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December 5, 2014 / politicsbitesize

What to blame: the welfare bill or the banks?

AS2014In Wednesday’s Autumn Statement the Chancellor stated that, ‘Britain faces a choice. Do we squander the economic security we have gained, go back to the disastrous decisions on spending and borrowing and welfare that got us into this mess? Or do we finish the job?’

Politics:bitesize suggests that perhaps Mr Osborne could begin to answer his question by examining the facts presented in his rhetoric. The truth is that welfare spending has not led us to economic insecurity; it was the structure of the financial system itself that enabled widespread gambling on the stock and commodities markets and other toxic financial products that caused the mess.

In his book, The Global Minotaur, Yanis Varoufakis lays out a critical guide to the path that led us to the 2008 financial meltdown. He puts forward the argument that greed, casino-style gambling by bankers, ineffectual regulation of the banking industry and globalisation are not the only reasons why the world is in such a financial mess. Rather, these are simply the symptoms of a much greater crisis that began in 1929 and was later fuelled by the influx of capital to Wall Street, where the ‘Global Minotaur’ was born, from the 1980s onward.

As more money poured into Wall Street over the decades since, the banking industry has become stronger and stronger. This is in part due to the fact that as ‘mountains of cash shifted from all over the world to Wall Street’, companies and households had access to cheap equity and loans. At the same time that financial institutions were being strengthened by the ‘pseudo-scientific theory’ that the sector should be deregulated, the profitability of loans and equity was producing huge returns for investors. This led to the global banking industry devising more and more financial products designed to make a large profit, such as collateralised debt obligations (CDOs) and sub-prime mortgages (in the US).

When the bubble finally burst and the banks were left with toxic debt filling their balance sheets, governments were forced to step in to prevent a global financial collapse. The US government bailed out its banks to the tune of $10 trillion, whilst in the UK the official cost was in the region of £850m. So, for the Chancellor to claim that the deficit has been caused by ‘disastrous decisions on spending and borrowing and welfare’ is at best naïve and at worst a lie.

It is also discourteous and patronising to the electorate, many of who have been left homeless, jobless and in need of food banks this Christmas thanks to the financial collapse. A system that can bail out those who recklessly caused the global economy to fall to its knees whilst blaming those who work hard to make a living is surely a rotten one.

However, as George Osborne’s speech highlights, even after being bailed out by governments (and therefore the taxpayers), it is the banks that still hold the power. The rhetoric used by politicians to discuss the deficit deflects attention away from those who actually caused the crisis on to those who suffer from it as a result.

Essential resources have been redirected away from education, health and welfare by the bailout and yet our politicians are too frightened to speak out against financial institutions, let alone to regulate them, in case they take the capital we gave them and disappear to a country that is ‘nicer’ to them! It is much easier for politicians to lay the blame at the feet of those on welfare than to stand up to the powerful financial elites.

According to Yanis Varoufakis, a social system that is run by bankrupt banks is to be called a bankruptocracy (or ptocho-trapezocracy in Greek), and he tells us that this is the system we are facing today. It is possible for society to rebuild its own economic future but only if we are given all the facts, not the deliberate obfuscation of the truth that was delivered by the Chancellor this week.

 

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