Monthly Archives: January 2012

With the economic crisis showing no signs of retreat, and the impact of the government’s aggressive austerity measures already being felt, the status of the financial sector is very much in question at the moment. However, despite five years of economic turmoil, the workings of the financial system are still bewilderingly opaque to many people (including most politicians, it seems!).

We are therefore pleased to announce the publication of our clear and concise, 24-page ‘Nuts & Bolts’ Guide to the ins and outs of the financial sector. From hedge funds to the money markets and derivatives, all of the major players and products are broken down from a critical perspective. With jargon deconstructed, case studies explained and many of the myths about the city and its operations debunked, this booklet is designed to give readers with little or no knowledge of the world of finance and banking an accessible overview of its workings.

This booklet is the first publication in our ‘Banking on Crisis’ series. The next booklet, due out it the next few months, will cover the ongoing economic crisis, its origins and history, the politics of crisis and a breakdown of some of the most common narratives used to explain the current financial meltdown. Watch this space for more…

order a hard copy (£2) go to our shop
Or to download the digital version (free) click here

“Hedge funds have been known to use hardball tactics to make money. Now they have come up with a new one: suing Greece in a human rights court to make good on its bond payments.”

Article From the NY Times. The international pressure on Greece is mounting as bondholders do all they can to extract maximum value from the ticking time bomb of its debt. Yet as this chart shows, the ‘all-important’ bond market only constitutes a third of greek debt holdings:

If Greece were to announce a default its own banks, pension funds and household savers would also suffer huge losses, possibly plunging the country into a more acute crisis. The situation then, is far more complex than ‘greece vs. the international money markets’. The question of how or even if greece can resolve the contradictions of its current predicament remains open.

With all the fear and speculation surrounding the current wave of credit rating downgrades, this chart gives a useful indication of the global situation (liable to change at any moment mind!).

A credit rating gives an indication of how risky an investment a state is percieved to be. Although ostensibly only a ‘guide’ provided by the rating agency, a lower rating almost always leads to higher borrowing costs for a govenrment. This means big trouble when states ‘refinance’ (basically renewing old debt), as they are suddenly hit with a much higher interest bill on their debts.

Here’s a run down of what Standard & Poor’s (one of the three main rating agencies, along which Moody’s and Fitch) ratings indicate:

AAA: The best-quality borrowers, reliable and stable

AA: Quality borrowers, a bit higher risk than AAA

A: Economic situation can affect finance

BBB: Medium-class borrowers, which are satisfactory at the moment

BB: More prone to changes in the economy

B: Financial situation varies noticeably

CCC: Vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.

CC: Highly vulnerable.

C: Even more highly vulnerable.

D: Defaulting on commitments.

Ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

State debt and the crisis in the Eurozone

“The fact that almost every state in the world is in debt – and the more powerful it is the bigger the debt – first of all begs the following questions: why have these states permanently contracted debt? Why is it that most of the states in the world were able to pile up their debt over such a long time without any problems? Who are the creditors and why have they readily and increasingly accommodated loans / lent money to the states?”

From the Wine and Cheese appreciation society of greater London. The first of a four part series explaining how state debt functions and its role in the eurozone crisis.

David Harvie on finance

“The financial markets, and in particular those arcane instruments known as ‘derivatives’, are all about measure, measuring the production of value, measuring capital accumulation. Financial derivatives allow all the different ‘bits’ of capital (across time, across space and across sectors) to be priced against – or commensurated with – each other. Derivatives even turn the very contingent nature of value – its contestability – into a tradeable commodity. […]The performance of a Detroit car-worker can be compared not only with that of his neighbour on the production line, or even with her counterpart in Alabama or South Korea, but with garment workers in Morocco, programmers in Bangalore and cleaners on the London Underground. Competition is intensified, as is class struggle. […] Our ‘performance’ as debtors is measured by the global financial market and is yoked to that market, and through it to the performance of all other ‘assets’ – the programmers and the cleaners, the farmers and the garment workers. In short, we become – in our reproductive activity as well as our waged work – subjects of competitive calculation.”

Fantastic This American Life radio show on a ProPublica and NPR investigation into Magnetar, a hedge fund which made billions after helping to create the CDO market, whilst betting on its collapse. Collaterlaised Debt Obligations (CDOs) are the (sub-prime) mortgage backed securities which went toxic and brought down the financial system.

“Magnetar had figured out how dysfunctional the system had become – and was going to exploit that dysfunction.”

Iceland has had a rocky time. All but declared bankrupt, it’s three major private banks nationalised in less than a week. Pressured by the IMF and the European Union to re-pay a $10 billion bail-out equivalent to each of it’s 310,000 citizens paying 100 Euros a month for 15 years with 5.5% interest [1], and $5 billion to Britain and the Netherlands in compensation to those who lost their savings in ‘Icesave’ accounts.

But a refusal to accept that “citizens had to pay for the mistakes of a financial monopoly” drove committed opposition to such a settlement.[2] First the coalition government fell after intense public protest – now known as the ‘Household Revolution’.Then the Icelandic president refused to ratify a repayment plan without a referendum. In a first referendum held in March 2010, 93% voted against repayment, and a second referendum from April 2011 brought back 59% against repayment.[3]

The government launched an investigation, by the Office of the Special Prosecutor (OSP), to seek and prosecute those responsible for the financial crisis. The ex-president of Kaupthingbank, Sigurdur Einarsson, had an Interpol international arrest warrant out for him for some time[4], before returning to Iceland to face interrogation by the OSP.[5] In September 2010, the former Prime Minister, Geir H. Haarde was charged with negligence and mismanagement in the run up to the 2008 economic collapse.[6] With a team of 16, special legislation passed granting it total access to the banks’ records, and a commitment to ‘asset tracking’, [7] the OSP makes Iceland the one country with a concerted programme to prosecute bankers and pursue debt repayment with reclaimed banks’ assets rather than the public purse.

Iceland’s resistance to the IMF and it’s refusal to place the burden of repayment onto citizens who had no control over the banks responsible for the financial crisis is unique. It sits strangely amongst the austerity programmes rolled out across Europe, the cuts to public spending and the privatisations which European populations are repeatedly told are ‘unavoidable’ if we are to re-pay ‘our’ financial-crisis incurred debts. It seems that Iceland has not only adopted the approach of ‘can’t pay, won’t pay’, but of at least attempting to place the burden onto those responsible. Perhaps this tiny country presents a large example to the rest of Europe.


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