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Are we facing yet another banking crisis and financial meltdown?
James O'Toole reports on the recent collapse of banks and what it means
James O'Toole reports on the recent collapse of banks and what it means
On Friday, March 10th the US government's Federal Deposit Insurance Corporation (FDIC) took control of Silicon Valley
Bank. The fall of Silicon Valley Bank was the biggest banking collapse in America since Washington Mutual went belly up in
2008.
It was the 16th largest US commercial bank. The scale of this collapse sent shivers of dread across the entire global economic system.
The bank took a multibillion-dollar loss cashing out US government bonds to try to raise money to pay depositors. Then they tried to sell shares - but that just triggered a panic by tech firms who pulled out their cash and led to the bank's downfall.
That Sunday the Fed shut down another bank, Signature Bank, after a run on its deposits by customers who were spooked by the implosion of Silicon Valley. Both banks had a ridiculously high ratio of uninsured deposits.
Governments around the world were hoping the contagion was contained but shares in Credit Suisse collapsed by as much as 30% and the Swiss authorities were forced to announce support for the country's second-biggest bank.
First Republic Bank in the USA was teetering on the brink as panicking customers took out their deposits.
In a meeting in Washington, US Treasury Secretary Janet Yellen and Jamie Dimon, the CEO of America's biggest bank, drew up plans for a private sector rescue. They put tens of billions of dollars of cash into First Republic to stop the collapse.
On Sunday March 19th Switzerland's biggest bank, UBS, agreed to buy Credit Suisse in an emergency rescue deal aimed at stemming global financial market panic.
This last week alone has cost over $400 billion - the US Federal Reserve is on the hook for $140 billion so far, then there's the $54 billion the Swiss National Bank offered Credit Suisse in the form of an emergency loan and $225 billion offered to UBS in loans, guaranteed by the Swiss state!
Other banks borrowed nearly $153 billion from the US Fed in recent days, even smashing the record of $112 billion set during the crisis of 2008.
These aren't the only bankruptcies - cryptocurrency bank Silvergate went bankrupt after prices and trading of bitcoin and other cryptocurrencies collapsed.
The $318 billion the Fed has loaned in total to the financial system in recent weeks is about half what was extended during the global financial crisis. The whole thing is close to collapse and it's taken billions to prop it up.
Goldman Sachs said Wednesday that growing stress in the banking sector has boosted the odds of a US recession within the next 12 months. So what's triggered this banking crisis?
Many in the ruling class have been arguing over how to deal with inflation, they admit they've no coherent theory of inflation. The best they can come up with is to blame workers' wage even though the wage share of most economies has been falling for 30 years!
So they raised interest rates hoping that would pull investment by bosses and lead to workers getting the sack, which would in turn put downward pressure on wages, that would eventually bring inflation down - but at the cost of potentially triggering recession and by punishing workers who are already creased by rising food prices, energy costs and the marketisation of housing.
The other theory they have is that they can bring inflation down by cutting state spending - that leads to further contraction of the economy. We've a situation where the underlying productive economy is sluggish, suffering from low profit rates with huge numbers of companies making less profit than it takes to service their debts.
The tech firms have started global layoffs and are so nervous about margins that they pulled their cash out of the Silicon Valley Bank.
Silicon Valley's bankruptcy was triggered by significant losses on corporate securities it had lent to. In order to diminish losses they bought US state debt titles or "bonds". However, the Fed's policy of raising interest rates has lowered the market value of these bonds.
The bank tried to raise cash but that just led to the panic among the tech firms.
The ruling class are steering a ship they can't control - they will further raise interest rates leading to more job losses, pressure on wages and yet they still haven't been able to rein in inflation. In Ireland for example the rate of inflation went up this month.
In the end all the madness and speculation of the financial sector ultimately depends on the health of the productive economy - but the real economy is weak. They only escaped from the high inflation and recession of the 1970s using neoliberalism - commonly called Thatcherism - a war on the working class.
Even if they spend billions in the coming weeks to prop up this aging system all it does is temporarily put off another economic crisis. It's coming anyway. They'll try to make workersl pay the price for those billions.
The rich argue against state supports for workers yet go crying to the state everytime they make a mess of things. They can get lost. Their system is a joke!
Only socialism offers a real escape. Take the wealth out of the hands of the speculators, bankers and bosses and put it under democratic control.
It was the 16th largest US commercial bank. The scale of this collapse sent shivers of dread across the entire global economic system.
The bank took a multibillion-dollar loss cashing out US government bonds to try to raise money to pay depositors. Then they tried to sell shares - but that just triggered a panic by tech firms who pulled out their cash and led to the bank's downfall.
That Sunday the Fed shut down another bank, Signature Bank, after a run on its deposits by customers who were spooked by the implosion of Silicon Valley. Both banks had a ridiculously high ratio of uninsured deposits.
Governments around the world were hoping the contagion was contained but shares in Credit Suisse collapsed by as much as 30% and the Swiss authorities were forced to announce support for the country's second-biggest bank.
First Republic Bank in the USA was teetering on the brink as panicking customers took out their deposits.
In a meeting in Washington, US Treasury Secretary Janet Yellen and Jamie Dimon, the CEO of America's biggest bank, drew up plans for a private sector rescue. They put tens of billions of dollars of cash into First Republic to stop the collapse.
On Sunday March 19th Switzerland's biggest bank, UBS, agreed to buy Credit Suisse in an emergency rescue deal aimed at stemming global financial market panic.
This last week alone has cost over $400 billion - the US Federal Reserve is on the hook for $140 billion so far, then there's the $54 billion the Swiss National Bank offered Credit Suisse in the form of an emergency loan and $225 billion offered to UBS in loans, guaranteed by the Swiss state!
Other banks borrowed nearly $153 billion from the US Fed in recent days, even smashing the record of $112 billion set during the crisis of 2008.
These aren't the only bankruptcies - cryptocurrency bank Silvergate went bankrupt after prices and trading of bitcoin and other cryptocurrencies collapsed.
The $318 billion the Fed has loaned in total to the financial system in recent weeks is about half what was extended during the global financial crisis. The whole thing is close to collapse and it's taken billions to prop it up.
Goldman Sachs said Wednesday that growing stress in the banking sector has boosted the odds of a US recession within the next 12 months. So what's triggered this banking crisis?
Many in the ruling class have been arguing over how to deal with inflation, they admit they've no coherent theory of inflation. The best they can come up with is to blame workers' wage even though the wage share of most economies has been falling for 30 years!
So they raised interest rates hoping that would pull investment by bosses and lead to workers getting the sack, which would in turn put downward pressure on wages, that would eventually bring inflation down - but at the cost of potentially triggering recession and by punishing workers who are already creased by rising food prices, energy costs and the marketisation of housing.
The other theory they have is that they can bring inflation down by cutting state spending - that leads to further contraction of the economy. We've a situation where the underlying productive economy is sluggish, suffering from low profit rates with huge numbers of companies making less profit than it takes to service their debts.
The tech firms have started global layoffs and are so nervous about margins that they pulled their cash out of the Silicon Valley Bank.
Silicon Valley's bankruptcy was triggered by significant losses on corporate securities it had lent to. In order to diminish losses they bought US state debt titles or "bonds". However, the Fed's policy of raising interest rates has lowered the market value of these bonds.
The bank tried to raise cash but that just led to the panic among the tech firms.
The ruling class are steering a ship they can't control - they will further raise interest rates leading to more job losses, pressure on wages and yet they still haven't been able to rein in inflation. In Ireland for example the rate of inflation went up this month.
In the end all the madness and speculation of the financial sector ultimately depends on the health of the productive economy - but the real economy is weak. They only escaped from the high inflation and recession of the 1970s using neoliberalism - commonly called Thatcherism - a war on the working class.
Even if they spend billions in the coming weeks to prop up this aging system all it does is temporarily put off another economic crisis. It's coming anyway. They'll try to make workersl pay the price for those billions.
The rich argue against state supports for workers yet go crying to the state everytime they make a mess of things. They can get lost. Their system is a joke!
Only socialism offers a real escape. Take the wealth out of the hands of the speculators, bankers and bosses and put it under democratic control.
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