Gordon Brown’s bailout for the banks reflects a growing sense of panic among the ruling class as the economic crisis deepens.
And no wonder they are panicked – as all the signs are that the crisis looks set to get much, much worse.
More banks are facing fresh troubles as both the scale of their losses is revealed and they continue to grow.
The US government was forced to step in to bail out Bank of America last week. Shares plunged after unexpected losses emerged for Merrill Lynch, which Bank of America took over last September.
The share price of Barclays bank dropped 25 percent last Friday.
Meanwhile more than $700 billion in corporate loans are due to be repaid in the US this year.
There is a serious prospect that some companies will not be able to repay them – and that major US companies will join the string of banks that have already gone bust.
Gordon Brown’s measures focus on trying to deal with the crisis in the banks by giving them more money or trying to guarantee their lending against losses.
But there is a wider, more fundamental problem that these measures will not address.
The ultimate cause of the crisis is not the failure of banks to lend money – it is a long-term crisis of profitability and a drive to overproduction. No amount of increases in bank lending will address this.
Oiling the wheels of bank lending may in theory make it easier for businesses to get access to credit and so increase investment.
But it doesn’t mean that they will – especially if they don’t think that it will be profitable.
A critical question is whether banks and businesses have the confidence to lend and invest. Brown’s latest plan was meant to reassure capital.
But it failed – financial shares plummeted on the day he announced it.
Even during the “boom” large sections of business could not be convinced to invest.
As the Los Angeles Times newspaper pointed out this week, “One of the few options for recovery remaining is business investment.
“But investment, especially in high technology, was barely growing even during the boom years of this decade.
“With the coming of the crisis, it has plunged.”
At the start of this week the Ernst & Young Item Club of economists predicted that business investment in Britain would fall by nearly 17 percent this year, and that the country would suffer its biggest annual economic contraction since 1931.
Lack of investment means more companies closing down. The impact on ordinary workers – in terms of jobs, pensions and services – will be devastating.
The Centre for Economic and Business Research (CEBR) has warned that in Scotland unemployment may increase by as much as 88 percent over the next 12 months.
And hopes that the Chinese economy would ride to the rescue seem to have faded.
Last week Albert Edwards of the French bank Societe Generale issued a weekly briefing that warned, “It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change.”
Whether such predictions come true or not, there can be no doubt that there is a growing fear gripping the global ruling class.
That is creating ideological confusion at the very top – which has an impact at the base of society as well.
Two Labour ministers, Ed Miliband and James Purnell, have likened Brown’s attempt to rescue the economy to the “ideological watershed” that accompanied the 1979 Winter of Discontent and ushered in three decades of free market dominance.
In plain speak they are saying that those days are over and there has been a return to state intervention.
But ministers have also voiced nervousness that working people will not understand why they are handing over a second bailout worth billions to the banks while they stand by and watch job losses mount.
They are right to be nervous. All those threatened with unemployment, the loss of pensions or repossession may well demand that the government bails them out rather than the bankers.