A JOINT report from the Confederation of British Industry (CBI) and Pricewaterhouse Coopers (PWC) yesterday revealed the fears in business circles that the ‘credit crunch’ and financial crisis is about to get much worse. The CBI represents industrial capitalists and PWC is a worldwide management consultancy specialising in mergers and crisis management.
The survey said that the financial sector should prepare for a ‘long siege’ and it expected at least 10,000 jobs to be slashed by banks, insurance companies and other financial groups over the next three months.
Ian McCaffery, the chief economist at the CBI, said: ‘This is a very serious crisis.’
He continued: ‘Some have suggested it’s the worst financial crisis since the Second World War. I think one of the key characteristics is that it will go on for quite some time to come.’
McCaffery warned: ‘While liquidity injections and interest rate cuts by the Bank of England will help shore up the system, neither will solve the fundamental problem of restoring trust.’
The report maintained that Britain would avoid outright recession, but it found that jobs were already being cut and a third of those surveyed expected to axe more jobs soon. However, the CBI’s hope of avoiding recession is based on unsubstantiated subjective optimism generated by fear.
According to Hometrack, the property information group, house prices have fallen by 0.2 per cent in March. This follows figures from Nationwide last week which revealed that house prices had risen by only 1.7 per cent over the past year, a 15-year low. Investment bankers Lehman Brothers have said there is a three-to-one chance of recession.
Yesterday’s annual report from bankrupt Northern Rock, which the government nationalised in January, lifts the veil on the banking crisis in Britain and internationally.
There was a run on Northern Rock last September and the government put £25bn into the bank and gave it unlimited credit, before being forced to take it over.
The bank lost £167.6m in 2007, compared with profits of £626.7m in 2006. The net outflow of funds in 2007 was £12.2bn, with depositors withdrawing their savings last summer, fearing the bank was about to collapse.
Commenting on the annual report, Northern Rock’s new Executive Chairman Ron Sandler claimed that the bank would repay the £24bn state loan by 2010.
He admitted that he did not expect the bank to break even for three years and it will slash its balance sheet from £107bn (2007) to £50bn (2010), while axing 2,000 out of 6,000 jobs. Former Chief Executive Adam Applegarth will receive a £785,000 pay-out after leaving the collapsed bank, which has outraged savers and staff.
Sandler’s plan is to run a bank that will be open for deposits and to collect payments from existing mortgage holders. But it will not lend to commercial businesses, or provide personal credit, and will try to get existing mortgage holders to go to other banks.
Northern Rock is supposed to repay taxpayers money, but it will not use the fact that it has the Treasury in its back pocket when it comes to drumming up customers, because that would be a ‘competitive distortion’.
With the US and British economies heading into recession, and financial institutions weighed down with debt and facing meltdown, Sandler’s plans read like ‘Alice in Wonderland’.
The debacle at Northern Rock, Applegarth’s pay-off and Sandler’s proposals show clearly that the Brown government is making the working class pay so that he can give billions to bankrupt capitalist ‘risk takers’.
The only solution to this crisis, in the interests of the working class and middle class people, is the nationalisation of all banks, insurance companies and the huge fund groups, without compensation to shareholders. A state bank will provide finance for socialist planned production and all essential services.
Every trade unionist must campaign to get the whole trade union movement to take mass strike action to kick out the Brown government and replace it with a workers’ government that will carry out socialist policies.
