THE GREAT BANK ROBBERY
They lose billions... but it’s us that have to pay?
by Raphie de Santos
AS
the poor South starves, even running
out of essential food stuffs such as
rice and wheat, because of demand from
the increasingly enriched Chinese population,
capitalism is calling on the workers
of the West and East to bail them out
of their latest global financial crisis.
Capitalist banks are asking their shareholders
for billions of US dollars to cover
the losses they have made against the
sub-prime products that they have on their
balance sheets.
But also, to protect themselves against
potential further losses from other derivative contracts
that they acting as guarantor for.
These derivative contracts are with the
increasingly shaky hedge funds (offshore
unregulated leveraged investment companies);
pension funds, insurance companies, fund
management companies and other investment
banks.
In addition as the recession starts to
bite banks that have exposure to consumer
debt through credit cards, loans and
mortgages and will increasingly have
to write off part of these debts as consumers start
to fail to make payments.
The Royal Bank of Scotland (RBS) is the
latest victim of the sub-prime crisis and
so far the losses declared by the major
global banks amount to over (US)$300billion.
Many analysts, now including the International Monetary
Fund are predicting that this could reach (US)$1000billion.
The remarkable fact is the total public
debt that the poor South countries owe
to the international banks in 2006 was
(US)$182billion.
This is almost half the of the losses
that these banks have suffered with the
subprime crisis and less than the (US)$220
billion of our money the
So when we demand that the debt to the
poor South be written off it is not such
an unreasonable request!
The global banks basically went on an
orgy of greed and failed to properly
access and recognise the risks of the
subprime crisis. But who is going
to pay for it?
We find that it is the ordinary people
in the West.
Citicorp the second biggest sub-prime
loser has cut 13,000 jobs so far and
plans to cut a further 9000 after it recently
announced a further (US)$12billion of
losses last week.
Our own Royal Bank of
Can this money just disappear? No, the
banks have to replace it for two reasons.
One, by regulation they must have a certain
amount of money (called tier one capital) as
safeguard against the products that they
are guaranteeing.
Two, they must have a cushion against
further losses from sub-prime products, loans
and other derivative products.
The most worrying exposure is to something
called credit insurance, which they have
sold in the financial markets as a guarantee against
companies going bankrupt. It is estimated
that there is (US)$26,000billion (26trillion)
of this insurance outstanding.
In a recession, companies go bankrupt
at a rate of between 5 and 10 per cent.
If we enter a deep recession, this could
reach 10 per cent, and 50 per cent of
value of the company is recoverable, meaning
that the banks would have to pay out
about (US)$1,300billion in insurance payments.
How do they find the money they need.
One way is by a so called rights issue.
RBS needs (US)$24billion to fill its
black hole!
That is just over 14 per cent of the
total debt that the poor South owes the
global banks!
Who is going to pay for this rights issue?
The shareholders who the majority happen
to be you and me.
Through our pensions funds, insurance
policies, endowment policies and ISAs
we own RBS.
But the people who manage it on our behalf
will decide if they should give our money
to bail out a bank that through its speculative
greed has lost billions of dollars and
will likely make thousands of it workers
redundant in
A bank that cannot find the heart to
find a few hundred million US dollars
to relive the debt of the poorest people on
the planet.
That is the insanity a global financial
and economic system that haggles over
a few dollars here and there for the
poorest citizens of the planet.
But at the same time can lose multiples
of the amounts, on a reckless gamble,
that could forever lift the burden of
debt of the most desperate people in
the world.
It’s time this system was replaced with
a rational one that puts people before
profits and speculation.
Major Sub-Prime losses so far declared
UBS:
$38billion
Citigroup: $36billion
Merrill Lynch: $31billion
Morgan Stanley $12billion
Deutsche Bank: $7billion
Credit Suisse: $6billion
HSBC: $3billion
Bank of
Barclays: £3billion
JP Morgan Chase: $3billion
RBS: $3billion
Goldman Sachs $3billion
Freddie Mac: $2billion
IKB: $2.6billion
HBOS $450million