be in the UK too in the future. I will in fact propose that Left Unity should adopt this as a policy at the November conference since it is the key argument against indefinite austerity.

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