A Bitchslap for Democracy From the City of London

May 11, 2010

Yep, it’s official – the City of London has decided that the Liberal Democrats and the Conservatives will be forming our next government. Breaking days of deadlocked talks, threats emanating from the Square Mile have spooked New Labour apparatchiks into declaring their effort to form a “rainbow coalition” over (though Ed Milliband seems to think that this state of affairs is “temporary”).

Just take a look at a couple of headlines. Firstly, in the Guardian: “UK credit rating set for downgrade under Lib-Lab deal, City analysts warn.”

This morning, the city behemoth BNP Paribas released a sharp piece of analysis which set out to scupper any negotiations between Labour and the Liberals. Simply stating that “We believe that a downgrade under a Lab/Lib government is more than likely since both parties agree that early expenditure cuts could harm the economy” was enough to induce shivering and moans from what’s left of New Labour.

BNP’s propaganda unit was matched by Miles Templeman of the Institute of Directors, who attacked those seeking electoral reform, arguing generously that “Political reform is an issue” but “for this subject to overshadow the urgent necessity of creating a government that can deliver deficit reduction, demonstrates a lack of statesmanship from some of our politicians that is unacceptable under the economic circumstances.”

A real bitchslap for democracy.

And the next headline, today, the BBC: “Hung parliament: Labour ‘know Lib Dem talks over’.”

The markets have spoken, and New Labour have drawn straws to explain to the people why they have suddenly soured on talks with the Lib Dems. Andy Burnham got a short one, telling the BBC that “we can’t get away from the fact that Labour didn’t win.” As did Lord Falconer of Thoroton, who has somehow just realised that the Lib Dems could do a deal with the Tories, a prospect which yesterday (when Falconer and co. began negotiating with Clegg behind the Tories’ backs) seemed ever so distant.

But what has accelerated the difficult negotiation process so rapidly?

If you read between the lines of the press coverage, it is plain that the political process has been heavily influenced by the City and the “money markets.” Well, perhaps you don’t even have to read between the lines.

For example, Ed Milliband, touted by the Guardian as a dark horse for the Labour leadership, announced that talks with the Lib Dems were “temporarily” over. In an article entitled “Pound climbs on reports Labour-Lib Dem talks are overthe Telegraph then gleefully reported Marc Ostwald (“a fixed-income strategist at Monument Securities Ltd”) who opined that “In this situation the best option is a Conservative-Liberal Democrat coalition and that’s what we’re going to get.”

This followed yesterday’s Telegraph piece, unsurprisingly entitled “Pound under pressure as UK faces political vacuum” which quoted one Jeremy Stretch from Rabobank, who then thought that “All bets are off, it looks like it (forming a government) is going to take longer than thought and that puts back deficit cutting.”

Assuming the usual cajoling style of financial “analysts” – who are making a living out of scaring us into believing that a fiscal apocalypse is moments away – Stretch suggested that “UK politicians have been lucky in that the markets’ attention has been on Europe.” In such a parlous situation, he argued, “The Rainbow coalition would be least able to withstand the deficit reduction and longevity tests.”

The campaign against anything smacking of “progressive” politics is quite open. Add Jim Leaviss from M&G Investments to the pile of junior-Goebels, who told the press that “The one thing the market does not want is a pact between Labour and the Liberal Democrats.” And, naturally, add the estimable Richard Lambert, head of the Confederation of British Industry, who told a congregation at Chatham House this week that failure to act now on the deficit will result in financial markets “running out of control” – and that a second election would be financial suicide for the UK.

Against this hyperbole, we have to set fact, or reality-based journalism which avoids the all too easy reliance on so-called analysts from city players. After years of such men (they are always men) dispensing snake oil advice dressed up as gnarled economic wisdom, we need to be a little bit sceptical of their charms.

So where can we turn for some reason, some calm? Well, as Guardian business journalist Dan Roberts writes, ironically enough (given turmoil over Greek debt) we could look at the bond markets. At 10.30 today, the UK government tried to sell £2.25 billion of debt, maturing in 2027. Surely getting rid of such toxic sludge would be a nightmare for a politically deranged, rudderless ponzi scheme like us? Not a bit of it. As Roberts reported at 10.50 after the sale had gone through:

An important vote of confidence from the bond markets – or at least, no sign of a vote of no confidence. The auction was 2.47 times oversubscribed, which is better than these auctions were achieving before the election….The government is paying an interest rate, or yield, of around 4.47%, which is also less than it paid in August (4.53%), another positive sign.

But wait a minute. Earlier, when a “progressive” coalition seemed possible, weren’t financial analysts queuing up to suggest that the deficit is going to decimate government finances and merrily lead us into default-land? Financial markets don’t seem to think so.

Could it be that analysts could more accurately be described as “propagandists” – and that their interests are less involved with setting HMS UK back on a sustainable economic path, than in racking up the offshore bank accounts of their multinational clients?

Evidently not all financial institutions are fundamentally opposed to national debt. After all, government bonds provide a relatively secure option for hedging portfolios. But for some, they are more pernicious. It’s not the risk of default which exercises them. Governments are much more reliable debtors than companies and individuals, as they can print money, raise taxes or implement policies to encourage economic development which can realise the money needed to pay debts back. And in extreme cases, they can erect fascist states to force citizens to pay off national commitments. And they will.

But the problem here is that by taking on larger amounts of public debt to pay their way through the financial crisis, governments have stepped on the toes of private investors, who have been subject to “crowding out.” As public ledgers have taken on more debt, so finance has become less readily available to speculators – you know, the kind that invented synthetic collateralised debt obligations and whizz around the electronic marketplace shorting perfectly good companies…because they can. Or could, while the money was flowing.

For these guys, cutting back public debt is essential to free money for the private sector, which is usually framed as liberating cash for “investment” – but with out hideously bloated financial system, that’s a clusmy cypher for speculation. Don’t kid me that “Monument Securities” are going to be investing in factories in Rotherham making eco-friendly kiddy toys. No, they’ll be shafting householders in Louisiana or sending wheat futures rocketing, and people in Malawi begging for food.

So they really seem to hate public debt. And the press tag along, more or less, either through cupidity (personal financial stakes held by newspaper owners, ahem) or stupidity. And we are fed this really rather thuggish intimidatory rhetoric which is designed to defuse any progressive challenges to the status quo.

And now we’ve seen the pathetically touted “rainbow coalition” blown to smithereens like a political Belgrano by the financial markets. Instead of a “coalition of the defeated,” we’re getting a “coalition of the defeated, and the people who got most seats but couldn’t get enough to form a real government.” A coalition of the slightly less defeated, perhaps.

I expect that this motley crew will now bunker down to gut as much of the public sector as they can, while putting any sort of electoral reform on the backburner and making the Lib Dems into their political gimps, begging for mercy – school vouchers, anything.

And now, as before, and until the financial oligarchy is given a massive democratic knee in the groin, we are all part of the nation of the defeated. So get back to your constituencies and prepare for dismemberment.

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