WHEN one of the biggest banks in the world is forced to publish an open letter to staff, investors and depositors that, contrary to all the evidence, the bank is in fact ‘absolutely rock solid’ and not in danger of imminent collapse, then wise people will start to look to their mattresses for a safer place to put their money.
This is what happened this week at Germany’s biggest bank, Deutsche Bank.
The German finance minister, Wolfgang Schaeuble, was also wheeled out to try and calm fears that the bank is bankrupt.
Schaeuble, notorious for leading the eurozone war against the Greek working class demanding that they pay for bank debts through savage austerity cuts, said: ‘No, I have no concerns about Deutsche Bank.’ If that is true, he is the only person on the planet who doesn’t.
The fact that he didn’t dare to elaborate on why he has no concerns only added to the panic. The reality is that last week Deutsche Bank announced record losses of £5.3 billion last year, while this year it has already lost 42% of its value.
At the heart of this immediate crisis is the simple fact that, in common with the rest of the world’s banks, Deutsche has a massive amount of bad loans, loans that the banks parcel up as ‘assets’.
In the past, banks insured themselves against defaulting on their debts using a complicated bit of financial juggling called ‘credit default swaps’. Today, however, faced with the prospect of banks actually defaulting on their huge debt, the cost of this insurance is increasing, making it unaffordable – there will be nothing to stop Deutsche or the rest from going down.
The value of large European banks fell dramatically this week, while UK banks were hammered yet again. Barclay’s shares fell by 4.7%, Standard Chartered by 5.6%, HSBC by 1.4 %, Lloyds by 2.1% and Royal Bank of Scotland fell 2.2%. Britain’s biggest banks have seen in excess of £40 billion wiped off their value in less than six weeks.
Historically low interest rates coupled with the trillions of pounds of ‘free’ money handed to the banks through central banks’ Quantitative Easing programmes (claimed to enable capitalism to be kick-started out of crisis) have only gone into creating a vastly inflated bubble as the banks and speculators gorged themselves in an orgy of speculation in shares, stocks, and other financial ‘assets’ that are now revealed as ‘toxic’.
All bubbles must eventually burst and this is what is happening today. The weakest capitalist economies of Europe, most notably Italy, have already experienced bank collapse.
Last November, four Italian banks went bust while this week it was revealed that a further six are going belly-up with 24 million euros of bad debts and only 10 million euros to back them up.
When the Italian banks collapsed last year, the new international law of ‘bail-in’ was invoked. This law means that when a bank collapses, instead of it being bailed out by the state, the bank’s depositors have their money held in the bank seized to repay the bank debts.
One Italian pensioner hanged himself on finding that his life savings had been confiscated under this law. This is the future that every worker with a bank account faces in the immediate future.
Small wonder that, even on the usually staid pages of the financial press, there are mutterings about the danger of ‘social unrest’. Not social unrest but revolution is the only solution to this crisis. All the attempts by the capitalist class to avoid collapse have only exacerbated the crisis to the point of explosion.
Workers in every country are not prepared to sit back and see their lives destroyed by a bankrupt capitalist system. The revolutionary surge that is underway against austerity will rapidly turn into a veritable tsunami.
The urgent task of the hour is the building of revolutionary parties of the Fourth International in every country to take this movement to victory through the overthrow of bankrupt capitalism and the advance to the world socialist revolution.
