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).

Last week US Treasury Secretary Henry Paulson unveiled a dramatic plan to arrest the present financial crisis and prevent future economic catastrophe. It is to cost $700bn.

“I like thieves. Some of my best friends are thieves. Why, just last week we had the president of the bank over for dinner.”  W.C. Fields.

The capitalist system is in the throes of the worse financial crisis since the Great Depression. This is the view not only of the billionaire George Soros, but also of the International Monetary Fund, the custodian of the capitalist system, and all the serious capitalist commentators. 

As I write, financial markets in Wall Street, New York, the City of London and all over are in turmoil.  In just 24 hours, two out of the four largest investment banks in the US have disappeared.  Lehman Brothers, around for 158 years, has declared bankruptcy and 25,000 employees around the globe have lost their jobs. 

Merrill Lynch, the world’s largest investment bank, has been taken over by the largest high street bank in America, the Bank of America.  Bank America was virtually ordered by the US financial authorities to take over Merrill Lynch, paying $50bn.  Otherwise, that bank too would have gone bust, putting thousands more out of work.  Even worse for capitalism, it would have meant that both Lehman and Merrill Lynch would have defaulted on their contracts and obligations and thus brought down many other banks (15 were rumoured to be in trouble).