AS GOVERNMENTS STEP IN TO PROP UP THE GLOBAL FINANCIAL SYSTEM

SchNEWS never thought that Neo Labour would do so much to boost the welfare state. Over the last six months the government has pumped an unprecedented (and gigantic) amount of cash into the welfare system. The only trouble is that this money is not heading for the needy, but the greedy as we're talking about the welfare state...for big business.

The country's wealth is being squandered supporting the very company shareholders that have been arguing for years that, in Maggie Thatcher's words, "the business of government is not the government of business." Interfering politicians hell-bent on regulating the market only serve to hamper the competitive spirit, say the profit-hungry capitalists. Unless, that is, the interference comes in the form of hard cash designed to prop up their ailing investments at a time of crisis.

Following 'Meltdown Monday' and the ensuing turmoil in the corridors of global capital earlier this week, rampant free-marketeers are now clambering for more government cash to bail out the banking and financial system. And we are talking intergalactic telephone numbers. After years of sucking out huge commissions, profits and bonuses (Krug all round!), recorded losses for the banking and insurance sectors are now running at £275,000,000,000 - and it is estimated that this figure will double over the next twelve months. So far the most 'market friendly' governments in the world have pumped enough money into the system to cover 80% of these losses. Some analysts are estimating that Western governments will spend $1 trillion of public money bailing out the financial corporate sector and it's shareholders. Shareholders who have been only too happy to reap the benefits in recent years, without ever worrying about how their miraculous wealth was actually being created.

It's worth remembering how this whole mess started. Offering loans at 'normal' rates of interest was just not profitable enough for some banks. They chose to lend to people on lower incomes and adverse credit histories, charging a much higher interest rate. If you can borrow money at 4%, why lend it at 8% if you can charge 40% plus fees? Typically such loans were secured on people's homes, so if they defaulted the bank could get the money back via repossession. But alas, the value of property has crashed, reducing the banks' ability to claim the cash back upon the sale of a house (the classic confidence supported pyramid scheme collapses) - meaning they have to write off all these debts.

The cost of these 'write downs' has sucked up all the available cash in the system, meaning that there's hardly any money available to borrow, leading us into the 'credit crunch'. With two-thirds of the UK economy based on consumer spending (and most of that consumer spending taking place on the back of rocketing house prices) the system soon fell apart and we are now heading into recession - all because of the short-term profit aspirations of a banking sector we have no control over. Now the crisis is deepening as the value of these write offs start to exceed the value of the companies themselves - leading to their bankruptcy.

But never fear, the taxpayers can pay the price of all those failures! With government bailouts, shareholders' investments are being protected at the same time that the poorest in our society will bear the brunt of any economic downturn. On Tuesday alone, the Bank of England pumped twice the annual Housing Benefit budget into the banking sector. The debt owed by Northern Rock (£17bn) would be enough to pay for 900,000 nurses for a year!

CASH CONVERTERS

Over the pond in the heart of Neo-liberal capitalism - the US of A - the numbers get even bigger. In an unexpected twist to their economic policy, the Bush Junta has brought three huge private companies into common ownership. Of course we don't use language like 'nationalisation' anymore - this is a much more market-friendly form of 'conservatorship.' In the US Fannie Mae and Freddie Mac (two of those recent purchases) are the biggest providers of secondary mortgages and they've really come a cropper in the recent economic crisis. Earlier in the month the US-treasury bailed them by guaranteeing their balance sheet to the tune of $3.5 trillion - that's 200 times bigger than the Northern Rock bung and is the equivalent to ten years of US government spending on welfare.

For some time UK plc has been bunging its own wads of cash into business in the form of regeneration funding and hundreds of grants schemes for small and larger businesses alike. As the already-rich receive a new subsidy, the working poor are given a kick in the teeth. Back in April 2005, the Blair government said that it was 'inconceivable' for it to 'interfere in the market place' to prevent MG Rover going bust.

While a billion couldn't be found to save 18,000 jobs (not that SchNEWS really minded a car company going bust), somehow they could sling 40 times that amount to bail out Northern Rock, 28 months later.

One of the arguments put forward to not helping Rover was that the business was going to make a loss of £200m. But last month Northern Rock confirmed that its loss for the last year was £585m. Clearly the message is that if you're working class you can take a hike, but if you're a member of the business elite you can hold the government to ransom and there'll never be a need to worry about not having enough cash to pay your kids private school fees.

Against this backdrop, welfare benefits for the sick and disabled are, according to Neo Labour , - "no longer affordable in the modern age." (See SchNEWS 516) Now ministers are planning to push people off Incapacity Benefit and Disability Living Allowance and into dead-end menial McJobs. If they refuse, a US-style welfare-to-work scheme is proposed where people who've been out of work for more than two years without 'good cause' will be forced to work on the cheap for various corporations in order to get their benefits (See SchNEWS 614). So a lone parent on £125 per week would earn less than £3.50 an hour for a full time working week - just 40% of the minimum wage.

The UK spends £20bn a year on these sickness and disability benefits - £5bn less than the 'loan' fund it donated to the banking sector in just one day. Meanwhile new cash injected into the Social Fund - a source of interest-free loans for people on low incomes, including grants to help the mentally ill return to the community and emergency loans to re-house families who've lost their homes due to fire or flood - stood at just £81m for the whole year.

Whilst there has been a little talk about more regulation, nobody has stood up in parliament and called for a major rethink about the way we run our economy. And no wonder - all their pensions are linked to the value of shares in the very businesses the government is propping up!

But the hypocrisy doesn't stop there. For years we heard the same old story about how there's never any money for a liveable benefits system or a decent minimum wage, but somehow UK plc finds billions of spare cash to support corrupt businesses that are in a mess only because of a greed that has benefited no one but their shareholders. For years we've heard the mantra that the free market must be allowed to run unfettered - yet the most 'capitalist' governments are nationalising huge companies left, right and centre. It just goes to show that capitalism is a myth and the sooner we stop wasting money propping up a failed system that will never work - the better.