The following article is from the October issue of the Yeovil CLP newsletter, due to how rapidly the situation is developing I've decided to publish it here too.
The current situation we see in the financial system is no accident. For years we were told that the invisible hand of the free market will sort out the difficulties that market economies face. We see short term profits and bonuses put before long term stability as a result. Instead of financial companies looking at what they were doing when they were shifting such high risk debt around they just assumed the market would sort it out, and as long as they could sell the debt packages onto another company and make a bit of money in the process everything would work out alright.
However things didn't go alright and the US subprime mortgage market collapsed when somebody realised all this debt wasn't worth anywhere near as much as it was believed to be, as a result the system ceased up and financial companies found themselves lumbered with the high risk debt with no way to sell it on.
Over the last few months we've seen those who oppose regulation, such as the government in the United States face up to reality as they are forced to get involved or watch the world financial system suffer more setbacks. The most obvious examples being the takeover of Freddie Mac and Fannie Mae, leaving almost half of America's mortgages under the watch of the US government.
Even the Tories are gradually facing up to the realisation that the financial market cannot be allowed to operate unrestricted – at least during the bad times. One can only imagine what sort of state we'd be in now if the then Shadow Chancellor Oliver Letwin got away with his plans to scrap the Financial Services Authority because of what he called their “intrusive regulatory regime”. Only last year was the Conservatives' policy commission on the economy saying “We see no need to continue to regulate the provision of mortgage finance”.
Of course what really matters now is what we can do to lessen the impact of these events. The Left Economics Advisory Panel is campaigning for:
1) Nationalising the banks and establishing democratic control over banking decisions, ensuring democratic representation on boards, ending the bonus binges, controlling executive pay and share holder rewards.
2) Cutting interest rates significantly and immediately, restoring democratic control over key economic decision making by not only widening the remit of the Bank of England beyond ensuring price stability to advising on the wider economic health of the country but also reverting the bank's role to being one voice amongst many others to be taken into account.
3) Securing people a home by converting repossessions to social rentals so that people have a 'right to stay' in their homes and embarking on a massive council house-building programme.
4) Enhancing security in employment by ensuring people have a say over the future of the companies by strengthening rights and representation at work.
5) Bring fuel bills under control with price controls on the consumer price of gas and electricity, so that people are not being forced to choose between heating and eating this winter, with the threat of nationalisation if needed.
This is the sort of programme we need implemented to protect the public and ensure long term stability. Not half-hearted nationalisations like Bradford & Bingley where the tax payer is lumbered with the bad debt, while other banks pick up the profitable parts of the business. Chancellor Alistair Darling informs us all options are being kept open, we'll see.