Barclays' problems & possibility of a second credit crunch

[Steve Wallis]

I posted the following on the Economy Commission bulletin board on the Left Unity forum on 30 July:

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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!

Those of you on Facebook may like to join my group "Eurozone in crisis: second credit crunch inevitable - end capitalism!".

[Steve Wallis]

I posted the following reply on 2 August to someone who suggested "Nationalise the banks?"

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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.

[Steve Wallis]

Stephen Lawton wrote (on the LU forum):

I agree with your analysis but what happens after the revolution? we need to be able to talk to this.
Keynesianism has failed the gains made are being taken back we do not need to waist our time going down that path again, do we? 

But on the other hand socialiststeve I'd rather have reforms than the current neoliberal form of capitalism.

I agree that Keynesianism has failed. Hence point 1 in the Call for a Revolutionary Platform of Left Unity: "Gradual reformist (e.g. Keynesian) change won’t lead to socialism because gains that can be won during a boom are taken back in a slump or recession."

Nevertheless, we should be seen as the best fighters for reforms in order to earn credibility, and also because they can make a significant difference to real people's lives.

Discussing what we do after the revolution can be useful, by the Revolutionary Platform and in Left Unity generally, if only to answer the question by members of the public "What do you mean by socialism?" - the short answer is a society based on cooperation not competition, but we can also talk about bringing all the big companies, banks and finance companies into public ownership (should it be without compensation, just to pension schemes, or on the basis of proven need as the Socialist Party argues?) and democratically controlled (and then we can discuss what democratic structures should be used). Ultimately, however, such big decisions should be made as democratically as possible, involving everyone in society (rather than by a parliament or "supreme soviet") after the revolution.

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Steve Wallis (Manchester Central Left Unity)