Elections and bourgeois opinions on media power-games & the recession [Archive]

puke on cops

10th October 2009, 23:17

Dear Joe,
Party political conferences. They look a little odd. Each party hires a venue, rallies up support from party members (who pay a nice fee to attend) give a few speeches from the cabinet and party leaders and afterwards, head towards the various campaigning stalls and gorge themselves on party conference food. The result is a weekend of tub-thumpery and ideological rhetoric, a real chance to pull the party together in an show of solidarity, a show that they are ready to (or can continue to) govern. With the fanfare now over the nation’s shoulder, the public look to the media for a review, which both they and the press know will likely determine the mood in the run up to a general election.
It would be easy to think, with this mood, that the election campaigns are little more than a tit-for-tat battle fought only for the isolated interests of politicians, each on their own isolated battlefields; ignoring the real needs of the people of Britain: those on low and middle incomes who are suffering or fearful from the recession, struggling to repay a mortgage or who have lost a job and are reliant on the help of the state.
I know what it’s like; I’ve been there. I know how it feels to walk into the dole office every fortnight to ’sign on’ and wait for a handout from the taxpayer. I know what it’s like to feel that sense of desperation when your rent is mounting and you can’t seem to find a job, and I know how frustrating it can be when those that have been dragged through the headlines as the responsible few are living on pensions most of us will never see in our lifetimes.
It would be equally as easy to blame the Government for what has happened in recent months. Let’s take the case of the bank bailout. The Tories have argued that Labour have put Britain into a state of dire public deficit that (they would like to portray) has crippled our economy. So lets look at the facts.
It all started in the United States, when bankers and mortgage lenders started giving mortgages to people on low income. Ordinarily these people would have been considered too high risk for such a financial obligation as the chances of getting your money back weren’t great, but to hell with it they thought; let the good times roll; interest rates were low and growth was high, there was little risk involved. A short time later interest rates shot through the roof (this is the amount of interest that the home-owner pays on top of the mortgage repayment each month). What happened, predictably by this point, was that the thousands of people on low incomes defaulted on their mortgages. Home repossessions went through the roof and the banks had little choice but to sell this debt on the global market.
Now lets make one thing clear: it’s not unusual for banks to sell debt on the global market, banks don’t make much money on consumer banking, (your current account) they in fact make money from buying and selling large packages of debt. A bank would hire a private auditor to evaluate the individual debt, say: a person’s mortgage, and (a great deal many factors depending) the auditor would rank the debt according to the likelihood of it being paid back. The bank would then take, say, 50 000 mortgages that the auditor had ranked as ‘A’ grade (pretty much guaranteed return on your money) and sell that whole package on the stock market. Other large banks would buy this big package of mortgage debt and either sell it on for a profit or keep it and make profit on reclaiming the debt over a period of time.
So what’s the problem? Well, in 2008 it was revealed the auditor that the banks were using was grading the debt wrong (this is an example of where paying your auditor by demand is a bad mix of profit and results) and lumping D grade debt amongst C, B and A grade packages. It became an almighty mess and many of the banks that had already bought these packages of debt soon found that they had no idea what was inside. So, naturally, the banks wanted to get rid of these ‘toxic assets’, but it wasn’t that simple. Banks, having been bloody-nosed just yesterday weren’t all that up for another round of pass-the-parcel, and so the global markets froze.
So why didn’t the banks just sort out what grade each piece of debt was and sell new packages? Well, in simplicity that would be a fine idea, but have you ever tried wading through several hundreds of thousands of mortgage debts? On top of this, many of the packages of debt that the banks had bought had been shot around the world several times and the value of the debt was no-longer clear.
Here we have to detour a little to explain how banks operate. Banks don’t actually have that much of their own money. I know we all imagine banks having huge iron vaults in the back room containing millions upon squillions of pounds of saver’s money; but that just isn’t the case. Banks only have about 10% of their actual equity in real terms, either locked up in assets or in cash. In reality banks play monopoly; that is to say that the cash that they trade on the market doesn’t actually have any value: it is debt, an IOU, like the mortgage packages we looked at above. This means that a bank is, at any given time, in debt, and that the same bank is owed debt by other banks.
So what happens when the markets freeze? Simple: banks stop trading with each other and with businesses on the global stock market. This is where the second disaster struck. The banks; unable to trade and create money through selling their debt had to start eating into their own reserve. This reserve is comparatively small and the money soon depleted, and with it many banks went bust, indeed one of the largest bank in America went under.
Okay, so why didn’t we just let all the bad banks go bust and create new, stronger banks? Because everything is tied up in lending. Here’s where the recession came in. The banks got nervous, they didn’t want to lend to businesses or people seeking to start up new companies, as they had little money and the global markets were still locked up. They didn’t want to take the risk and find themselves paying out of the small reserve they held. This a reaction most of us have taken in our lives, when an unexpected bill comes in the post we are far less likely to lend money to a friend. The consequence was that small and larger businesses alike who relied upon lending from banks in order to keep their company afloat; who needed the money for a new stock order or employ more staff, simply couldn’t. Most businesses operate in this way, in a cycle of debt; lending from banks regularly in order to expand and then pay that money back with the profits they make. It’s a good system until either the company defaults on a payment or the banks decide to stop lending money. The Government realised what would happen if the banks didn’t lend to businesses; many would lay off hundreds of staff and many more would go bust (as in the case of Wooworths) as the amount of money a company was making would not cover its existing overheads. The state had to step in, and thus was born the bank bailout.

In simplicity, the bank bailout didn’t cause a recession, it should have prevented one. Ideally the banks would have been bailed out and things would have continued as normal, only with better financial regulation (which is what all governments are aiming for). But this wasn’t exactly the case. Despite the bailout to stop the banks going bust and to capitalise the lending in the financial markets, banks were still unwilling to budge. This resulted in the recession prophecy. Many companies went bust and many more laid off employees to keep afloat. So you see, if the government had let all the banks go bust, all the companies (in their many thousands) would have gone bust too, and the many millions of people who work for them would have found themselves out of work. Those people too, would have had to claim state welfare; and the government would have likely paid more in Job seekers than in the bailout. On top of this, every single customer would have lost his or her savings, this fear was seen in the case of Norther Rock, where many thousands of customers flooded the branches to withdraw their savings. As a result, to restore confidence in the banks and propagate consumer investment, the government guaranteed all customer[EDIt: MEMORY LIKE A SEIVE, SORRY RY]
So, we conclude, reasonably, that if the banks were allowed to fail, not only would our financial institutions fall, but our very economy would fall. We would be at the mercy of a few survivors, many millions of people out of work and a line for the soup-kitchen so long, that would have made Thatchers legacy look like a warm-up act. The government should not be indited for bailing out the banks; they should in fact be applauded for quick and decisive action, and if this sounds like a party political broadcast for Labour; go check the figures yourself, think about how this has affected you, how things could have turned out.
So why is it that the Tories get away with slamming the government at every corner, while our mate Dave walks on water; a modern day Jesus Toff? The media has consistently failed to represent the fight, the debate has, for the past year and a half, been about personality; whether Gordon Brown takes pain killers or whether his eyesight makes him an unsuitable candidate to govern.

This was best represented, as we turn to this blog’s opening subject; in the media portrayal of the party conferences. Labour got very little coverage comparatively, (the Liberal Democrats’ conference didn’t get a look-in) I was pretty busy with college myself and found it unusually difficult to gain a press consensus of the result; not helped of course by The Sun, who announced, during the event, that they had dropped support for Labour and would now lay faith (blind faith) in the Conservative Party.

To diverge a little, The Sun’s choice to back the ‘winner’ (as the media would have you believe) is a foolish one. The General Election campaign has only really just begun, and as they say: a week is a long time in politics. Not that anyone told Mr. Murdoch, whose arrogance to declare support for a party that hasn’t actually outlined a vision for the future, could very well come back to bite him in his Australian ass. It is however a sign of the times that we allow newspapers to sway the debate in this way. Where once we would have looked to the press for a report of the facts and events as they unfolded, we now have the likes of The Sun, with a 10 million strong readership, declaring that they have obtained a crystal ball and that the future is blue.

I watched Cameron’s speech live (which started with Bono, sigh). It wasn’t bad, I was expecting a seething attack on Labour; but the result was a slightly more depressing affair. “Cuts, cuts, cuts” was the consensus at the Conservative Party Conference. I did however realise that much of what David said was a lie, making claims that were sometimes circumstantial and in many cases simply false. He claimed crime was up and NHS waiting lists were bad. This isn’t actually the case: crime is down and so are NHS waiting lists. His party claims to be the party of the National Health Service, as he reiterated in his speech, though (the fact that his party opposed the very creation of the NHS aside) only recently the Tories opposed Labour’s policy on seeing cancer specialists and getting fast results. The hypocrisy went on for some time, (we won’t even mention Europe) but I’ll insert the opposing speeches below so that you may evaluate them yourself.
It was revealed a short time later that George Osbourne’s speech wasn’t quite as honest as intended either. The Guardian revealed that the would-be chancellor had made a £3BN error in his working out, yeah, you read that right, three billion pound mistake. This is the guy that wants to be the chancellor of the exchequer in May. On top of that, David Blanchflower, respected economist and former member of the Bank of England’s monetary policy committee, also joined the criticism of the Tories’ financial plans, saying they had the potential to push the UK economy into a “death spiral“:

“We are in the midst of the worst recession most people alive have ever experienced, or will probably ever experience,” Blanchflower writes. “Lesson one in a deep recession is you don’t cut public spending until you are into the boom phase. The consequence of cutting too soon is to drive the economy into a depression. The Tory economic proposals have the potential to push the British economy into a death spiral of decline.“
So why had you not heard of these things before now? Because the media just don’t cover them. They are too wrapped up in the personality of politics, ignoring critical analysis of the events that unfold around us and are partaking in a propaganda war that is a real threat to our democracy. The BBC didn’t even cover Mr. Osbournes gaffe, but on the same day their front page is about Gordon Brown’s eyesight. Again.
So Joe, I urge you to look behind the headline, to always be critical and to look at the supporting evidence for the claims that any party should make. This General Election matters, this General Election really matters, we would do ourselves and our democracy a disservice to allow biassed media to have their fun with the working class ideals of the British people. I have embedded the party leaders’ speeches below, take a look at them; take a couple of hours out of your time to invest in our future, in your future.
The Tories don’t lie when they say they offer you change. But ask yourself, is this the change I actually want?