140th Anniversary of Marx’s death, banking crisis & interest rate rises
Marx who died 140 years ago on 14th March often wrote about banking and financial crisis which he saw as systemic to a market capitalist system. He would have recognised events of the last few weeks
Silicon Valley Bank became insolvent in mid-March, due to customers withdrawing money. It then declared bankruptcy. Its much smaller UK operation was bought by HSBC for £1. The crisis developed from here. Some other medium scale US banks had to be shored and Credit Suisse after a £45bn loan from the Swiss Government ended up being taken over by UBS.
The crisis relates to significant interest rate rises aimed at controlling inflation. That means that bank assets have dropped in value. The issue is current financial models factor in low interest rate.
The Financial Times (18th March) described the SVB and Credit Suisse events a ‘week of madness’ and noted that ‘the question on everybody’s minds is what will break next’.
The Bank of England has now raised interest rates again to 4.25% in effort to control inflation. Its clearly not working as inflation has gone up to over 10% with grocery price inflation above 16%. The reason for the rises clearly can’t be below inflation wage rises (as both Tory and Labour fundamentalists are prone to claim). Rather it is of course the impact of Ukraine and higher vegetable (and beer) prices.
The interest rate rise may not control inflation but it will put banks under more pressure.
The economic crisis is a cost of living crisis for many but certainly not for the wealthiest MP, Rishi Sunak
Before the 2008 financial crash Gordon Brown declared that his policies were moving beyond boom and bust. The only way to do that effectively however is to move beyond market capitalism.
Leave a Reply