A rock and a hard place

Globalisation has a profound impact on the way that money circulates. Each of the world currencies -- the dollar, the euro, the yen and the pound -- continuously interact with each other. Speculators such as Warren Buffett bet billions on the shifting relations between them. The result is that a relatively small crisis gets magnified and becomes a bubble before exploding.

Northern Rock is a small British Bank based in the North East of England. It was formerly a building society owned by its members. Like a number of other building societies, such as the Halifax and the Alliance & Leicester, it changed its status to that of a bank. They told their original owners that this would allow them to expand by borrowing money on the market and make bigger profits. Of course these bigger profits went on higher wages for their senior managers and payments to their new shareholders. The Chief Executive of Northern Rock is paying himself nearly one million pounds a year.

Northern Rock's method of operation was to borrow money and then relend it at competitive interest rates. It had relatively low overheads to due to a good internal computer system. However it was lending more money to people than the value of their houses. This was OK as long as house prices rose and wages rose. The sub-prime loan market in the USA began to falter and this made banks reluctant to lend to Northern Rock as it was seen to be operating in similar way to some of the troubled US institutions.

This was all foreseen. Mabon Dane on 4 April 2006 commenting on Northern Rock's Annual Report on the uk.politics.misc newsgroup wrote:

Northern Rock has taken a significant share of a market of deluded and greedy home owners, who have involved themselves well beyond their financial means in a housing market that is about to turn against them.
Northern Rock offers first-time buyers loans six times their income and 125% the value of the property. It is all easy money. The interest rates being low and a nice earner can be made from buying and selling houses to fund higher credit card spending and more loans.

The Bank of England ignored these warnings. At the beginning of the crisis the Governor of the Bank of England was for letting the market take the strain. Then he changed his mind as a result of pressure from Gordon Brown and Alistair Darling. Now the Bank of England is guaranteeing the deposits in Northern Rock and pumping an extra 10 billion pounds into the banking system. This is money which is not being spent on housing or hospitals but enables banks to continue to make huge profits.

The problem then returns to globalisation. Both the US and the UK have similar economies. They both have huge and continuing balance of payment deficits. These are covered up by those companies and countries owed money by them reinvesting back into the US and the UK. The US dollar became the world's primary reserve currency after the gold standard was abandoned. The euro after a hesitant start has become the second reserve with the pound third. Over the last few years it has become clear that the US' accumulating debts plus its expensive and aggressive foreign policy was undermining the real value of the dollar. So China and even Saudi Arabia began to move some of their money into the euro and to a lesser extent the pound. There has also been a move to borrow at very low interest rates in Japan to lend elsewhere at higher rates. The traditional market has been the dollar but its falling value and the latest cut in the Federal Reserve lending rate is leading these huge sums of money to look for a new home.

How will New Labour react at its coming conference to the crisis? The answer is that real housing will probably not be discussed. The Labour National Executive and the Trade Unions have agreed to remove any controversial voting to their behind-the-scenes Policy Forums.

Brown's argument is that the real world of their housing crisis should not be discussed so that New Labour can win the next election. So the Trade Unions decided to abandon their campaign for council housing.

Leeds West Parliamentary selection

As reported in previous Umbrellas the hyperactive and populist John Battle, MP for Leeds West, has stood down.

After years of work as a Leeds City Councillor in the area Alison Lowe declared that she wanted the job. She was backed by the Yorkshire Evening Post who ran a number of very flattering articles in her support. The other candidates only received passing mentions. One headline read "I want to be a servant of the people" -- a recycled slogan last used in Leeds by my positively ancient friend Garth Frankland. They both lost.

In the case of Ms Lowe it certainly wasn't due to politics. Neither of the two front-runners mentioned their politics. Inside the Leeds New Labour group Councillor Lowe never supported any moves against the illegal invasion of Iraq.

Rachel Reeves, the New Labour victor in Leeds West, moved to the constituency two years ago. This was 18 months before John Battle announced his retirement. Ms Reeve's sister is a member of the Labour Party National Executive. John Battle was unable to attend the final hustings due to an injury he received at his son's house. Ms Reeves won narrowly by 95 to 88.

In the 2005 General Election the left-wing MP Harold Best (Leeds North West) stood down and was replaced by a New Labour clone. She was defeated by the Liberal Democrats. West Leeds, a former Liberal stronghold with a strong Green Party base, looks very vulnerable.

Leeds Grammar School

This is a private school on the outskirts of Leeds on the edge of the green belt. The school has doubled in size by amalgamating with Leeds Girls High School. To cope with the extra traffic the school agreed to spend £1.3 million improving the traffic flow. However it has now tried to wriggle out of paying.

This is not surprising. Leeds City Council is insisting that the school honour its pledge. So called left-wing Liberal Democrat Councillor Rev Alan Taylor backed the school at the planning panel while two New Labour Councillors -- Elizabeth Nash and Mick Coulson -- abstained. They said that as substitutes they did not fully understand the issues. This is despite the detailed coverage both in the Yorkshire Evening Post and in their committee papers.

Pay news

In the last 12 months directors' pay rose 37%. The chief executives' pay in the top companies now averages £2.9 million. This is about 100 times more than their staff. This is on top of the bonuses paid out to City of London speculators and spivs. Over 1000 of these managed get hold of over one million pounds each. Much of this manages to escape the income tax the rest of us pay.

Brown is quite happy with these millionaires. They after all are now subsidising New Labour and he in turn is helping them. It is the rest of us who have to keep our wages low to prevent inflation. The gap between the rich and the poor continues to grow.

The General Election

Brown will go for a General Election when he thinks can win. The present speculation is a way of testing things out and is being carefully organised by his close allies.

Brown is probing the Tories' response ... and getting some surprising answers. The Daily Telegraph has come close to backing Brown against Cameron. It quoted senior Tories as saying they are sunk if they go for an early election. The Tories' main response seems to be: we have poured money into the marginal seats and it will have an effect. This combined with the drop in the number of seats could deprive Brown of an overall majority, they hope.

The SNP have made a good start in Scotland and this could be reflected in New Labour losses North of the Border.

These all have to calculated by Brown before he goes for an election.

Brown has also used the speculation to raise money from his millionaire friends and to further destroy the influence of the trade unions. All the unions on New Labour's National Executive voted (with the exception of UNISON, which abstained) to stop contemporary resolutions going through the annual conference.