Steve Mowat looks at the return to ‘business as usual’ of the world’s banks and the continuing negative impact on social housing provision

I want to relate my personal experiences of the credit crisis in the last eighteen months; putting them into the context of recent bank announcements of huge corporate bonuses, as well as Obama’s announcement recently to “break the banks” in the US. Finally, I’ll want to say a little bit about the opportunities an independent socialist Scotland would have to restructure the banking system here at home.

I will start this personal account from 2006, when a UK housing consultation was commissioned. 

The consultation was a UK, Labour Government based "consultation", from the Department of Communities and Local Government "From Decent Homes to Sustainable Communities June 2006". It had a lot of Labour Party bollocks in it...and I quote:

"In each of the areas...(unstable housing market of the 90's, maintenance standards of local housing stock, and increase in vulnerably housed people)...we have made substantial progress. Economic stability has delivered much lower long term interest rates, historically low levels of repossessions and helped a million more families into home ownership" 

In the consultation words of great import were written about broadening low cost home ownership, building more mixed communities, new social housing and more flexibility for local councils! The figures quoted for these actions were small. And as we can see since then any common sense plans have been abandoned in favour of throwing tens of billions at the richest bankers in society to prop up the unjust market. Talk of building mixed communities, new social housing and more flexibility for local councils is quite clearly not as important as the Royal Bank of Scotland bonus pot at the present time.

My submission to that consultation then was for a system of a ‘mixed economy of housing’ based on the incomes and needs of real people - such as increased shared equity schemes, substantial increases in local authority house building, and, importantly, sustainable mortgages which working people in average income brackets could actually afford.  Perhaps not surprisingly, no reply to my comments to the 2006 Housing consultation was ever received.

Any measures taken as a result of the consultation have proven since to be wholly inadequate, however. Politicians all talk of affordable housing, but no one ever seems to define what it is. In Scotland, there are tens of thousands of people on council house waiting lists who have little or no chance of getting a council home. Many young working adults are trapped in expensive and unsuitable private rented accommodation or remain at home with their parents – never the best thing for either party. It’s true that the SNP have taken the small but welcome step of ending right to buy for new build social housing – but the parallel investment and political encouragement that would allow councils to again become large providers of social housing are simply not there. In fact, the Scottish Government this year cut an already inadequate social housing budget. 

The irony is that the public sector deficit occasioned by New Labour’s bail out of the banks will be used by either the pink Tories or the blue Tories after May to justify even sharper cuts in affordable social housing provision. But the banking crisis we are all being asked to pay for resulted from the bursting of a debt bubble that was at least partially caused by runaway private sector house prices in the UK and the US, and the unsustainable mortgage roundabout that that brought about is, slowly, returning. Housing is facing a delayed triple whammy from the recession; less affordable housing for rent being built; higher house prices again and more costly mortgages ( for those lucky enough to get them); higher housing costs as interest rates rise to protect the currency of an  economy moving into austerity mode.

In 2008 I applied for a mortgage with the Dunfermline Building Society for around £65,000 for a shared equity home. The Society suggested a mortgage of 35 years, with repayments of around £460 per month, with various other fees added. The Dunfermline was asking for just over £192,000 plus fees, or over three times the sum I had requested - the somewhat nominal and deceptive price quoted on the house. In any case the society declined my application partly on the grounds I had never had a credit card. Two years later the Dunfermline Building Society was bankrupt - one of the highest profile Scottish casualties of the financial crisis, and largest provider of mortgages for shared equity housing.

More recently, in the autumn of last year, I was made aware of an American website www.trualia.com where three and four bedroom properties can be found for sale in Michigan USA for the equivalent of £15,000. These homes are foreclosures, the sad endgame of the sub prime crisis which helped trigger the global financial collapse. Families have been turned out their homes and their property sold on for the equivalent of peanuts.

Another interesting fact I found out as a result of this little foray in to the “housing market” is this; British banks will not offer a mortgage on a property worth less than £25,000, not because it wouldn’t buy you a Wendy House these days (though it wouldn’t), but because the profit gained through interest is too small.

The culture of greed, one year on from the great credit crisis, is alive and kicking. Those most likely to buy foreclosure properties would be the already wealthy landlord class and the super rich, who can buy the homes outright and in turn benefit from the enormous price rises which will inevitably come, or rent out at premium rents to desperate renters who cannot get a home, or who have been forced by their mortgage ‘provider’ to vacate their own home. That this is happening at the same time these very same banks, who brought about the crisis, who only survived through state intervention, and who are once again paying out billions in bonuses to their pampered super elite, is a scandal of economic and social corruption that dwarfs the unsavoury revelations over MP’s moats, duck houses and second homes.

Patrick Hosking, Banking and Finance Editor of The Times wrote, last January; “The centrepiece of the latest (banking) rescue is expected to be an insurance scheme protecting the banks from a share of loses on their toxic assets. In theory this will free up capital, which can be used to underwrite new loans to businesses and homebuyers.” 

Such a rescue seemed to strive toward a resumption of business as usual. The emphasis was to improve the financial conditions where banks could begin again to make massive profit through high interest repayments on loans.

However, Lloyds TSB Group stumped up several millions to op out of the new Government insurance scheme…saving a few million…and risking billions. At the same time this was going on they were withholding the fact from its small shareholders that billions of pounds of emergency loans were provided to them by the Bank of England (to be repaid by those same shareholders), in order to prevent a complete meltdown caused by having been pressured into forming a mega Bank with the purchase of the Bank of Scotland by the Government. Got that? Well neither do I, scarcely.

Such unwavering support of a ‘free’ market in banking during the crisis is precisely the culture in which banking, as Hosking states, has allowed; “loan books (to) dwarf the resources of a nation which ultimately underwrites them. Royal Bank of Scotland has assets and liabilities of almost £2 trillion apiece…roughly the size of Britain’s GDP…. (The public wonder why)…banks were allowed to grow so big in the first place.”

It seems to me that UK Government responses to this crisis have had little effect in terms of changing banking culture or practice, or of challenging our high debt society, and that the banks choose to take no notice of the political and public outcry for change.

This brings me to the next point I want to consider - Obama’s announcement in recent weeks that he wants to stop excessive risk taking by US banks. Obama aims to do this by preventing American banks owning, trading or operating hedge funds and proprietary trading, by breaking up the larger banking institutions, and instituting a levy on bailed out banks to recover some of the billions in tax dollars used to keep them from collapse and liquidation. This is certainly a step in the right direction, even if it might seem a minor reform to most socialists. This announcement came against the backdrop of Goldman Sachs investment bank announcing a bonus pool of $16.2 billion and growing anger amongst US citizens over the return to ‘business as usual’ for the banks with much of the economy still in recession.

Obama: Pledge to bring social responsibility to banking has met with corporate hostility

On this side of the Atlantic the Royal Bank of Scotland are set to announce millions of pounds worth of bonuses, despite receiving billions in taxpayer support. The British government has hardly been coming to grips with issue of bonuses or the nature of the banking system, despite the fact they (rather, we) have an eighty four percent share in some banks. They are too frightened of being accused by the Tory Press of being anti-business, and the fat cats still squeal foul play at calls for restraint. According to the Glasgow Herald shares in Barclays, and RBS tumbled following Obama’s announcement, as did shares on Wall Street. He must be doing something right. Obama’s aim to stop banks becoming too big too fail and his declaration that there must never again be a bailout on the scale of 2008/2009 wins support across wide swathes of political and public opinion – at a time when his popularity rating is shaky over other issues.

New Labour, on the contrary, have misjudged the public mood. The pathetic attempts of bankers to threaten resignation or moving abroad if bonuses were curbed was met by an almost universal public response – show them the door. New Labour’s response to these criminally greedy and irresponsible individuals has been ‘show them the money’.

The age of “binge and irresponsibility” - must come to an end, commentator after commentator has said, but this will not happen without real and meaningful public ownership and control of the major banks.

Whose money is it anyway? Unregulated international financial trading collapsed share values at a stroke; across the globe

One of the unwanted side effects of New Labour’s disastrous handling of the banking crisis has been to further erode in the consciousness of the British public the real meaning and value of nationalisation and public ownership. People have been told by the media that certain banks are now effectively nationalised, or owned by the taxpayer, or are state owned. They know that billions of pounds of their money has been spent doing this, but see no effective public control over bank policy or priorities.

Indeed, Brown, Darling and Mandelson have gone out their way to say that the government doesn’t want to get involved in banking and the whole lot will be sold off again when share prices recover. It isn’t even a case of ‘meet the new boss, same as the old boss’ as the old Who song goes, but ‘the new boss isn’t ever coming in and the old one is going to keep screwing you over and over and keep living the high life off you suckers”.

Genuine public ownership of the banks and a real socialist government would see the existing bank boards sacked, no huge bonuses, large sections of public debt written off, and capital invested in socially useful production in fields such as social housing, education and research, transport, green energy, health and new technologies. The leverage of a publicly owned and accountable financial system could then be used to bring other privatised (i.e. stolen) industries such as energy, communications and transport back into public ownership and control. 30 years of Thatcherism of the Tory or New Labour variety could begin to be dismantled and society taken forward in a new, democratic and progressive way.

The final point I wish to make on the banking system before I return to the Scottish dimension and housing includes the technological influences on financial trade. Internet technology enables instant transaction but leaves markets dangerously exposed to market fluctuations. Never before has there been such a rapid decline in the values of shares traded instantly across the globe as there was in 2008-9, with default swaps and shares traded instantly.  The pensions of millions and the financial solvency of entire nations have clearly been put at considerable risk. With the use of internet technology real dangers for trading huge sums of money need to be identified and regulated. Perhaps a coordinated global response and regulation is required with regard to the use of technology and international finance. A Tobin Tax on international corporate transactions could provide a reserve fund to guarantee pensions, jobs and public services in any future crisis caused by capitalist markets. Within a global solution Scotland should lead by example.

In the sphere of banking an independent socialist Scotland would have a unique opportunity to restructure a fair, sustainable and cooperative national banking system where it is sorely needed. The profit/greed driven motives of bankers would become tertiary to meeting the social, economic and productive needs of society as a whole.

Firstly Scottish independence could allow for much greater accountability and democracy in the regulation of the banks. In an independent socialist Scotland a wealth fund from oil revenue can be used partly as a reserve, and partly as a source of capital for a Scottish Investment Bank, publicly owned and controlled, and a Scottish Housing and Land Bank, again, publicly owned and controlled. Between them these institutions could help to fund a meaningful house building programme of affordable homes to buy and rent, and fund research and investment into Scotland’s key industries of renewable energy, construction/engineering, tourism, biotechnology and healthcare.

Given that the housing and banking industries are closely linked, increased public decision making in the banking system should mean that financial decisions on housing and mortgage provision are made more on the basis of the human need for a decent place to live than solely maximizing financial return. This would be most successful with larger portions of the banking industry coming into public ownership on a permanent basis. I would argue the Scottish Government so far has proven a little more willing than its London counterparts to invest in sustainable and social housing up until now, but whatever Westminster government is elected we face huge cuts in the block grant. This is a Gordian knot that only independence can cut.

Scottish independence: could allow democratic ownership & management of banks

Holyrood’s hands will be tied without independence – even fiscal autonomy would be insufficient without the power to take financial and other institutions into public ownership.

Excessive bank charges would be outlawed in a socialist Scotland; there would be an end once and for all to silly money bonuses; there would be real investment in renewable technologies, creating thousands of skilled jobs; and the creation of a sustainable house building programme, creating affordable high quality homes. In some respects the restructuring of the banking system should mirror the founding principles of the National Health Service set out by Beveridge in the 1940s. The system needs to seen as and owned as a social resource, fully transparent, with the concerns of people and society, not the production of shareholder profit, at its core.

Stephen Mowat