Another credit crunch looms

The threads holding up the balance sheets of the banks are growing perilously thin.

The finance sector is signalling alarm, and our politicians are once again asleep at the wheel. Another "credit crunch" may be looming. The most significant evidence emerged from the ECB's second Long Term Refinancing Operation (LTRO) on Thursday last week.

The LTRO is simply language intended to disguise the "printing of money" by the ECB for lending to private European banks at a very low rate of interest - 1 per cent. (In fact, the money is not even printed: it is created by entering digits into an ECB computer, and then transferring hundreds of billions of euros as 'bank money' to private banks.)

The fact that British banks rushed to drink from this punch bowl, tells you something about the state of their balance sheets.

For reasons that I suspect are largely ideological, the British government and HM Opposition refuse to face the reality that our private banking system and large parts of the corporate and household sectors are effectively bankrupt. Given this context - and the grave threat posed by an insolvent private finance sector - the joint and somewhat myopic focus by all political parties on the public debt is surely irrational.

Many households, firms and banks in the private sector are only kept from liquidation by a) "forbearance" - bankers hanging on in the hope that e.g. defaulting mortgage debtors will eventually repay; and b) injections of 'liquidity' by publicly-backed central banks.

But the threads of forbearance and liquidity holding up the balance sheets of the private banking system are growing perilously thin.

The ECB is by law (the Lisbon Treaty) prevented from making low-cost finance directly available to sovereign governments of the Eurozone. Whereas the Bank of England has effectively financed the government's deficit by buying government bonds at very low rates of interest from private banks, Greece and Portugal cannot rely on the ECB to purchase their bonds at low rates. Instead they have to turn to private bankers/financiers - who charge much higher rates of interest. (Readers are free to speculate as to who may have had a hand in drafting the Lisbon Treaty and the ECB's mandate.)

To avert Armageddon in the global financial system last December, the ECB turned the cheap money spigot on - in the vain hope that private banks would lend on low-cost ECB loans to governments. And that they would do so at a rate of interest a little nearer to the 1 per cent the ECB had charged them.

So much for wishful thinking.

This onlending - borrowing cheap and lending dear - is called 'the carry trade', and extremely profitable it is too. Take Portuguese 10-year bonds: private banks are using their 1 per cenr ECB loans to buy these at 14 per cent - a nice, effortless little earner. The case of Greece is of course, worse: the rate of interest the 'carry trade' extracts from Greece for short-term loans is frankly, criminal. Indeed the ECB's easy, cheap money can be said to be helping bankrupt the very governments it purports to help in its roundabout way.

But I digress. Last week big banks as well as many small banks, rushed to suck on the teat of cheap central bank funding. Our very own Lloyds Bank, already largely government-owned, borrowed €13.6bn from the ECB while Barclays, which claims it never relied on public funds, borrowed €8.2bn; RBS borrowed €18bn. In total 800 European banks rushed for help from the ECB.

This is a worrying development.

But even more disturbing are signs that banks no longer lend to each other. Just as the credit crunch of August, 2007 was heralded by a freezing up of inter-bank-lending, so history appears to be repeating itself. According to the FT, banks deposited a record €777bn overnight with the ECB last week, up nearly two thirds from the previous day.

In other words, banks were borrowing from the ECB at 1 per cent and then re-depositing funds with the ECB for less - 25 per cent.

Banks could earn a great deal more in the inter-bank market - but that market scares the hell out of them. They know a lot more about their fellow bankers' solvency than our politicians do. Which is why they are parking their (our) money with a bank that cannot go bust: the taxpayer-backed ECB.

Given that our politicians are looking the other way, this should scare us too.

Ann Pettifor is director of PRIME - Policy Research in Macroeconomics.

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Meet Anne Marie Waters - the Ukip politician too extreme for Nigel Farage

In January 2016, Waters launched Pegida UK with former EDL frontman Steven Yaxley-Lennon (aka Tommy Robinson). 

There are few people in British political life who can be attacked from the left by Nigel Farage. Yet that is where Anne Marie Waters has found herself. And by the end of September she could well be the new leader of Ukip, a party almost synonymous with its beer-swilling, chain-smoking former leader.

Waters’s political journey is a curious one. She started out on the political left, but like Oswald Mosley before her, has since veered dramatically to the right. That, however, is where the similarities end. Waters is Irish, agnostic, a lesbian and a self-proclaimed feminist.

But it is her politics – rather than who she is – that have caused a stir among Ukip’s old guard. Former leader Paul Nuttall has said that her views make him “uncomfortable” while Farage has claimed Ukip is “finished” if, under her leadership, it becomes an anti-Islam party.

In her rhetoric, Waters echoes groups such as the English Defence League (EDL) and Britain First. She has called Islam “evil” and her leadership manifesto claims that the religion has turned Britain into a “fearful and censorious society”. Waters wants the banning of the burqa, the closure of all sharia councils and a temporary freeze on all immigration.

She started life in Dublin before moving to Germany in her teens to work as an au pair. Waters also lived in the Netherlands before returning to Britain to study journalism at Nottingham Trent University, graduating in 2003. She subsequently gained a second degree in law. It was then, she says, that she first learnt about Islam, which she claims treats women “like absolute dirt”. Now 39, Waters is a full-time campaigner who lives in Essex with her two dogs and her partner who is an accountant.

Waters’s first spell of serious activism was with the campaign group One Law for All, a secularist organisation fronted by the Iranian feminist and human rights activist Maryam Namazie. Waters resigned in November 2013 after four years with the organisation. According to Namazie, Waters left due to political disagreements over whether the group should collaborate with members of far-right groups.

In April 2014, Waters founded Sharia Watch UK and, in January 2016, she launched Pegida UK with former EDL frontman Steven Yaxley-Lennon (aka Tommy Robinson). The group was established as a British chapter of the German-based organisation and was set up to counter what it called the “Islamisation of our countries”. By the summer of 2016, it had petered out.

Waters twice stood unsuccessfully to become a Labour parliamentary candidate. Today, she says she could not back Labour due to its “betrayal of women” and “betrayal of the country” over Islam. After joining Ukip in 2014, she first ran for political office in the Lambeth council election, where she finished in ninth place. At the 2015 general election, Waters stood as the party’s candidate in Lewisham East, finishing third with 9.1 per cent of the vote. She was chosen to stand again in the 2016 London Assembly elections but was deselected after her role in Pegida UK became public. Waters was also prevented from standing in Lewisham East at the 2017 general election after Ukip’s then-leader Nuttall publicly intervened.

The current favourite of the 11 candidates standing to succeed Nuttall is deputy leader Peter Whittle, with Waters in second. Some had hoped the party’s top brass would ban her from standing but last week its national executive approved her campaign.

Due to an expected low turnout, the leadership contest is unpredictable. Last November, Nuttall was elected with just 9,622 votes. More than 1,000 new members reportedly joined Ukip in a two-week period earlier this year, prompting fears of far-right entryism.

Mike Hookem MEP has resigned as Ukip’s deputy whip over Waters’ candidacy, saying he would not “turn a blind eye” to extremism. By contrast, chief whip, MEP Stuart Agnew, is a supporter and has likened her to Joan of Arc. Waters is also working closely on her campaign with Jack Buckby, a former BNP activist and one of the few candidates to run against Labour in the by-election for Jo Cox’s former seat of Batley and Spen. Robinson is another backer.

Peculiarly for someone running to be the leader of a party, Waters does not appear to relish public attention. “I’m not a limelight person,” she recently told the Times. “I don’t like being phoned all the time.”

The journalist Jamie Bartlett, who was invited to the initial launch of Pegida UK in Luton in 2015, said of Waters: “She failed to remember the date of the demo. Her head lolled, her words were slurred, and she appeared to almost fall asleep while Tommy [Robinson] was speaking. After 10 minutes it all ground to an uneasy halt.”

In an age when authenticity is everything, it would be a mistake to underestimate yet another unconventional politician. But perhaps British Muslims shouldn’t panic about Anne Marie Waters just yet.

James Bloodworth is editor of Left Foot Forward

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear