A MONTH before the start of the 2007 financial crash, the Bank of England was completely unaware of the impending biggest disaster in the history of capitalism. It was even patting itself on the back over the ‘success’ of its regulation – a deadly case of the blind leading the blind.
In fact, the decade before the crash was one in which the bourgeoisie was marching to disaster shouting ‘crisis what crisis?’
So confident was the Blair-Brown Labour government that this was so that Chancellor Brown, with the support of the Tory opposition, sold off half of the UK’s gold reserves for euros and dollars, claiming that the pieces of paper masquerading as money thus acquired would be used to balance budgets and prove that under Labour there was to be no more capitalist crisis.
Chancellor Brown declared that selling off half of the gold reserves was not madness but a liberating process. In fact, when the gold sales began, the price of gold was $260 an ounce; it is now at $1,210 an ounce!
The madness of the bourgeoisie was exposed for all to see when queues formed outside the Northern Rock bank after the emergence of the US sub-prime mortgage crisis in 2007; and after the collapse of the Lehman Brothers bank in 2008, the world banking system collapsed, up to its neck in unrepayable debt.
The minutes of the Bank of England show that the closest the bank got to the crisis was to identify liquidity as a ‘central concern’ in July 2007, but did nothing. It then decided that all was well, a day before Northern Rock asked to be bailed out.
It then rushed into secrecy, giving the various banks that were in trouble code names to try and make sure that the public would never know that it should be withdrawing its cash from these banks! The Royal Bank of Scotland (RBS) was known as ‘Phoenix’, Lloyds TSB as ‘Lark’ and The Bradford and Bingley as ‘Badger’. The codewords were expanded with the Alliance and Leicester, known as ‘Tiger’, so that its £3bn of emergency aid could remain secret. The minutes record: ‘It was emphasised that there needed to be considerable secrecy about this facility.’
The minutes show that in July 2007, the Bank’s ‘Court’ – Board of Directors – reported that the Bank was working on a new model to detect risks to the financial system, but there was little current risk.
Less than a month later, on 9 August, the French bank BNP Paribas came clean about its exposure to sub-prime mortgages, but six weeks later, despite some turmoil in financial markets, Court members were told to have confidence in the triple oversight of the Bank of England, the Treasury and the then Financial Services Authority (FSA).
Meanwhile, there were queues forming outside Northern Rock and £1bn was withdrawn in a single day. On that day, 13 September, 2007, members of Court were called to an emergency meeting, just as the BBC reported that Northern Rock had applied to the Bank of England for a rescue loan.
The Bank then decided that the banks were too big to fail, and that the task of rescue should be born by the working class and the middle class.
The minutes record that ‘Both the Bank and the FSA were in total agreement that if Northern Rock was allowed to fail it would create serious economic damage,’ and there would have been a domino effect.
The rest is history. The bankrupt banks were nationalised and their debt was transferred to the people. The cost of rescue was over £1 trillion, and the masses are still paying that price in austerity programmes.
Publication of the minutes was welcomed by MPs on the Treasury Select Committee. Andrew Tyrie MP, the Committee’s chairman, said Court members should have done more to challenge Mervyn King’s view that the Bank’s main purpose was monetary policy, rather than financial stability. He said they had merely acted as ‘cheerleaders’ for the executive’s views.
The banks were saved by their debts being transferred to the working class that is still paying the price, including the demolition of the NHS and huge wage cuts, and price rises.
As well, the US and UK quantitative easing processes have given vast credits to banks and have enormously increased the volume of debt.
This has prepared a deepening of the crisis with all the major capitalist states on the brink of civil war over which class will pay the debt.
In the moribund EU, the central banker Draghi wants to embark on a programme of $1 trillion of Quantitative Easing to try to prevent a collapse of the EU economy and banking system.
So severe is the debt crisis that the Bank of England Governor Carney has said that there could be a new economic and financial collapse at any moment and has appealed to bankers to stop acting like bankers!
The system is heading for a new and greater collapse with the working class determined that the bankers and bosses must pay the full price!
The only way that this can be done is by the working class carrying out socialist revolutions that will expropriate the bosses and bankers and put an end to capitalism.
