British disaster comes on heels of US sub-prime mortgage crisis.
by Ian Mosley
There are growing signs that a world-wide financial crisis may be brewing. The recent sub-prime mortgage crisis in the US is now being surpassed by a run on banks over in Britain.
Perhaps, the clearest sign that the “party is over” came on Tuesday, Sep. 18th, when the US Fed cut the prime lending rate by half a percent. This is an extremely significant change signaling that our economy is in serious trouble.
Over the last four years, the federal reserve rate had increased from a low of 1.00 percent in June, 2003, to a recent high of 5.25 percent. An increasing interest rate is a sign of an improving economy. Our economy however is far from stable. We’ve outsourced millions of manufacturing jobs. We’ve piled up a massive nine trillion dollar debt thanks in part to Bush’s empire wars. Millions of Americans have bought overpriced housing over the last several years. Many of these people have variable rate loans. Some of them have “interest only” loans. If the interest rates go up too high, millions of Americans won’t be able to pay off their mortgages. Because the price of housing has dropped, the mortgage companies will lose money each time a borrower goes bankrupt.The recent near-collapse of America’s largest mortgage lender, Countrywide sent shock waves through Wall Street. If the biggest mortgage company fails, dozens of other mortgage companies could fail, and the whole economy might be dragged down with them. A http://www.theacorn.com/news/2007/0920/front_page/002.html reports “The nation’s largest mortgage lender (Countrywide) will hand up to 12,000 of its employees pink slips in the next three months in an effort to stay afloat during the home-loan crisis. After cutting 900 jobs earlier this month and 500 in August, Countrywide Financial Corp. announced last week that up to 20 percent of its nationwide work force could be laid off.”
While cutting the prime rate will ease the pressure on millions of people with variable rate loans, this doesn’t change the fact that housing prices have dropped substantially and millions of people, who were making money by speculating on real estate are effectively out of business and possibly in debt. American jobs continue to be outsourced, and a half percent reduction won’t help a software engineer, who has just lost his high-paying job at MicroSoft as Bill Gates outsources these jobs to India.
The US isn’t the only nation facing a financial disaster. For the first time in over one hundred years, the United Kingdom is experiencing a severe financial panic and a run on banks as British people rush to get their money out of a collapsing financial institution, the British equivalent of our savings and loan associations.
According to the http://www.guardian.co.uk/frontpage/story/0,,2171546,00.html newspaper, “The government last night issued an emergency pledge to Northern Rock savers that their money is safe, after a third day of queues (long lines) outside branches threatened to spread across the banking system. Northern Rock’s shares shed a third of their value yesterday and the sense of crisis heightened as shares in rival mortgage lenders dropped sharply – Alliance & Leicester by a third and Bradford & Bingley by 15%. The falls raised fears that the contagion from Northern Rock was starting to spread through the financial system.”
The http://www.guardian.co.uk/frontpage/story/0,,2171546,00.html continues “Amid criticism that the government reacted far too slowly to the first run on a major bank in over a century, the chancellor Alistair Darling announced a government guarantee of all deposits in Northern Rock – thus overturning the system for dealing with bank collapses which Labour introduced six years ago. He intervened just after news of the Alliance & Leicester’s mauling started to emerge. Mr Darling said the guarantee would apply to other banks in trouble. But he insisted no other had so far followed the Northern Rock and applied to the Bank of England for emergency funding… Labour faced potentially its worst crisis since coming to power a decade ago.” Looks like Tony Blair bailed out just in time. Maybe he knew this was coming.
The http://www.guardian.co.uk/frontpage/story/0,,2171546,00.html article continues “…the queues lengthened as customers discovered that under current rules only just over £30,000 of savings would be protected should Northern Rock collapse. There were angry scenes when savers were turned away at 6pm as branches closed. Malcolm Purcell, queuing outside the Moorgate branch in London for seven hours, said: ‘It’s absolutely dreadful.’ … Conservative leader David Cameron said: ‘This government has presided over a huge expansion of public and private debt without showing awareness of the risks involved. Under Labour our economic growth has been built on a mountain of debt. And as any family with debts knows, higher debt makes us more vulnerable to the unexpected.’ ”
Both the US and Britain have seen skyrocketing personal debt. Credit card debt is near an all time high. Instead of manufacturing things and keeping factory jobs at home, both England and the US have outsourced millions of these jobs. Decades of bad economic policies and the huge cost of the Iraq War has had a devastating effect. Most likely it will take a complete economic collapse before people wake up and vote out of power the scoundrels, who passed NAFTA and GATT and put us on the road to Empire, which is wrecking our economy today.