Wednesday morning Prime Minister Gordon Brown and Chancellor
Alistair Darling faced the press to explain the rescue package they had
put together to rescue the crumbling banking sector in Britain.
The previous day four major high street banks had suffered huge
losses: HBOS shares were down 42 per cent; The Royal Bank of Scotland
was down 39 per cent; Lloyds TSB, which is in the process of buying out
the beleaguered HBOS, was down 13 per cent and Barclays was down nine
The package they unveiled involved half a trillion pounds of
taxpayers’ money – and a desperate gamble that it will be enough.
Of that, £50 billion will be used to buy shares in the
worst hit banks. The Government will become a stakeholder in these
banks and if, in future, they make a profit, the Government will claim
its share on behalf of taxpayers. The Government will set some
conditions – about curbing bonuses paid to bank executives who have
taken bad risks and generally behaving more responsibly.
But the Government has failed to demand a place on the boards of
these banks, which could have extended democratic control over the
Another £250 billion will be made available to be used if
necessary to guarantee bank debts and protect savers’ investments.
And the final £200 billion will be used to back short-term
lending to banks to make it easier for banks to begin lending to each
other again. The bank of England will lend sterling for three months
and dollars for a week.
Brown pointed out that this was a very different rescue package from
the $700 billion one delivered by Paulson to stem the Wall Street
crisis just a couple of weeks ago. He said the Government was not
buying the banks’ bad debts but making an investment in them on behalf
of taxpayers that taxpayers would, in a couple of years, reap some
But, like Paulson’s package, it did little to stem the continuing
collapse of share prices.
Then around midday the Bank of England announced a drop in
interest rates of half a per cent to 4.5 per cent from five per cent.
This announcement was coordinated with the US Federal Reserve and other
national banks around the world that all lowered interest rates at the
The big lending banks had previously this year significantly
failed to pass on cuts in the basic lending rate to mortgage payers but
this time they have begun to pass on the rate cuts to customers.
The total £500 billion package will cost an average of
£1,000 for every person in Britain and there is anger on the
streets from many people who blame greedy bankers for the crisis and
would prefer it spent on schools and hospitals.
When asked, Brown said the money would be raised by borrowing but
clearly the spectre of public spending cuts on things like schools,
hospitals and benefits looms, as does the prospect of tax rises.
If Brown were to impose these tax rises firmly on the very rich,
especially bankers, he would quickly regain Labour’s standing in the
When Brown was asked, “What is plan B if this does not work?” he
changed the subject and talked about all the benefits taxpayers would
gain – eventually. Meanwhile stocks are still falling.
This is not hitting only the wealthy; pension schemes of course
have been very badly hit. And many local authorities, on Government
advice, have invested their reserves. Some have invested millions in
the Icelandic Bank, Icesave, which stopped trading on Tuesday.
One local authority is believed to have its payroll account lodged in
Icesave’s parent bank, Landsbanki, had to be taken over by the
Icelandic government. That government sought help from European and
American governments for help but was turned down and now hopes to
negotiate a four billion euro loan from Russia.
The Icelandic government denied rumours in a column in the
Spectator that in return they might allow the Russians to use an
airbase abandoned by the US Air Force a couple of years ago.
In the “real” economy everything is slowing down: house sales,
car sales, high street sales. And the IMF is predicting a major global
downturn with negative growth and job cuts.
There is one small benefit for workers; the downturn has led to a
fall in demand and falling prices for some commodities: oil, gas, food
and so on.
The economic situation remains chaotic but there are
opportunities. Now the banks are coming cap in hand to taxpayers,
taxpayers should be setting the terms and conditions to their benefit.
And it is the organised working class, the trade unions, who
should be demanding democratic control over these now half-nationalised
Chaos also has its dangers; without a strong, organised working
class, the extreme right-wing can take advantage on behalf of the
ruling class to impose the kind of neo-fascist regime that would be
needed to repress working class anger if the banks continue to rip us