LAST Friday the US Silicon Valley Bank (SVB) was closed and its assets seized by the American Federal Reserve in the biggest banking crash since the world financial crisis in 2008.
SVB specialised in financing tech companies in the US and around the world, including up to 300 UK tech startups.
The Fed and US government rushed to assure the money markets that there would be no contagion from this spectacular crash to the world banking system.
In fact, the weekend saw feverish negotiations at government and central banks-level in both the US and UK to shore up the banking system while desperately trying to convince workers and the middle classes that their money was safe and that there would be no bail-out of the banks with public money.
In fact the opposite was true, when on Sunday US president Joe Biden announced that all SVB depositors – including tech companies, venture capitalists and all the wealthy investors – would be able to withdraw their money, paid for by the US government out of the pockets of workers and the middle class.
In the UK the Tories managed to strike a last-minute deal with HSBC to buy SVB’s UK arm for the princely sum of £1. This cobbled-together deal followed the initial decision by the Bank of England on Saturday to declare SVB UK bankrupt and put it into insolvency.
Chancellor Hunt issued a statement reassuring anyone who would listen that this did not pose any risk for Britain’s financial system saying: ‘The UK banking system is extremely secure, it is well capitalised.’
No-one was taken in by Hunt’s assurances or the measures taken in the US and UK to shore up a banking system that is collapsing by the hour.
Across the world on Monday markets opened with reports of a global banking selloff. Italy’s second largest bank, Unicredit, saw its shares fall by almost 8% while shares in the Swiss Credit Suisse fell by over 12%.
In the US, regional banks experienced dramatic drops in their share values with the New York-based Signature Bank being closed down by regulators on Sunday while traders rushed to sell shares in First Republic bank, sending its share price crashing by 60%.
In the UK, the biggest banks also saw their share prices crash – shares in HSBC fell by 4.6%, Lloyds by 4.8%, Barclays by 5.4% and Nat West by 5.4%. The contagion of a world banking crash is spreading at breakneck speed.
In 2008, the central banks and governments delayed a financial catastrophe by printing money that was handed out to the banks to keep them from going bust.
Along with near zero-level interest rates, the entire capitalist financial and banking system was awash with ‘free money’ leading inevitably to an inflationary spiral now running out of control.
In an effort to hold back inflation central banks have been pushing up interest rates and cutting back money printing. All this fictitious money vastly inflated the price of all the assets where banks stored their excess cash.
Today, the speculators are rapidly realising that these assets and supposedly safe bonds that back up the banks are worth a fraction of their inflated value and are desperate to withdraw their money before the entire banking system implodes.
This has led to a massive run on the banks that is spreading globally. If the central banks attempt to repeat the money printing bail-outs of 2008 then this will be equally catastrophic.
A Telegraph article on Saturday spelt it out saying: ‘To cut rates and print more money now would be to guarantee hyper-inflation, with horrific consequences for every developed country.’
Mass banking crashes and hyper-inflation are the only prospects bankrupt capitalism holds as it careers into the biggest economic crash in its history.
A crash that the ruling class intends to impose on the backs of workers, the middle classes and youth of the world.
The powerful international working class will never accept being driven into poverty by a capitalist system that is broken and deserves to perish.
The burning issue today is to put capitalism out of its misery with world socialist revolution.
This is the only way forward.
