Mayday soon
Hildy Johnson | 19.04.2009 15:52
This is an attempt to unravel the causes of and responses to the ´crisis´ in a way that is accesible to the average activist or indeed to the interested person in the street. Hence, the mind-numbing details of particular circumstantial causes and the use of terms designed to be informative to nobody but a select few will it is hoped be kept to a minimum.
You may be wondering just how it was that house prices went as high as they did and maintained this exceptional level for over three years. The main reason was that a way was found to channel the massive flows of redundant capital washing about in institutions like pension funds and council reserve funds into home loans and the other médium-long term financial commitments of households, such as student loans. This was achieved by the process called securitization. In laypersons terms, this involved the recognition that the profit levels of banks and building societies were limited by the traditional system of cash deposits. This was followed by the decision by banks to begin combining some of the loans they made into discreet parcels of debt that could then be sold by them to pension funds and other institutions with surplus capital such as the Chinese government.
Sales of these debt parcels involved the creation of what were in effect shops like the Granite operation set up by Northern Rock. Since the stock of these shops were said to be ´collateralized´ as they were linked to actual concrete assets in the form of housing stock, and since they came with triple AAA ratings their sales soared as did excess demand for them. This led to increased supply of capital coupled with the relaxation of standards used to assess the risks posed by borrowers. A further important point for us is the provision of insurance on the supposedly risky securities. Banks like Northern Rock paid a fee to businesses which were called monoline insurers, to guarantee the value of the debt parcels in the unlikely event of a reduction in their value. This system has to be understood as a global business, it wasn´t just mortgages in the US that were packaged up but ones from all around the World. For example, several Eastern European status are reportedly on the verge of bankruptcy due to the surge in speculative flows of capital. And as the system was able to operate in the shadows of the global economy it was able to easily avoid the glass eye of government regulatory agencies.
Of course the dream of constantly rising house prices had to be remain just that. As US homebuilders competed to build sufficient homes to maintain the bonanaza brought by the new flows of capital it suddenly became apparent in about 2006 that they may have built too many. House prices began a slow decline and with this realization panic hit the securitization market as investors began to have doubts about exactly whom the banks had been lending money to. Stories began to emerge about liar loans, crazy buy-to-let projects and even efforts by organized criminals to set up fraudulent schemes to take advantage of the incredibly lax lending standards. The result was capital flight of the highest order from the new debt products and a drying up of the sources of capital available for new mortgages. From this came two further results a) the banks were left with a load of really, really, really bad loans that they had made and they were also obliged to take back some of this shit from those that had bought it, b) a global property market crash.
So here in the UK the writing is on the wall for house prices despite what the boosters say. From 12 billion in net loans in June 2007 the net figure of lending on housing loans turned negative in February. That is to say repayments are now exceeding new loans. Yet the government is desperate to tell us otherwise and has now taken out a very big and very risky mortgage on the entire UK population. The first objective involves dealing with the immediate problem of the bankrupt banks- the dumping of their bad debts onto the British resident. The second is a more long term objective and involves a bid to save the City of London by bringing the securitization process back from the dead.
So far the UK government has done what the US has been unable to. It has effectively taken the bad debts off the balance sheets of the banks by way of insuring any that generate losses. This policy is like the exact opposite of a no-brainer. The government has taken the place of the monoline insurers who themselves are zombified, to insure products that are already known to be faulty. In addition to this, Brown has pumped capital into the banks with the condition that the government will not interfere (reasoning that since if it did it would probable make things worse). Hello, this is not the start of some kina of soft, touchy feely capitalism as Will Hutton would have you believe. This is neoliberalism on cristal meth.
Now, Brown (Cameron) and his cronies want to reopen the securtization sweet shop by offering to provide guarantees on the new issues so as to entice the pension funds back into the market.
Bank: Hi, we´ve got some new nortgage-backed securities at a special prices of a million quid each.
Pension fund: No thanks, we got our fingers burnt last time with that shit
Bank: Yeah but this time they´re backed by the government so even if they halve in value which they probable will, given the recession, Gordon told us he´ll buy them back at full price.
Pension fund: OK we´ll have a thousand off you then.
Or something like that. According to todays Observer this is to be one of this weeks budgets bullet points. An attempt to show Lab-Con voters that they are at least trying to reflate the housing market. And well they might want to put a stop to falling house prices. A key problem with the current situation is that we are governed by a group desperate to maintain the values of their own estates. To the politicians we can add the media professionals who are desperately trying to quit talking about the crisis and pretend things are getting better, their motivation being that they too own houses.
Where does that leave the rest of us? Those without property or those who own property with the objective of living in it and not using it as a cash generating machine. Those of us that are excluded from the housing ladder will be paying for these attempts to preserve the wealth of others in unprecedented ways. To pay for the governments bank and estate agent bailouts we will see public services cut and taxes rise. To maintain the role of the city of London in the World economy we will be called upon to make more sacrifices.
Tragically, one UK resident has lost his life as a direct result of the crisis and its response. Mr Tomlinsons death can be linked in this way logically back to those US liar loans and Canary Wharf barrow boys like Fred Goodwin. The UK has a private police force set up to protect the interests of the elite. This is so apparent that even the Guardian seems to have woken up from its slumber.
Anyway, its Mayday soon.
Sales of these debt parcels involved the creation of what were in effect shops like the Granite operation set up by Northern Rock. Since the stock of these shops were said to be ´collateralized´ as they were linked to actual concrete assets in the form of housing stock, and since they came with triple AAA ratings their sales soared as did excess demand for them. This led to increased supply of capital coupled with the relaxation of standards used to assess the risks posed by borrowers. A further important point for us is the provision of insurance on the supposedly risky securities. Banks like Northern Rock paid a fee to businesses which were called monoline insurers, to guarantee the value of the debt parcels in the unlikely event of a reduction in their value. This system has to be understood as a global business, it wasn´t just mortgages in the US that were packaged up but ones from all around the World. For example, several Eastern European status are reportedly on the verge of bankruptcy due to the surge in speculative flows of capital. And as the system was able to operate in the shadows of the global economy it was able to easily avoid the glass eye of government regulatory agencies.
Of course the dream of constantly rising house prices had to be remain just that. As US homebuilders competed to build sufficient homes to maintain the bonanaza brought by the new flows of capital it suddenly became apparent in about 2006 that they may have built too many. House prices began a slow decline and with this realization panic hit the securitization market as investors began to have doubts about exactly whom the banks had been lending money to. Stories began to emerge about liar loans, crazy buy-to-let projects and even efforts by organized criminals to set up fraudulent schemes to take advantage of the incredibly lax lending standards. The result was capital flight of the highest order from the new debt products and a drying up of the sources of capital available for new mortgages. From this came two further results a) the banks were left with a load of really, really, really bad loans that they had made and they were also obliged to take back some of this shit from those that had bought it, b) a global property market crash.
So here in the UK the writing is on the wall for house prices despite what the boosters say. From 12 billion in net loans in June 2007 the net figure of lending on housing loans turned negative in February. That is to say repayments are now exceeding new loans. Yet the government is desperate to tell us otherwise and has now taken out a very big and very risky mortgage on the entire UK population. The first objective involves dealing with the immediate problem of the bankrupt banks- the dumping of their bad debts onto the British resident. The second is a more long term objective and involves a bid to save the City of London by bringing the securitization process back from the dead.
So far the UK government has done what the US has been unable to. It has effectively taken the bad debts off the balance sheets of the banks by way of insuring any that generate losses. This policy is like the exact opposite of a no-brainer. The government has taken the place of the monoline insurers who themselves are zombified, to insure products that are already known to be faulty. In addition to this, Brown has pumped capital into the banks with the condition that the government will not interfere (reasoning that since if it did it would probable make things worse). Hello, this is not the start of some kina of soft, touchy feely capitalism as Will Hutton would have you believe. This is neoliberalism on cristal meth.
Now, Brown (Cameron) and his cronies want to reopen the securtization sweet shop by offering to provide guarantees on the new issues so as to entice the pension funds back into the market.
Bank: Hi, we´ve got some new nortgage-backed securities at a special prices of a million quid each.
Pension fund: No thanks, we got our fingers burnt last time with that shit
Bank: Yeah but this time they´re backed by the government so even if they halve in value which they probable will, given the recession, Gordon told us he´ll buy them back at full price.
Pension fund: OK we´ll have a thousand off you then.
Or something like that. According to todays Observer this is to be one of this weeks budgets bullet points. An attempt to show Lab-Con voters that they are at least trying to reflate the housing market. And well they might want to put a stop to falling house prices. A key problem with the current situation is that we are governed by a group desperate to maintain the values of their own estates. To the politicians we can add the media professionals who are desperately trying to quit talking about the crisis and pretend things are getting better, their motivation being that they too own houses.
Where does that leave the rest of us? Those without property or those who own property with the objective of living in it and not using it as a cash generating machine. Those of us that are excluded from the housing ladder will be paying for these attempts to preserve the wealth of others in unprecedented ways. To pay for the governments bank and estate agent bailouts we will see public services cut and taxes rise. To maintain the role of the city of London in the World economy we will be called upon to make more sacrifices.
Tragically, one UK resident has lost his life as a direct result of the crisis and its response. Mr Tomlinsons death can be linked in this way logically back to those US liar loans and Canary Wharf barrow boys like Fred Goodwin. The UK has a private police force set up to protect the interests of the elite. This is so apparent that even the Guardian seems to have woken up from its slumber.
Anyway, its Mayday soon.
Hildy Johnson
