I'm distributing this message widely, including to forums where it is
off-topic, because the escalation of the economic crisis with the
collapse of Lehman Brothers, the fourth biggest investment bank in the
US (and fifth biggest in the world) is very important - and millions
of ordinary working and middle class people are undoubtedly  rightly
concerned that their savings may be at risk.

First, a confession: I had wrongly thought that legislation had not
been passed to compensate the first £35,000 of your savings (in an
individual bank). At the time of the run on Northern Rock last year,
only the first £2,000 and 90% of the next £33,000 was covered.
However, I noticed that many of the national newspapers today said
that the first £35,000 is fully covered. I have checked the website of
the Financial Services Compensation Scheme (FSCS) - http://www.fscs.org.uk
- which confirms the £35,000. [If a national newspaper lied on a
matter as important as this and were found out, their reputation would
be in tatters and they could presumably be sued.] I would strongly
recommend you checking that website (if you live in the UK) rather
than taking my word on how the crisis may affect you.

However, the website also points out (on http://www.fscs.org.uk/industry/funding)
that the levy on financial institutions yields a mere £4.10 billion a
year. This is chicken feed compared to the vast sums owned or borrowed
by the big banks. The Bank of England, which had previously pumped £50
billion in the markets was pumping another £20 billion today.
Meanwhile, there are strong rumours (including on the front page of
the Financial Times and even the Sun) that AIG, one of the world's
biggest ensurers and best known as the sponsors of Manchester United,
could be next. The FT front page article mentions that they are
getting an emergency $20 billion loan (and I read elsewhere that they
asked for $40 billion). Loans to banks that may end up failing,
risking taxpayers' money (or greater government borrowing that
taxpayers are ultimately liable for), could be regarded as a scandal -
but central banks and politicians have little choice if they want the
capitalist system to continue!

The Tories today are calling for the compensation scheme to increase
the guaranteed amount to £50,000, offering help to get quick
legislation through parliament - which I suppose shows that the sort
of people they are most interested in protecting are those with
savings over £35,000 (who can't be bothered to divide their money
across different banks or put it in a building society, Northern Rock
or the government's National Savings & Investments, to be on the safe
side).

But if your bank goes under, how quickly would you get your money
back? One of the problems of the previous scheme was that it could
have taken many months, but I can't see any proof (on the FSCS website
for example) that that is not still the case.

The Tories have previously suggested that they would not bail out a
bank in trouble - but this point was in a Sunday Herald article that
many would have missed, and they would really have little choice but
to nationalise any high street bank that goes under. Investment banks
are different in not directly affecting millions of ordinary people.
If a New Labour, Tory or Liberal Democrat government allowed any large
high street bank to collapse, they would have to compensate savers -
with the prospect of huge demonstrations and possibly a general
strike, forcing action with the real possibility of a socialist
revolution if they didn't. And realistically, nationalisation is a
much better option from a government's point of view than letting a
bank go under, because it avoids the windfall that borrowers,
including mortgage holders, would receive by not having to pay the
money back to a bankrupt bank! [Many US banks have already gone under,
and I read today that half the banks in the USA are expected to follow
them or be taken over in the wake of Lehman's collapse, so the
situation is different there.]

Anyway, according to falls in stock market share prices yesterday and
today, HBOS (Halifax Bank of Scotland) is most in danger of all the UK
banks. At one point yesterday, HBOS shares were down 36%, and they
ended 17.55% down; they fell another 30% today (and are 28.17% down at
the time of writing this, as revealed by a quick internet search). RBS
(Royal Bank of Scotland) shares fell 10% yesterday and are currently
14.20% down today. Barclays shares fell 9.84% yesteday and are 15.26%
down today. These are all in the top 100 companies on the UK stock
market (the FTSE 100) which has fallen to its lowest point for three
years. In the past, big business  investors were almost guaranteed to
make huge amounts of money from the work of ordinary people, and the
best news from all this market turmoil is that that period is over -
permanently! Of the minor banks not in the FTSE 100, Bradford &
Bingley did worst yesterday, falling 15.44%, but it is only 6.35% down
today.

I generally prefer to give links to articles in the mainstream press,
sometimes including text of articles, where required to justify my
assertions. I read left-wing sources too, but my analysis tends to be
better than theirs (in my not-so-humble opinion) and some of their
points are unrealiable, sometimes obviously completely wrong. To what
extent it is clumsiness rather than infiltration to damage an
organisation's credibility, or over-exuberance, is a matter of
opinion. I will however give a link to an article on the Scottish
Socialist Party website about the collapse of Lehman Brothers (which
amazingly is now accessible without putting the "www." at the start of
the web address!) at http://scottishsocialistparty.org/economic-crisis/september2008.html.
It is probably better than most analyses made by socialists because it
is written by Raphie de Santos, former head of equity derivatives
research and strategy at Goldman Sachs International. As a warning, I
read today an earlier article by him in the Scottish Socialist Voice
(in issue 329, 15-28 August that is not on-line) which said "If the
world's population were all to consume as much petrol as the average
citizen of the United States then the known global oil reserves would
last four days!" A quick calculation: with the population of the USA
about 250 million and the world 6.5 billion, if only people in the USA
used oil, it would run out in 104 days! It is contradicted by a later
claim that "the reserves of extractable oil are known. There will come
a point in the future where peak oil production will be reached and
after that the demand will far outstrip demand [sic: he obviously
meant supply] - the range of estimates for this to happen are between
five and ten years." What is annoying about most articles in the left-
wing press is a lack of references to back up claims like these.

I'll include below a section of a document I finished writing
yesterday, entitled "Strategy for Proportional Representation-based
Socialism". You can read it in full at http://www.PRsocialism.org/strategy.htm
or read and discuss it at http://groups.yahoo.com/group/PRsocialism.
Note that some of the points are contradicted by what I wrote above.


Economic crisis will provide opportunities to put socialism on the
agenda

As chancellor, current British prime minister Gordon Brown claimed to
have ended the cycle of boom and bust, which has proved impossible
under capitalism. The New Labour government borrowed heavily to
prolong the boom and we are now entering a severe recession. Big
business and its New Labour allies are trying to make working class
people pay for their crisis – escalating food and fuel prices and a
housing slump, with big cuts in living standards unless we go on
strike.

The credit crunch is mainly blamed on “subprime” mortgages in the
USA , sold to people with a poor credit history and with high interest
rates starting low. This caught many ordinary people out, since most
US mortgages are at a fixed rate for the entire term, which (due to
high inflation) could lead to many banks around the world that have
lent the money for such “prime conforming” mortgages facing
bankruptcy. New Labour would probably bail other banks out like when
it nationalised Northern Rock (and like the US government recently did
with Fannie Mae and Freddie Mac which guarantee only prime conforming
mortgages) or lent £50 billion without revealing to whom, but other
governments may adopt a different approach.

[On the day I finished writing this document, the US government indeed
failed to step in to save Lehman Brothers, the fifth largest
investment bank in the world, and it went bankrupt. This is having a
big knock-on effect on shares in other banks around the world, with
the shares of HBOS (Halifax Bank of Scotland ), RBS (Royal Bank of
Scotland ) and Barclays particularly collapsing, despite the Bank of
England pumping another £5 billion into the market today. Barclays
reportedly tried to launch a takeover for Lehman before it collapsed;
we can speculate whether its takeover attempt was an indication that
Barclays has a lot of spare money to spend on the takeover, a bluff
(to pretend it is not in financial difficulties) , a panic measure
(perhaps because it has lent Lehman a lot of money that it could now
lose with the bankruptcy) or a desperate attempt to improve its
balance sheet with public money (the denial of which caused the
takeover attempt to collapse). Whatever the cause, the big fall in
Barclays’ share price today will knock confidence in its solvency. If
I had savings in HBOS, Barclays or RBS, I’d withdraw them ASAP! The
adage that such institutions are “too big to fail” now seems out-of-
date, and even if New Labour nationalises more UK banks (which the
Tories say they wouldn’t do), shareholders can expect little or
nothing for their shares. The collapse of a high-street bank would
entail many waiting months for compensation for their savings (if
indeed they don’t lose them); New Labour has promised an improved
compensation scheme but legislation for it has yet to be passed and
banks have refused to finance it in advance. Those with mortgages in a
collapsed bank wouldn’t have to pay it back, so some working class
people will gain from this financial chaos!]

The economic crisis will therefore be much more severe than most
analysts are predicting. To avoid imposing massive tax rises or making
massive cuts in public spending, most capitalist governments will
probably try to borrow their way out of the crisis. New Labour’s net
borrowing has rocketed to around £40 billion a year during the boom,
and is on course to rise much higher still as we enter recession. This
makes a mockery of Brown’s claims to have been a “prudent” chancellor
and his allegations that there is “a black hole in the Tories’
spending plans” (with them promising tax cuts for the rich at their
2007 conference). The Tories and Liberal Democrats are hypocritical
too in condemning Brown’s handling of the economy when they plan the
same level of borrowing if they came to power.

So how should socialists respond to the economic crisis? Merely
pledging a series of reforms that involve greater public spending
(such as improving public services, increasing pensions and other
benefits or increasing wages) is both an insufficient response to the
scale of the problem and could easily be argued against (by pointing
out that such reforms could not be afforded without much greater
borrowing than already planned by mainstream parties). In my view, we
need to point out the need for a sudden and thorough change of society
– i.e. a socialist revolution (a term that many socialists are
reluctant to use even if they agree with it, but I am less reluctant
than most and even include “revolutionary socialist” in my main email
address).



--
Steve Wallis (Glasgow, Scotland)
For important/urgent communications, please email:
warcrysteve@yahoo.co.uk
Blogs: http://groups.yahoo.com/group/steve-wallis-socialist-blog,
http://blog.myspace.com/galaxiasteve
My socialist website: http://www.socialiststeve.me.uk
My pages at MySpace: http://www.myspace.com/galaxiasteve and Bebo:
http://www.bebo.com/SteveW519
Founder, Good Intentions Network: http://www.goodintentionsnetwork.org
Founder, Ethical Capitalism Network: http://www.ethicalcapitalism.net
Founder, Foundation for PR-based Socialism: http://www.PRsocialism.org
Founder, Revolutionary Platform Network: http://www.revolutionaryplatform.net
My socialist band, Red Day: http://www.red-day.net
Author, "Revolution Destroyed? Have I ensured that a world socialist
revolution will never happen?": http://www.revolutiondestroyed.net
For discussion of the credit crunch, go to
http://www.revolutionaryplatform.net/forum/index.php?board=156
For discussion of 9/11 conspiracy theories, go to
http://www.revolutionaryplatform.net/forum/index.php?board=89