Northern Rock Crisis: Banks and International Usury

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Northern Rock Crisis: Banks and International Usury

US Banks Brace for Storm Surge as Dollar and Credit System Reel

On the Current Economic Turmoil

As Northern Rock went into financial turmoil, it applied for emergency Bank of England funding in order to roll over the outstanding short-term debt. Despite the protestations of Chancellor Alistair Darling and others that the financial system as a whole is sound, it is the system of international usury itself which is in crisis. The Bank of England bail-out is not sufficient to quell this crisis, nor can the government assurances of deposit protection have any serious affect on the underlying crisis. The bailout of Northern Rock through lending it money and guaranteeing deposits is to save not only particular monopoly capitalists but the system itself from imploding under the weight of its unidentified numerous contradictions.

            Northern Rock began life 150 years ago as the Northern Community Fund, and in 1968 it merged with the Rock Permanent Benefit Building Society. Along with other building societies, which changed their character fundamentally away from being primarily concerned with granting mortgages to home buyers, with demutualisation in October 1997 it acquired the status of a bank, aggressively concerned with making the maximum return in the financial market. It was following the sub-prime mortgage fall-out in the US that Northern Rock went into crisis. Depositors took out £3bn in just a few days. The bank owns around £113bn in debts, and owes billions to international lenders and depositors.

            The individual mortgages and other loans owed to Northern Rock have become collateral on which the moneylender borrows more money throughout the world, which it then uses to lend out to individuals and businesses. Total deposits in Northern Rock have financed and underwrite only a fraction of the outstanding loans it owns. Most of the financing and underwriting comes from international borrowing.

            The borrowing and lending involving Northern Rock and international usury can go back several stages with each step of the way dependant both on the borrower paying a regular amount of interest and on new money being available to borrow to pay off previously borrowed amounts as they become due. Specific and general crisis can erupt if borrowers at any level are unable to meet regular payments or international moneylenders are reluctant to lend more money to replace outstanding money that is due. This chaotic decaying system with parasites sucking in fees and interest at each level is sustained by stealing the production from the international working class particularly the oppressed in Asia, Africa, and Latin America.

            The crisis for Northern Rock began when it was unable to borrow new money to pay off debts that were due, which is known as rolling over debt or paying off old debt with new debt. Mervyn King, governor of the Bank of England, issued a warning that it would not be a “lender of last resort”, but then went on to lend emergency funds. However, his very public signal of financial difficulty coupled with the international concern and uncertainty over US debts, its economy and the falling value of the US dollar generated a sense of unease and panic.

            For the working class, concern for economic stability and panic have to be transformed into conscious determination to bring the existing economic forces under the control of the human factor/social consciousness. Workers are used to hearing that markets control the economy and even control the human factor through the labour market. Under this obsolete relationship and perspective, things and phenomena such as the market place, production and the economy itself control human beings and determine their economic security. The working class perspective is that the human factor must bring things and phenomena, especially the economy on which everyone depends, under its conscious control. The working class must acquire the consciousness of controlling what it produces and not allow what it to produces to fall out of control. This is a very human concept as it means bringing production, the labour market and the modern socialised economy under the conscious direction of human beings in a similar manner to how humans have brought fire and other naturally occurring things and phenomena under their conscious scientific control. Panic in the face of fire is not human; it is a reversion to base animal behaviour. Panic in the face of economic forces is not human; it reduces the human factor to isolated individuals bent on fending for themselves rather than dealing with the natural and social phenomena in an organised conscious manner. The working class perspective is to bring the modern force of production of the socialised economy under the conscious organised control of the actual producers.

            Part of the anti-human/anti-conscious factor which is perpetuated by the monopoly capitalist system is done so by the media. The media have only concerned themselves on the one hand with creating panic, attempting to paralyse the working class and stop them thinking and organising consciously on this matter. At the same time, they have worked in cahoots with the government, saying that everything is ok, that the crisis is only a blip, and that the system just needs a “correction” here or there and more “transparency” and possibly better regulations.   This false optimism is also aimed at the working class. The media reported that Alistair Darling insisted the economy was “strong” and had low interest rates, allowing politicians and officials to “deal with this particular problem”. This is the normal warning to the working class not to concern itself with economic and political affairs and certainly not organise into effective opposition to the ruling monopoly class. The media promotion of such soothing words of the Chancellor should be rejected and the real basis of the economic turmoil confronted from a working class perspective with the people becoming involved in an organised way to defend their economic security.

            The deposits in Northern Rock represent only a fraction of the debt owed and owned by the bank. The government's manoeuvres are designed to keep the initiative out of the hands of the working class to defend itself and its economic security in the face of a growing international economic crisis. The main contradiction that must be resolved is that of a socialised economy where all the wealth is produced by the working class but is owned and controlled by private cliques of monopolies and rich individuals. Those cliques of monopolies and rich individuals do not want the working class to bring its conscious organised strength to bear on the economy. The control of the state by the rich stands in the way of the working class bringing harmony to its own modern socialised economy.

            There is a deep concern on the part of the working class that a difficult economic recession or worse is looming and workers feel powerless to do anything about it. Workers throughout the imperialist system of states do not yet realise the enormous power they have to challenge the monopolies on each and every issue, if they get organised and take conscious actions from their own perspective. Workers' economic security can only be guaranteed by themselves organising and taking conscious action to restrict the monopolies and defend the rights of all and by working out the ways and means to come to power themselves.

(Based on the article “The Dark World of International Usury – British Depositors Remove Their Money from Northern Rock” in TML Daily, On-Line Newspaper of the Communist Party of Canada (Marxist-Leninist), September 24, 2007.)

Mike Whitney, Counterpunch, September 18, 2007

By now, you've probably seen the photos of the angry customers queued up outside of Northern Rock Bank waiting to withdraw their money. This is the first big run on a British bank in over a century. It's lost an eighth of its deposits in three days. The pictures are headline news in the U.K. but have been stuck on the back pages of US newspapers. The reason for this is obvious. The same Force 5 economic-hurricane that just touched ground in Great Britain is headed for America and gaining strength on the way.

            On Monday night, desperately trying to stave off a wider panic, the British government issued an emergency pledge to Northern Rock savers that their money was safe. The government is trying to find a buyer for Northern Rock.

            This is what a good old fashioned bank run looks like. And, as in 1929, the bank owners and the government are frantically trying to calm down their customers by reassuring them that their money is safe. But human nature being what it is, people are not so easily pacified when they think their savings are at risk. The bottom line is this: The people want their money, not excuses.

            But Northern Rock doesn't have their money and, surprisingly, it is not because the bank was dabbling in risky sub-prime loans. Rather, NR had unwisely adopted the model of "borrowing short to go long" in financing their mortgages just like many of the major banks in the US. In other words, they depended on wholesale financing of their mortgages from eager investors in the market, instead of the traditional method of maintaining sufficient capital to back up the loans on their books.

            It seemed like a nifty idea at the time and most of the big banks in the US were doing the same thing. It was a great way to avoid bothersome reserve requirements and the loan origination fees were profitable as well. Northern Rock's business soared. Now they carry a mortgage book totalling $200 billion.

            $200 billion! So why can't they pay out a paltry $4 or $5 billion to their customers without a government bailout?

            It's because they don't have the reserves and because the bank's business model is hopelessly flawed and no longer viable. Their assets are illiquid and (presumably) "marked to model", which means they have no discernible market value. They might as well have been "marked to fantasy”, it amounts to the same thing. Investors don't want them. So Northern Rock is stuck with a $200 billion albatross that's dragging them under.

            A more powerful tsunami is about to descend on the United States where many of the banks have been engaged in the same practices and are using the same business model as Northern Rock. Investors are no longer buying CDOs, MBSs, or anything else related to real estate. No one wants them, whether they're sub-prime or not. That means that US banks will soon undergo the same type of economic gale that is battering the UK right now. The only difference is that the US economy is already listing from the downturn in housing and an increasingly jittery stock market. That's why Treasury Secretary Henry Paulson rushed off to England yesterday to see if he could figure out a way to keep the contagion from spreading.

            Good luck, Hank.

            It would be interesting to know if Paulson still believes that "This is far and away the strongest global economy I've seen in my business lifetime", or if he has adjusted his thinking as troubles in sub-prime, commercial paper, private equity, and credit continue to mount?

            For weeks we've been saying that the banks are in trouble and do not have the reserves to cover their losses. This notion was originally pooh-poohed by nearly everyone. But it's becoming more and more apparent that it is true. We expect to see many bank failures in the months to come. Prepare yourself. The banking system is mired in fraud and chicanery. Now the schemes and swindles are unwinding and the bodies will soon be floating to the surface.

            "Structured finance" is touted as the "new architecture of financial markets". It is designed to distribute capital more efficiently by allowing other market participants to fill a role which used to be left exclusively to the banks. In practice, however, structured finance is a hoax; and undoubtedly the most expensive hoax of all time. The transformation of liabilities (dodgy mortgage loans) into assets (securities) through the magic of securitization is the biggest boondoggle of all time. It is the moral equivalent of mortgage laundering. The system relies on the variable support of investors to provide the funding for pools of mortgage loans that are chopped-up into tranches and duct-taped together as CDOs (collateralized debt obligations). It's madness; but no one seemed to realize how crazy it was until Bear Stearns blew up and they couldn't find bidders for their remaining CDOs. It's been downhill ever since.

            The problems with structured finance are not simply the result of shabby lending and low interest rates. The model itself is defective.

            John R. Ing provides a great synopsis of structured finance in his article, "Gold: The Collapse of the Vanities":

            "The origin of the debt crisis lies with the evolution of America's financial markets using financial engineering and leverage to finance the credit expansion. Financial institutions created a Frankenstein with the change from simply lending money and taking fees to securitizing and selling trillions of loans in every market from Iowa to Germany. Credit risk was replaced by the "slicing and dicing" of risk, enabling the banks to act as principals, spreading that risk among various financial institutions. Securitization allowed a vast array of long-term liabilities once parked away with collateral to be resold along side more traditional forms of short-term assets. Wall Street created an illusion that risk was somehow disseminated among the masses. Private equity too used piles of this debt to launch ever-bigger buyouts. And, awash in liquidity and very sophisticated algorithms, investment bankers found willing hedge funds around the world seeking higher yielding assets. Risk was piled upon risk. We believe that the sub-prime crisis is not a one off event but the beginning of a significant sea change in the modern-day financial markets."

            The investment sharks who conjured up "structured finance" knew exactly what they were doing. They were in bed with the ratings agencies – off-loading trillions of dollars of garbage-bonds to pension funds, hedge funds, insurance companies and foreign financial giants. It's a swindle of epic proportions and it never would have taken place in a sufficiently regulated market.

            When crowds of angry people are huddled outside the banks to get their money, the system is in real peril. Credibility must be restored quickly. This is no time for Bush's "free market" nostrums or Paulson's soothing bromides (he thinks the problem is "contained") or Bernanke's feeble rate cuts. This requires real leadership.

            The first thing to do is take charge, alert the public to what is going on and get Congress to work on substantive changes to the system. Concrete steps must be taken to build public confidence in the markets. And there must be a presidential announcement that all bank deposits will be fully covered by government insurance.

            The lights should be blinking red at all the related government agencies including the Fed, the SEC, and the Treasury Dept. They need to get ahead of the curve and stop thinking they can minimize a potential catastrophe with their usual public relations mumbo jumbo.

            Last week, an article appeared in the Wall Street Journal, "Banks Flock to Discount Window". (9-14-07) The article chronicled the sudden up-tick in borrowing by the struggling banks via the Fed's emergency bailout programme, the "Discount Window":

            "Discount borrowing under the Fed's primary credit programme for banks surged to more than $7.1 billion outstanding as of Wednesday, up from $1 billion a week before." Again we see the same pattern developing; the banks borrowing money from the Fed because they cannot meet their minimum reserve requirements.

            WSJ: "The Fed in its weekly release said average daily borrowing through Wednesday rose to $2.93 billion." $3 billion.

            Traditionally, the "Discount Window" has only been used by banks in distress, but the Fed is trying to convince people that it's really not a sign of distress at all. It's "a sign of strength". Baloney. Banks don't borrow $3 billion unless they need it. They don't have the reserves. Period.

            The real condition of the banks will be revealed sometime in the next few weeks when they report earnings and account for their massive losses in "down-graded" CDOs and MBSs.

            Market analyst Jon Markman offered these words of advice to the financial giants:

            "Before they (the financial industry) take down the entire market this fall by shocking Wall Street with unexpected losses, I suggest that they brush aside their attorneys and media handlers and come clean. They need to tell the world about the reality of their home lending and loan securitization teams' failures of the past four years – and the truth about the toxic paper that they've flushed into the world economic system, or stuffed into Enron-like off-balance sheet entities – before the markets make them walk the plank.' .' Since government regulators and Congress have flinched from their responsibility to administer 'tough love' with rules forcing financial institutions to detail the creation, securitization and disposition of every ill-conceived sub-prime loan, off-balance sheet 'structured investment vehicle,' secretive money-market 'conduit' and commercial-paper-financing vehicle, the market will do it with a vengeance."

            Good advice. We'll have to wait and see if anyone is listening. The investment banks may be waiting until Tuesday hoping that Fed-chief Ken Bernanke announces a cut to the Fed's fund rate that could send the stock market roaring back into positive territory.

            But interest rate cuts do not address the underlying problems of insolvency among homeowners, mortgage lenders, hedge funds and (potentially) banks. As market-analyst John R. Ing said, "A cut in rates will not solve the problem. This crisis was caused by excess liquidity and a deterioration of credit standards .A cut in the Fed Fund rate is simply heroin for credit junkies."

            The cuts merely add more cheap credit to a market that is already over-inflated from the ocean of liquidity produced by former-Fed chief Alan Greenspan. The housing bubble and the credit bubble are largely the result of Greenspan's misguided monetary policies. (For which he now blames Bush!) The Fed's job is to ensure price stability and the smooth operation of the markets, not to reflate equity bubbles and reward over-exposed market participants.

            It's better to let cash-strapped borrowers default than slash interest rates and trigger a global run on the dollar. Financial analyst Richard Bove says that lower interest rates will do nothing to bring money back into the markets. Instead, lower interest rates will send the dollar into a tailspin and wreak havoc on the job market.

            "There is no liquidity problem, but a serious crisis of confidence," Bove said:

            "In a financial system where there is ample liquidity and a desire for higher rates to compensate for risk, the solution is not to create more liquidity and lower the rates that are available to compensate for risk. ... (The Fed) cannot reduce fear by stimulating inflation

            "It is illogical to assume that holders of cash will have a strong desire to lend money at low rates in a currency that is declining in value when they can take these same funds and lend them at high rates in a currency that is gaining in value. By lowering interest rates the Federal Reserve will not stimulate economic growth or create jobs. It will crash the currency, stimulate inflation, and weaken the economy and the job markets".

            Bove is right. The people and businesses that cannot repay their debts should be allowed to fail. Further weakening the dollar only adds to our collective risk by feeding inflation and increasing the likelihood of capital flight from American markets. If that happens; we're toast.

            Consider this: In 2000, when Bush took office, gold was $273 per ounce, oil was $22 per barrel and the Euro was worth $.87 per dollar. Currently, gold is over $700 per ounce, oil is over $80 per barrel, and the Euro is nearly $1.40 per dollar. If Bernanke cuts rates, we're likely to see oil at $125 per barrel by next spring.

            Inflation is soaring. The government statistics are thoroughly bogus. Gold, oil and the Euro don't lie. According to economist Martin Feldstein, "The falling dollar and rising food prices caused market-based consumer prices to rise by 4.6 per cent in the most recent quarter." (WSJ)

            That's 18.4 per cent a year, and yet Bernanke is still considering cutting interest rates and further fuelling inflation.

            What about the American worker whose wages have stagnated for the last six years? Inflation is the same as a pay-cut for him. And how about the pensioner on a fixed income? Same thing. Inflation is just a hidden tax progressively eroding his standard of living. .

            Bernanke's rate cut may be boon to the "cheap credit" addicts on Wall Street, but it's the death-knell for the average worker who is already struggling just to make ends meet.

            No bailouts. No rate cuts. Let the banks and hedge funds sink or swim like everyone else. The message to Bernanke is simple: "It's time to take away the punch bowl".

            The inflation in the stock market is just as evident as it is in the price of gold, oil or real estate. Economist and author Henry Liu demonstrates this in his article "Liquidity Boom and the Looming Crisis":

            "The conventional value paradigm is unable to explain why the market capitalization of all US stocks grew from $5.3 trillion at the end of 1994 to $17.7 trillion at the end of 1999 to $35 trillion at the end of 2006, generating a geometric increase in price earnings ratios and the like. Liquidity analysis provides a ready answer". (Asia Times)

            Market capitalization zoomed from $5.3 trillion to $35 trillion in 12 years? Why? Was it due to growth in market-share, business expansion or productivity? No. It was because there were more dollars chasing the same number of securities; hence, inflation.

            If that is the case, then we can expect the stock market to fall sharply before it reaches a sustainable level. As Liu says, "It is not possible to preserve the abnormal market prices of assets driven up by a liquidity boom if normal liquidity is to be restored." Eventually, stock prices will return to a normal range.

            Bernanke should not even be contemplating a rate cut. The market needs more discipline not less. And workers need a stable dollar. Besides, another rate cut would further jeopardize the greenback's increasingly shaky position as the world's "reserve currency". That could destabilize the global economy by rapidly unwinding the US massive current account deficit.

            The International Herald Tribune summed up the dollar's problems in a recent article, "Dollar's Retreat Raises Fear of Collapse."

            "Finance ministers and central bankers have long fretted that at some point, the rest of the world would lose its willingness to finance the United States' proclivity to consume far more than it produces - and that a potentially disastrous free-fall in the dollar's value would result.

            "The latest turmoil in mortgage markets has, in a single stroke, shaken faith in the resilience of American finance to a greater degree than even the bursting of the technology bubble in 2000 or the terror attacks of Sept. 11, 2001, analysts said. It has also raised prospect of a recession in the wider economy.

            "This is all pointing to a greatly increased risk of a fast unwinding of the US current account deficit and a serious decline of the dollar".

            Other experts and currency traders have expressed similar sentiments. The dollar is at historic lows in relation to the basket of currencies against which it is weighted. Bernanke can't take a chance that his effort to rescue the markets will cause a sudden sell-off of the dollar.

            The Fed chief's hands are tied. Bernanke simply doesn't have the tools to fix the problems before him. Insolvency cannot be fixed with liquidity injections nor can the deeply-rooted "systemic" problems in "structured finance" be corrected by slashing interest rates. These require fiscal solutions, congressional involvement, and fundamental economic policy changes.

            Rate cuts won't help to rekindle the spending spree in the housing market either. That charade is over. The banks have already tightened lending standards and inventory is larger than anytime since they began keeping records. The slowdown in housing is irreversible as is the steady decline in real estate prices. Trillions in market capitalization will be wiped out. Home equity is already shrinking as is consumer spending connected to home-equity withdrawals.

            The bubble has popped regardless of what Bernanke does. The same is true in the clogged Commercial Paper market where hundreds of billions of dollars in short-term debt is due to expire in the next few weeks. The banks and corporate borrowers are expected to struggle to refinance their debts but, of course, much of the debt will not roll over. There will be substantial losses and, very likely, more defaults.

            Bernanke can either be a statesman – and tell the country the truth about our dysfunctional financial system which is breaking down from years of corruption, deregulation and manipulation – or he can take the cowards-route and buy some time by flooding the system with liquidity, stimulating more destructive consumerism, and condemning the nation to an avoidable cycle of double-digit inflation.

            We'll know his decision soon enough.

From an Interview with Journalist K.C. Adams, TML Daily, August 31, 2007

TML: With regard to economic issues, capital-centred official science, academia and the mass media deliberately obscure how problems originate, their development and how to resolve them in favour of the people and their economic security. Could you comment?

KCA: Coherence and clarity will certainly not be found in the mass media, which trivialise economic events and push disinformation, the anti-human/anti-consciousness, to maintain the status quo and the ruling elite's unsustainable domination of the socialised economy. The US and Canada regularly go through recessions and other forms of economic crises. Nowhere will you find capital-centred official science, academia or the mass media pointing the finger at the monopoly capitalist system as the culprit and calling on the working class to organise and lead a mass movement for economic renewal and its own nation-building project based on the human factor, social consciousness and vesting sovereignty in the people.

            In the recent instance, the collapse of various moneylending companies and wild fluctuations of the stock market are symptoms of very serious economic contradictions within the monopoly capitalist system. Moneylending to the working class, properly called monopoly usury, is a symptom of economic insecurity and the growing gap between rich and poor in the United States and Canada. It also stems from the growing gap between the developed countries in the Triad (United States and Canada, Europe and Japan) and the rest of the world and the domination of the world by the US Empire.

            In both the Triad and most of the rest of the world, the lack of any state guarantees for social and economic security of livelihoods, pensions, healthcare and all other social matters are major issues that must be resolved. In the US the consumer society was one aspect of the tripartite (business, government and labour) social contract after WWII. To sustain that social contract the working class must have a certain level of claim on added-value but that US-standard claim on the aggregate added-value is collapsing at a rapid rate. The aggregate itself is under downward pressure as manufacturing is destroyed or transferred out of the country and more goods are imported. US added-value produced by the working class is broadly divided among the working class, governments and the owners of monopoly capital (the rich). The rich are claiming more of the aggregate and use it within a very narrow luxury economy and not generally for reinvestment within the US economy. Governments are using their claim for war abroad, repression at home and various pay the rich schemes but not for investments in social programmes. The US government spends most of its claim on global military expansion and its three-pronged war on terror, drugs and immigrants. The working class is left with a shrinking claim on added-value, which directly reduces the US socialised economy leading to crises and recession or possibly worse. One of the few bright spots for the US and Canadian working class is the influx of immigrants, which becomes a factor to grow the socialised economy in those areas where immigrants settle in sufficient numbers. But this immigration reflects serious unresolved economic problems in the immigrants' home country mainly caused by US Empire-building, especially in Mexico, Central America and the Philippines.

            The ruling elite has unilaterally smashed the social contract and is determined to force down US and Canadian-standard incomes. The rich have used the state to smash the trade union movement especially in the United States. Owners of monopoly capital have used the state to destroy livelihoods through outsourcing, closures and monopoly bankruptcy frauds. They have created a severely exploited section of the working class based on so-called undocumented immigration, fear of deportation and indentured labour schemes, and they have used governments to put the burden of taxes on individual workers and have let the owners of monopoly capital amass fortunes unimaginable a few decades ago. Moneylending or monopoly usury has moved in to replace the diminishing claim of the US working class with mortgages, auto loans and leasing, credit cards, and student loans. That usury is not sustainable.

            Globally the US state has enforced its dollar hegemony through military terror and created a situation where the rest of the world including Canada sends money into the US to underwrite wars of aggression and military expansion and a system of moneylending or monopoly usury that is both unconscionable and unsustainable.

 

TML: So the key thing for workers is to seek truth to serve the people and defend the rights of all, and to do that they must reject the anti-human factor/anti-consciousness of the mass media and the capital-centred official economic and political commentators, and organise politically to implement a nation-building project of their own.

KCA: Yes. Workers have to find out about the economy for themselves through an act of conscious participation in an act of finding out, which involves becoming politically active in defence of the rights of all and organising to come to power themselves, vest sovereignty in the people and begin a nation-building project in their own image. They will demystify the socialised economy by fighting to harmonise it and make it work. By rejecting the capital-centred viewpoint, uniting, resisting monopoly right and state-organised attacks, building their mass movement and going for political power workers will eventually get this monkey off their back, the monopoly class that has usurped power by force and maintains a stranglehold over political, economic and social affairs blocking the advance of history. And in that process the workers will develop their own perspective on the modern socialised economy, and with political power will become professional in the way they develop, mobilise and harmonise the forces of mass production. They will have a say-so and control over their economy, an economy where they are the producers and the masters.

 

TML: The entire scenario unfolding around this asset-backed commercial paper and the involvement of a major pension fund is quite shocking for the working class. Will this situation worsen?

KCA: The root of the problem has not been confronted so the problem for the Caisse de dépôt and other moneylenders has simply been put off for another time maybe sooner than they hope. With the blessing of Finance Minister Flaherty, the Caisse de dépôt and nine big financial houses mostly foreign such as Barclays Capital, Deutsche Bank, HSBC and UBS have magically turned this short-term commercial paper, which is designed to be as liquid as money, into long-term debt, which in some cases will be untouchable for eight years. This will cause a big crisis for many companies that bought this commercial paper on prospects of big profits and easy access. Many have sunk much of their retained earnings into this usury, such as Ivanhoe Mines, Redcorp Ventures Ltd. of Vancouver, Barrick Gold, Baffinland Iron Mines Corp. and many others. Now they will not be able to use any of that money for years if indeed any money remains. Also, mutual funds by law are not allowed to tie up their holdings in debt rated below investment grade, which means that any short-term paper they own connected with the Caisse agreement will have to be liquidated at a big loss.

            A sidebar to the general corruption is that the credit rating agencies, which receive payment from the very institutions whose commercial paper they are rating, routinely gave such paper an investment grade rating because of the commitment by the big banks to buy the paper if no other buyers can be found. But they soon closed their vaults to try and save their own skins.

            Certain moneylenders are in significant trouble such as Coventree of Toronto but the big Canadian name involved in this mess is the National Bank, which already admits to issuing $2-billion of short-term commercial paper it cannot resell, similar to the big French bank BNP Paribas, which has been forced to liquidate three of its trust subsidiaries.

            But let's reiterate the problem from the perspective of the working class. These are failures of an obsolete economic system that has institutionalised worldwide usury and is based on greed and exploitation of humans by humans. Workers have to face up to their social responsibility to replace this outmoded system that cannot function without economic crises and constant war. The reality that the widow of the Pennsylvania steelworker is forced to mortgage her home to pay medical bills must be challenged. That is intolerable. It is the duty of a modern government to guarantee the economic security of all its members. The fact that economic security generally is under threat is a big problem. We live in a socialised environment of mass production not in isolated self-sustaining villages based on petty production. In a modern socialised economy of mass integrated production, basic necessities such as livelihoods, healthcare, education, transportation, housing, clothing, pensions and full cultural activity particularly for youth and seniors must be guaranteed. The fact that students must borrow tens of thousands of dollars to attend university is another outdated problem. The fact that governments are not investing in social programmes is unacceptable and must be changed. The fact that basic necessities of life such as housing and transportation are soaring in an inflationary price spiral is another problem that must be challenged.

            The basic problem of a society split between the working class and owners of monopoly capital is driving all the symptoms. To secure and maintain this antagonistic class division in the US, forestall any positive resolution of social problems and protect and enlarge its Empire abroad, the US ruling class has unleashed a three-pronged war without end: a war on terror, war on drugs and war on immigrants. These wars are causing untold misery for the peoples of the world and are so ruinous and expensive they are draining away the country's added-value not to speak of the damage to others overseas. To make up the shortfall within the US, it is stealing from abroad and forcing even poor developing countries such as China to send it cheap consumer goods and to invest its earnings in US securities such as the crisis-ridden asset-based commercial paper. In the US, just imagine the human and material costs to incarcerate continuously over 2.2 million people. Just imagine the costs of maintaining hundreds of military bases within the United States and almost every country in the world. Just imagine the human and material costs of waging two major wars in Iraq and Afghanistan. The US socialised economy and the world cannot sustain this reckless behaviour. It is time for the US and Canadian working class to step up their political organising and establish an anti-war government which necessarily will defend self-reliance in economic relations and trade for mutual benefit, and will encourage mass movements on every front to put an end to this human-devouring system of monopoly capitalism.