The Debt Generation

By David Malone

Most of the people we are bailing out are those who have long argued for massive cuts in public spending and welfare. They have not been able to achieve these goals through the ballet box, but now they will have achieved exactly what the want through economic blackmail. Bankers don't need state schools: Their children go to private schools. Bankers don't need the NHS: they go to private hospitals. Bankers don't need social services: they have bonuses and enormous pensions to cover all that.

It was said that in the Great Depression the market was sacrificed to save the country. Today we risk sacrificing the country to save the market.

Our governments will make ordinary people pay because the politicians don't have the courage or understanding to tackle the underlying problems. What all our governments will be quite ready to do, though, is bring out the police to deal with any public dissent and unrest.

We got into this mess by sitting and listening to the fatuous and self-serving assurances of the financial experts. Now we are sitting around letting the self-same economic experts tell us how to get out of it. They were greedy, amoral, shortsighted, totally self-serving then; what makes anyone think they are different now? WAKE UP PEOPLE!

As the crisis deepens people are looking around for scapegoats and some are laying the blame purely on the politicians who failed to regulate the banks.

Let’s remind ourselves of exactly what happened should anyone be in doubt. The global banking industry, not happy being limited to the flows of nationally regulated money, sliced and diced mortgages and loans turning them into a new currency of debt-backed securities and derivatives. This became their own private and utterly unregulated currency, beyond the control of any nation state. They did this, not the politicians.

The problem was, and is, that the banks debased their new currency as fast as they could. Prices were inflated and mortgages were sold knowing that the borrower had zero chance of ever repaying the loan.

And then there was the ‘insurance’. When they traded insurance on their investments they knew that not one of the insuring firms, or credit default swap sellers, had sufficient capital to make good on their promises. They knew. Everyone knew. Hell, even I knew. Firms I could name had over $3billion insured with only $80million in capital (a ratio of 37.5/1).

That wasn't an accident. Many leading bankers lobbied Congress hard for the relaxing of rules restricting leverage. The rules were relaxed, and that has been a major factor in this crisis. They didn't break any law because they rewrote the laws so they didn't have to. But they should be blamed.

So when the bubble burst they were the ones left holding all the worthless paper they had created.

In such circumstances what do you do then?

Well, if you’re an unscrupulous, amoral apology for a human being, someone solely driven by greed and motivated by money, the answer is simple: you tell the craven politicos and hired hacks that ‘the world will end’ if you are allowed to go bust. You get your politicians to force people, at whatever cost, to pay your debts. You lie, tell any lie, to make sure they bail you out.

The financial world engaged in a decade of knowingly reckless actions undertaken for personal greed that are now hurting our children. If a man punched your child in the face would you remain composed and not talk of blame? Or would you make sure that person was never allowed near children again.

Let me make myself clear. I am not scapegoating. I am not blaming the bankers and assorted financial experts for something someone else did. I am blaming them for what they did.

Why should the public shoulder the real costs on debt payment over years and years just so the banks can avoid having to use their own assets to settle their own debts?

If we borrow to bail out the banks, we will not be able to borrow more for all the things that make this a civilized country. At that point, no matter how many pension are obliterated, no matter how many unemployed people there are, no matter what cuts there are on education and no matter what cuts are made to the NHS, no matter what, we will all just have to put up with it. There will simply be no money. It will all have gone to payoff the debts of the rich.

Any sign of social unrest and the government would deploy the full range of state powers against us, casting any talk of debt repudiation as akin to terrorism. There would be a police crackdown on the ranks of trade unionists, student protestors, community campaigners and political activists in the name of national, and even international, security.

By borrowing this money to bailout the banks, we are selling democratic control. The markets will have a veto on our vote. It has happened in developing countries for decades where the governments have simply been puppets of the IMF. Now we are going to enjoy the same status.

I have the abiding fear that the size of the debts we are being shackled to, the scale of the devastation to hopes and lives that paying it back will cause, is just not hitting people. By the time is does, I worry that it will be too late. People seem to think this is still the land of argument and counter argument. But once the debt is sold and the money used then, no matter how horrified people get when they realise the actual cost in misery and deprivation, they will no longer have the option of changing their minds.

You know the small print of any investment says, ‘returns can go down as well as up’? Well, so can freedoms.

For anyone who has never been ‘kettled’ it is when the police at a protest suddenly close ranks and refuse to let anyone leave. A decision made by someone you have never seen now exerts complete and total control over your life.

We are all in that position now.

So vast is the debt our government has burdened us with that this one fact will now determine most of the politics for the next decade…If we are forced to pay back from taxes the vast sums that have been sucked out of public spending and given to the banks, the country will not recover for a generation.

The economic ‘plans’, forced on us without debate, are all based on the banks returning large parts of the money they have taken from us…we have been kettled into having to hope and work for the largest possible growth in world trade and finance. We have to hope that the rich get richer, and quickly. The lords of finance and their servants in politics have decided this for us.

There was never any discussion or debate of possible alternatives when the financial crisis began…That meant that the only answer ever proposed was to provide liquidity at all costs. Liquidity being our money to cover the massive losses they had incurred.

No counter argument is allowed or taken seriously.

Their so-called ‘free market’ has seized control and locked us in to a course of action in which democratise choice has been foreclosed. The growing realization that this is what is happening will bring about increased anger. The smug reaction to anger is to label it ‘mindless’. The mindless anger of the ignorant who don't understand the necessary steps taken by those who know better. This is the boiled down assumption of all our leaders, all the economic experts and most economic journalists.

The truth is quite different. People…are angry because the same people, who in 2008, assumed that they alone knew how to run the global economy still assume they, and only they, know what must be done now. And their prescription is as simple as it is arrogant: put it back the way it was.

We are told that the debts accrued by those in charge must be paid back by us rather than honoured by them. No debate.

We are told that we must get spending back to old levels. No debate.

We are told that we must get the consumer consuming again rather than saving. No debate.

We are told that we must agree and complete the Doha round of global free trade liberalisation. No Debate.

That is why many people…are angry because the financial elite are shoving their ideology down our throats…because we might have wanted a say…because we had different ideas that were never even considered.

Here we are at the point in history when many of us are looking at the imminent threats of climate change and oil scarcity, clearly seeing the dangers of unbridled growth, and yet at this point democratic choice had been kettled. No debate.

And this crisis is no longer just about lack of confidence in markets: it is now about the legitimacy of our governments. The entire political class has been captured by the same old ideology. They all…believe ‘the market’ is going to save us. No other solutions have even been allowed into the debate.

We shouldn't waste time arguing over which party is most to blame. All the parties and the economists and the City boys all agreed, and they still do. In their minds the banks have to be bailed out and their losses made ours. We were taken to war without discussion and on false pretences; the same has happened with this financial crisis. So enough of who is to blame: they all were and are.

Such a situation is entirely corrosive to the rule of law, and democracy itself, but it is the situation…we are already in. Democracy was hard to win, but it was very easy to take it away. And it hasn't been taken away by foreign powers or rabid terrorists; it was given away by political leaders too feeble to resist the influence and lure of the wealthy.

What these simpletons don't seem to realise is that they have given our money to the wrong people. In order for real growth and sustainable recovery to happen we need investment by investors. People who take money and invest it in some sort of wealth production. Investment creates jobs, which creates income, which creates spending and demand, which then leads to producers needing more investment to produce more goods and the meet more demand.

The fact today, which our politicians fail to understand, is that financial markets no longer invest in order to primarily help production. That sort of investment is old-fashioned because growth from investment in machines and people takes time. If you invest in production, in machines and people, you need to wait to recoup that investment. You need stability.

Investment today, as far as the banks are concerned, is all about speculation. To speculate you don't need any real world stuff at all. It’s about betting on derivatives and credit default swaps and otherworldly stuff for rewards that are instantaneous.

And this…is the nightmare we are in. Our central banks gave out our money hoping for investment in jobs, in people and all the other trite political phrases. But…the people they gave our money to were speculators…whose addiction to risk and reward had let to the crisis in the fist place.

These are the people our politicians have given all our money to…They don't produce anything. They don't do anything of social use or value. All they do is gamble with debt. And these are the people our politicians look to for salvation?

Now when it comes to unemployment, poverty, homelessness, children going to overcrowded and rundown schools, suddenly the talk is of debt being unsustainable. Never a hint of less borrowing when any bank needs it. Only the cuts to compensate afterwards. That was always the plan. Save them at our cost. Now that the financial aristocracy have been protected is when we get to listen to our leaders telling us how ‘we’ can't afford the help people who aren't ‘systematically important’. That’s us, ‘not systematically important’.

The most profitable game in town…is called Front-Run the Bailout and it has been of growing importance to the financial world.

You start to make dire, ‘expert’ predictions and warnings about how serious this debt problem could become (then) you offer to buy the dept or to insure against the event of default. The more dire you make the warnings the cheaper it gets for you to buy the debt for yourself and the more you can charge others to insure it. Then comes the critical moment in the game: that’s when you have to convince the government(s)…that if this debt was to default, then the cost to the government, and the risk of an even bigger problem in the long run, would be far higher that the cost of stepping in and back-stopping the lot NOW.

You need to make absolutely sure the governments are convinced that paying is feasible (with a bit of austerity) and that not paying would be the end of civilisation. When…they agree to pay up, BINGO. You scoop up profit the likes of which normal business acumen could never hope to achieve.

The trick is to work the panic enough but not too much. Make the EU think it could be split. Make Germany think it should help to help Greece. If it works, those front-running the bailout will soon feel the…profits rolling in. The UK is also on the list.

And who will be some of the people betting against us? That’s right, our banks with the bailout money we gave them.

I trust neither the bankers nor those who claim to be regulating them. They are all from the same financial class. They are wealthy beyond your dreams, and they all believe with the same unshakable faith in their ideology. Our future is being systematically slaughtered upon the alter of that faith.

Without significant growth, the only way the British government will be able to pay its debts is if it amputates whole limbs or government spending. Cuts and more cuts will be made, but the banks and the markets will care nothing. For them, government cuts are sideshows to the main act: their profits and their bonuses.

The banker’s victory will not just be how much of our wealth they can take but how easy it will be for them to use the levers of political and media power to make sure we now turn on each other rather then them.

The list of easy targets…is almost endless: public sector workers with big fat pensions, pen-pushing civil service bureaucrats, job-shy single mums, privileged middle-class students, obstructive trade unions, benefit scroungers, job stealing immigrants…We will set to fighting each other for the crumbs left on the floor? Will the bankers and financial aristocracy fade from our minds? No thought that we shouldn't have bailed out these parasites? No thought that all the political class, every man jack of them, has betrayed us?

The only reason our borrowing is suddenly out of control and the only reason there wont be enough money for schools and retirement, for heating our parents and for university places for our children is because it has been taken from us by our political leaders and given to those whose wealth and power they bow down to.

The banks…are not going to be forced to accept any austerity measures…bonuses flow like wine.

Why one necessary strategy for the banks… and he opposite for people and nations? Why do we have no say over the bankers who…got our money?

Look at wages…people are being told that they must accept drastic pay cuts and have their pensions flayed in public. Bankers, on the other hand, are not even to have minimal over-sight of their bonuses…we are informed that if we want the bankers to work hard, we must not cut their lavish rewards. We ordinary people, however, are told we must work harder for less money, less security and less hope for our children. People must lose their jobs. Bankers, however, mustn't be upset by talk of regulations lest they all leave.

What Marie-Antoinette would give to be alive now.

The financial system had become systematically corrupt. It is no longer fit, or even designed, for the purpose of spreading wealth. It has become a means of looting wealth from those foolish enough to observe the laws, and transferring it to those who regard themselves as far too clever and superior to have to bother with such trifling niceties.

(29 April 2010) It seems quite clear that we will not get sufficiently large or rapid enough growth to make any significant difference to our debt problems…That’s a bit problem for the politicians. The reality they will have to face…is that if growth doesn't take place anything like the rate needed, then the government of whatever party will have to cut spending and increase taxes…and unemployment will stay high…meaning any spending cuts will have to be even deeper.

As for taxing the rich, can you imagine any of the parties seriously threatening to do that? It’s us, not the wealthy, who will have to pay.

This means benefits and unemployment pay will be the first in line to get cut…Then there will have to be long-term savings, which means only one thing: public sector pensions.

While we are suffering the cuts to our services and living standards the bankers will be telling those in power that only they can save the country from stagnation and downgrade…that speculation is freedom, leverage is salvation and regulation is the road to perdition. In public they will attempt to dress themselves in the garb of national saviours. In private they will piss themselves laughing at us and our pathetic political leaders.

And that won't be all. If the government doesn't follow their commands, they will begin to act. There will be pressure from the bond market about our debt. It will be pressure created on the bond market by investment banks and others speculating on the cost of insuring UK debt using credit default swaps. They will be doing this because it’s a great way of making profits. And, guese what? The banks will be doing all this speculating against us with the bailout cash that we gave to them.

I understand that the crisis was fast moving, but not that fast and not all the time. There were long periods when a proper political and public debate could have taken place…at one of the most critical periods in recent history our democracy seriously failed us.

A suggestion was made to lay out the facts of the developing housing bubble in a public document to stimulate discussion and debate. The Fed chairman, Alan Greenspan, made it crystal clear what he thought: ‘We runs the risk’, he said, ‘by laying our the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand.’

There can be no clearer statement of contempt for you as a thinking adult.

There was no debate, and there still isn't, because those in power would rather your children grew up without hope of a job, without hope of a career, without hope of a decent education or a national health service, as long as their financial system and their wealth remains. They would rather all that than allow you any real debate or choice.

When it comes to finance we can chose any party, any course of action we like, so long as it falls within a narrow range of ‘acceptable choices’ and never threatens the control of those who claim to know what’s best.

All this makes me wonder if we still live in a real democracy. Or are we just living in a pretend one?

The fear of contagion is not financial contagion or debt contagion – those fears have already taken hold. The real contagion the financial class are terrified of is political contagion: they fear that other countries will follow the lead of the Greeks in fighting back against the cuts being imposed on them.

Two years on (from 2008), hundreds of billions of pounds later (trillions of you include the US bailout) and nothing, precisely nothing, has changed…except the original bad debts have now got much bigger. Now, instead of just banks, we have whole countries facing collapse as well. This is where the insane policy of bailing out the banks’ bad dept has led us.

Men in fine suites, with fine degrees, who live golden lives, have led us and our children to a desperate place. Our political leaders have helped them take us there. They chose not to spend our future taxes on education, on health, on investment in a better future, but instead they sacrificed it all to save the banks. That sacrifice will involve tearing from us every thread in the fabric of our national life that is not tied down and defended tooth and nail. It is the ultimate failure of the imagination and courage by a generation of political leaders.

It is a future where everything we have sacrificed and struggled to build to make this country a better place – our universities, our schools, our health service- is hacked down and the little left is subjected to the laws and logic of the market, where nothing is valued but profit.

In my opinion democracy – when you have it – is about peaceful voting. When you don't have it, or when you are in danger of having it hollowed out so that what remains severs only the rich and powerful, then it is time for standing up and confronting those who would deny you. That time is now. Our political leaders, if we let them, will deliver us to the killing fields. A different leadership will have to come from the bottom, from you and me, to stop them.

Just as the economic crisis was not triggered here but in the US, so it’s continuation is not dependent on conditions here but on those in the US. All the lending markets between banks, the stock markets around the globe and the bond markets depend on what happens in the US economy.

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