Unprecedented!  That was the mantra of the broadcasters, pundits and newspapers throughout September, as the credit crisis took a dark turn.  Credit markets (mortgages, loans for cars and goods, company bonds and overdrafts) just dried up.  Banks stopped lending even to each other.  Liquidity disappeared like water into the Sahara desert.  Interest rates rocketed despite the best efforts of the central banks to provide unlimited credit at almost any price.  The capitalist financial machine seized up.  Banks started to go bust and even countries went bankrupt (Iceland).  Nothing has ever been seen like it – for the first time in the hyperbole of the news media, it really was unprecedented.

Over the past couple of weeks, Britain, many other European countries and the US have announced plans to nationalise large chunks of the financial sector, thereby taking a good proportion of the commanding heights of the economy into public ownership. The British government has been forced to effectively part-nationalise three of the country’s biggest banks, RBS, Lloyds TSB and HBOS. The plan, which includes putting treasury-appointees on the boards of all three banks, will cost the taxpayer in the region of £37 billion. Many of the major European powers are unveiling similar plans, and even the US, the ideological bastion of free-market capitalism, has been forced to invest $250 billion into buying stakes in nine of its banks (though these ‘non-voting preference shares’ mean the US government will have no direct control over the running of these banks).

Nationalisation of the banks and financial institutions is a corner stone of any plan by socialists to implement socialism. This idea has been ridiculed and has always been hated by big business, capitalists and economic commentators. 

Yet within the last months, because money that the banks don’t have has been lent to people, banks and companies which they cannot pay back, the chickens have been coming home to roost.  Bank after bank has been partly or totally nationalised. What a turnaround in events! Does this mean that we have won the ideological argument and socialism is around the corner?

As Marxists know, and as the present crisis has shown, this is the opposite of the truth. But this has been the foundation of all the policies carried out by New Labour over the past years.

On 8th October the government and the banks came to an emergency agreement to prevent financial meltdown. The government agreed to commit:

• £50bn for bank recapitalisation

• £200bn in short-term loans to boost liquidity

• £250bn debt guarantee for inter-bank lending.

The banks committed themselves to – nothing.

A few days ago RBS and Lloyds TSB/HBOS alone claimed £31.5bn of public money. The final bill could come to £75bn

Last month we reported how insurance giant AIG had to be bailed out by the US government for $85bn. It’s all part of ‘Socialism for the rich, capitalism for the poor.’

Less than a week after the bailout, the company held a week-long retreat for its executives at the luxury St. Regis Resort in Monarch Beach, Calif., running up a bill of $440,000,

At the opening of a House committee hearing about the near-failure of the insurance giant, Congressman Henry Waxman showed a photograph of the resort. Waxman said the executives spent $200,000 for rooms, $150,000 for meals and $23,000 for the spa. 

In the early hours of this morning (08.10.08), the government and the financial authorities have finally agreed an ambitious plan to save the banks. They present the £50bn bail-out as decisive action to stop the rot. In fact their hands were forced, and there’s no sign that it will stem the panic on UK stock markets in any case.

Last Tuesday shares in two of our biggest banks, HBOS and RBS, plummeted by 40%. Let Nils Pratley (Guardian 08.10.08) chronicle the damage. “At the close of trading, Royal Bank of Scotland, a bank that raised £12bn of fresh capital from its shareholders in June, was worth only £18bn.” (That is what the sum total of its shares came to.)  “Shares in HBOS were priced 50% below the value of a bid from Lloyds TSB to buy it.” The banking system faced catastrophe.

Neoliberalism, the dominant ideology of modern capitalism, is under sustained challenge. For the past quarter of a century neoliberalism, sometimes called market fundamentalism, the policy of non-intervention in the economy, has been the ideology, and the set of policies that go with it, which has adamantly opposed the rights and attempted to drive down the living standards of the working class all over the world. Now the economic crisis is forcing the authorities to intervene, regulate, and even nationalise firms because they have no choice. Is neoliberalism dead?

'Modern history’s greatest regulatory failure’; ‘The end of American capitalism as we know it’; these are just two of the headlines thrown up by the credit crunch, both appearing in the Financial Times, the organ of British finance capital. In the course of a single week, we have seen the collapse of three of America’s biggest financial institutions: on Sunday 13th September, Bank of America announced it was buying out Merrill Lynch, one of the world’s most famous investment banks; on the following Monday, Lehman Brothers, the fourth largest securities firm in the US, filed for bankruptcy; and, as if that were not enough, on Tuesday, the US Federal Reserve invested $85 billion in a takeover of AIG, America’s largest insurance company. More recently, on Thursday 25th, the huge US bank Washington Mutual, in a state of collapse, was taken over by JP Morgan Chase, in a move described as ‘the biggest bank failure in American history” (Saskia Scholtes, Joanna Chung and Deborah Brewster, JPMorgan swoops in again, FT, September 26 2008).